FORM 11-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from:_________ to ____________
Commission file number: 1-13754
THE ALLMERICA FINANCIAL
AGENTS' RETIREMENT PLAN
(Full title of the plan)
ALLMERICA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3263626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
440 Lincoln Street, Worcester, Massachusetts 01653
(Address of principal executive offices)
(Zip Code)
(508) 855-1000
(Registrant's telephone number, including area code)
_________________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report)
The Allmerica Financial
Agents' Retirement Plan
Financial Statements
and Additional Information
December 31, 2002 and 2001
The Allmerica Financial Agents' Retirement Plan
December 31, 2002 and 2001
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Report of Independent Accountants......................................... 1
Statements of Net Assets Available for Benefits........................... 2
Statements of Changes in Net Assets Available for Benefits................ 3
Notes to Financial Statements............................................. 4
Additional Information*
Schedule H, line 4i - Schedule of Assets (Held At End of Year)............ 10
* Other schedules required by the Department of Labor Rules and Regulations on
reporting and disclosure under the Employee Retirement Income Security Act of
1974, as amended, have been omitted because they are not applicable.
Report of Independent Accountants
To the Participants and Administrator of
The Allmerica Financial Agents' Retirement Plan:
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of The Allmerica Financial Agents' Retirement Plan (the "Plan") at December 31,
2002 and 2001, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Plan's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes at end of year is presented for the purpose of
additional analysis and is not a required part of the basic financial statements
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
June 25, 2003
The Allmerica Financial Agents' Retirement Plan
Statements of Net Assets Available for Benefits
At December 31,
--------------------------------------------------------------------------------
2002 2001
---------------- -------------
Assets
Investments, at fair value:
Non-Affiliated Mutual Funds:
Fidelity Advisor Equity Income Fund $ 15,058,786* $ 19,376,191
SSgA S&P 500 Index Fund 9,335,946* 13,452,705
Dreyfus Cash Management Plus Fund 7,635,641* 3,417,585
Dreyfus Premier Core Bond Fund 5,604,367* 5,604,057
Putnam Vista Fund 5,243,759* 8,779,815
Berger International Core Fund 5,184,238* 7,012,399
Alliance Bernstein Premier Growth
Institutional Fund 4,463,315* 7,341,007
CRM Small Cap Value Fund 4,223,438* 5,056,647
TCW Galileo Small Cap Growth Fund 1,177,917 1,301,274
MFS High-Income Fund 390,149 210,472
---------------- -------------
58,317,556 71,552,152
Allmerica Financial Corporation
Stock Fund, at fair value 3,072,781 9,671,994
Investment with First Allmerica Financial Life
Insurance Company, at contract value:
Fixed Fund 6,905,989* 7,508,611
Participant loans 2,606,097 3,338,356
Other assets 160,842 243,996
---------------- -------------
71,063,265 92,315,109
---------------- -------------
Employer's contribution receivable 1,055,472 3,206,675
Participants' contribution receivable - 167,827
---------------- -------------
1,055,472 3,374,502
---------------- -------------
Net assets available for benefits $ 72,118,737 $ 95,689,611
================ =============
* Amount represents five percent or more of net assets available for benefits
at December 31, 2002
The accompanying notes are an integral part of these financial statements
2
The Allmerica Financial Agents' Retirement Plan
Statements of Changes in Net Assets Available for Benefits
For the Years Ended December 31,
--------------------------------------------------------------------------------
2002 2001
---------------- -------------
Investment loss:
Net depreciation of:
Non-affiliated mutual funds $(14,907,004) $ (7,881,571)
Separate investment accounts - (4,840,116)
Allmerica Financial Corporation
Stock Fund (8,265,695) (5,277,344)
Interest and dividend income 1,391,877 1,651,823
Other loss (83,154) (34,859)
---------------- -------------
(21,863,976) (16,382,067)
---------------- -------------
Contributions:
Employer contributions 1,129,821 3,259,614
Participant contributions 3,084,337 3,305,432
Reallocated forfeitures (215,298) (52,940)
---------------- -------------
3,998,860 6,512,106
---------------- -------------
Total investment loss and contributions (17,865,116) (9,869,961)
---------------- -------------
Benefit payments (5,908,674) (4,503,053)
---------------- -------------
Net decrease during year (23,773,790) (14,373,014)
Transfers into Plan 202,916 -
Net assets available for benefits,
beginning of year 95,689,611 110,062,625
---------------- -------------
Net assets available for benefits,
end of year $ 72,118,737 $ 95,689,611
================ =============
The accompanying notes are an integral part of these financial statements.
3
The Allmerica Financial Agents' Retirement Plan
Notes to Financial Statements
--------------------------------------------------------------------------------
NOTE 1 - Description of plan
The following description of The Allmerica Financial Agents' Retirement Plan
(the "Plan") is provided for general informational purposes only. More complete
information is provided in the Summary Plan Description, which is available from
the Plan Administrator.
General
The Plan is a defined contribution plan for certain employees and insurance
agents of First Allmerica Financial Life Insurance Company ("FAFLIC", "the
Sponsor" or "the Company") and Allmerica Financial Life Insurance and Annuity
Company ("AFLIAC"). FAFLIC and AFLIAC are wholly-owned subsidiaries of Allmerica
Financial Corporation ("AFC").
The Plan is administered by the Sponsor ("the Plan Administrator") and is
subject to the provisions of the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). In June 2001, the Board of Directors of AFC
appointed State Street Bank and Trust Company the Trustee of the Plan and of the
AFC Stock Fund. The Sponsor holds these assets invested in its Fixed Fund.
The Plan's recordkeeper is Hewitt Associates LLC.
During 2002, the Sponsor adopted a restructuring plan related to its life
insurance and annuity business. As a result of this initiative, all agent
contracts were terminated as of December 31, 2002, which resulted in a partial
termination of the Plan (see Note 4 - Plan partial termination).
Eligibility
Prior to the close of business on December 31, 2002, any eligible insurance
agent was permitted to participate in the Plan on the first day of employment
with the Company, as defined by the Plan document. Subsequent to that date, the
Company no longer employed any eligible insurance agents (see Note 4 - Plan
partial termination).
Employer contributions
Effective January 1, 2002, for each Plan year, the employer contributed a
minimum contribution of 0.5% of the total eligible compensation paid all
eligible participants during the year comprised of up to 2% as a 401(k) employer
contribution, with the remainder comprised of an employer profit sharing
contribution. Prior to January 1, 2002, the minimum contribution was 7% of the
total eligible compensation paid all eligible participants. Participants were
eligible to receive this contribution once they completed one year of service
from the first of the quarter following their date of hire, and provided they
were employed on December 31st. Based on AFC's before-tax profits and the
discretion of the Sponsor's Board of Directors, the Sponsor may have contributed
more than the 0.5% contribution, subject to the established limitations under
ERISA. Employer contributions are allocated to the same investment vehicles as
the participant contributions. For the Plan years ended December 31, 2002 and
4
NOTE 1 - Description of plan (continued)
2001, the Board elected to provide for a 3% contribution and a 7% contribution,
respectively. The 2002 contribution was made to the Plan in March 2003,
while the 2001 contribution was made in March 2002.
Reallocated forfeitures
Forfeitures of employer contributions related to nonvested terminated
participants have been transferred to the Dreyfus Cash Management Plus Fund in
2002 and 2001. Balances forfeited prior to 2001 remain in this fund until such
time that the Plan Administrator reallocates them to the remaining eligible
participants of the Plan. Beginning in 2001, the Board of Directors authorized
the Plan to use forfeitures to reduce employer contributions. Forfeitures in
the amount of $215,298 and $52,940 were used to reduce employer contributions in
2002 and 2001, respectively. Forfeited amounts are allocated to the Plan's
investment vehicles based upon the investment elections of each eligible
participant.
Participant accounts
Active participants in the Plan were eligible to make 401(k) contributions
through the use of a salary reduction plan up to a maximum of $11,000 and
$10,500 for 2002 and 2001, respectively.
As a result of the Tax Relief Reconciliation Act of 2001, a "Catch-up
Contribution" provision was established to allow employees, who reach at least
50 years of age during 2002, to accelerate the amount they defer up to a maximum
of $12,000. The $1,000 amount deferred in excess of the annual limit is not
eligible to receive a company match. This provision was effective January 1,
2002. During 2002, 24 employees accelerated their deferrals resulting in
additional contributions of $23,589.
Beginning June 12, 2001, participants were no longer able to direct their
contributions to or maintain balances in the separate investment accounts of the
Sponsor. These investment options were replaced with non-affiliated mutual
funds. As directed by participant election, contributions can be invested in the
Fixed Fund, the non-affiliated mutual funds, or the Allmerica Financial
Corporation Stock Fund. All investment income is reinvested in the same
investment vehicle and is credited to the respective participant account.
Participant loans
Loans made to participants are secured by the vested portion of the
participant's account up to the limit as defined in the Plan document. Loans
vary in duration, depending upon purpose, and are at an interest rate determined
by the Plan Administrator. A participant is limited to a maximum of two loans
outstanding at any one time from all plans of the Company combined. Loan fees
are not charged to participants. Interest income on participant loans totaled
$254,966 and $270,557 in 2002 and 2001, respectively. Effective January 1, 2003,
no new loans can be initiated by participants.
5
NOTE 1 - Description of plan (continued)
Distributions and vesting provisions
At December 31, 2002, all employer contributions for active participants became
100% vested, pursuant to the Plan's partial termination (see Note 4 - Plan
partial termination).
Prior to the Plan's partial termination, vested account balances became payable
upon retirement, death, or separation from service (including disability) as
defined in the Plan document.
A participant's profit sharing account balance became 100% vested upon his or
her death or becoming totally and permanently disabled or upon attaining normal
retirement age (age 65). In addition, a participant's profit sharing account
balance became 100% vested upon the Sponsor's discontinuance of contributions
or upon termination of the Plan. Also, a participant's 401(k) account balance,
including the employer 401(k) contribution allocated to this account, rollover
account, after-tax voluntary contribution account and tax deductible voluntary
contribution account are 100% vested.
The employer contributions other than the employer 401(k) amount previously
became 100% vested after completion of five years of service.
The amounts vested at December 31, 2002 and 2001 were $70,810,360 and
$89,501,468, respectively. Unvested amounts relate to forfeited employer
contributions of terminated participants who generally have withdrawn their
funds from the Plan and whose forfeited balances were not used to offset
employer contributions.
Payments from the fund are subject to limitations and requirements specified in
the Plan document.
NOTE 2 - Significant accounting policies
Significant accounting and reporting policies followed by the Plan are
summarized as follows:
Basis of presentation
The accompanying financial statements have been presented on the accrual basis
of accounting, in accordance with generally accepted accounting principles.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
6
NOTE 2 - Significant accounting policies (continued)
Valuation of investments
The Fixed Fund is held in the Sponsor's general account and provides for
guaranteed rates of interest reset annually. The credited interest rates were
3.36% and 5.84% for monies invested during 2002 and 2001, respectively. The
average rate of return for the Fixed Fund for the years ended December 31, 2002
and 2001 were 5.41% and 5.64%, respectively.
The investment contracts held by the Fixed Fund of the Plan are fully
benefit-responsive and are therefore exempt from fair value accounting for
certain contracts under the provisions of Statement of Position 94-4, Reporting
Investment Contracts Held by Health and Welfare Benefit Plans and Defined
Contribution Plans. As such, these investments are recorded at contract
value, which approximates fair value at December 31, 2002 and 2001.
Investments in non-affiliated mutual funds are priced using the end of day
fair market value of the underlying funds as recorded by State Street Bank
and Trust Company. Investment options prior to June 12, 2001 were in the
separate investment accounts for qualified corporate retirement programs
administered by the Sponsor (see Note 1 - Participant accounts). The
investment returns of the non-affiliated mutual funds and the separate
investment accounts of the Sponsor were as follows:
Period from
Year Ended July 1, 2001 to
Non-Affiliated Mutual Funds December 31, 2002 December 31, 2001
--------------------------- ----------------- -----------------
Fidelity Advisor Equity Income Fund (15.20)% (3.45)%
Dreyfus Cash Management Plus Fund 1.59 % 1.44 %
Dreyfus Premier Core Bond Fund 5.88 % 0.52 %
SSgA S&P 500 Index Fund (22.34)% (6.60)%
Putnam Vista Fund (30.67)% (13.86)%
CRM Small Cap Value Fund (17.83)% 3.44 %
Berger International Core Fund (19.56)% (9.31)%
Alliance Bernstein Premier Growth
Institutional Fund (30.81)% (10.94)%
TCW Galileo Small Cap Growth Fund (47.50)% (21.32)%
MFS High-Income Fund 0.76 % 0.31 %
Period from
Year Ended January 1, 2001
Separate Investment Accounts December 31, 2002 to June 30, 2001
--------------------------- ----------------- -----------------
Growth Stock Fund n/a (8.97)%
Indexed Stock Fund n/a (7.21)%
Select Aggressive Growth Fund n/a (12.36)%
Select International Equity Fund n/a (14.23)%
Select Growth Fund n/a (14.84)%
Balanced Fund n/a (0.88)%
Select Capital Appreciation Fund n/a (0.35)%
Money Market Fund n/a 3.29 %
Diversified Bond Fund n/a 3.41 %
Government Securities Fund n/a 3.32 %
7
NOTE 2 - Significant accounting policies (continued)
Due to participant-directed investment activity, actual investment returns
experienced by the participants in the Plan may differ from those displayed in
the above Fund returns.
The AFC Stock Fund ("the Fund") is a collective trust established by Allmerica
Trust Company, N.A. (a wholly-owned subsidiary of AFC). The Fund is stated at
fair value as determined by quoted market prices of both AFC common stock and
cash equivalents held in the Fund. Beginning June 12, 2001, State Street Bank
and Trust Company became the Trustee of the Fund. The average investment return
for 2002 and 2001 was (75.34)% and (37.46)%, respectively.
Purchases and sales of securities are accounted for as of the trade date.
Other assets
Other assets represent the value of individual annuities purchased from the
Sponsor and the annual interest earned plus the cash surrender value of life
insurance contracts held within the Plan.
In addition, the Plan is a policyholder of a non-participating group annuity
contract issued by FAFLIC, formerly State Mutual Life Assurance Company of
America ("State Mutual"). As such, in 1995, the Plan received the de minimis
amount of consideration in State Mutual's demutalization in the form of stock in
AFC, the new publicly-traded holding company of FAFLIC. The Plan received 28
shares of AFC stock with a per share value of $21 and a total value of $588.
This award is not allocated to individual participants of the Plan. These shares
have been included in "Other assets" in the Statement of Net Assets Available
for Benefits at December 31, 2002 and 2001.
Administrative expenses
Hewitt Associates LLC maintains agreements with certain non-affiliated mutual
funds and for such agreements receives a portion of certain asset-based fees
(12b-1 fees)charged by the fund. These fees are calculated based on the average
daily asset value of Plan assets in each respective fund. These fees are used to
reduce charges by Hewitt Associates LLC to the Sponsor for certain
administrative and professional services.
Beginning June 12, 2001, State Street Bank and Trust Company began providing
certain trustee services for the Plan. These fees are voluntarily assumed
and paid directly by the Sponsor. The Sponsor pays all other expenses
incurred in the administration of the plan.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
8
NOTE 3 - Federal income taxes
The Internal Revenue Service has determined and informed the Sponsor by a letter
dated July 10, 2002, that the Plan is qualified and the trust established under
the Plan is tax exempt under the appropriate sections of the Internal Revenue
Code. Therefore, no provision for income tax is required.
NOTE 4 - Plan partial termination
The Plan provides that in the event the Plan is wholly or partially terminated,
or upon the complete discontinuance of contributions under the Plan by the
Sponsor, each affected participant's interest in the Plan's assets as of the
termination date shall become 100% vested and nonforfeitable. As such, in
accordance with Plan provisions, the Sponsor has vested all affected agents
100% as of December 31, 2002, including previously terminated agents whose
non-vested account balances had not been forfeited by December 31, 2002.
In addition, upon termination of the Plan, the assets become either payable to
the participant or applied to purchase a nonforfeitable retirement annuity at
the participant's option.
As a result of the termination of all agent contracts, there will be no future
agent or Sponsor contributions to the Plan. For the agents' current balances,
each agent has the option to roll over their funds to another qualified plan or
individual retirement account, receive a distribution, or remain in the Plan
until such time that the Plan is fully terminated. For those accounts that
remain in the Plan, each agent has the ability to continue to monitor and direct
their funds, in accordance with Plan provisions.
NOTE 5 - Subsequent events
Effective January 1, 2003, certain agents became employees of the Company. The
AFC Board of Directors approved eligibility for immediate participation in the
Employees' 401(k) Matched Savings Plan for these former agents.
During the first five months of 2003, the Plan has made disbursements of
approximately $33 million, resulting from the aforementioned termination of
agent contracts.
NOTE 6 - Other matters
During 2002, certain employees became agents of the compnay. This resulted in
the transfer of $202,916 from The Allmerica Financial Employees' 401(k) Matched
Savings Plan to the Plan.
9
The Allmerica Financial Agents' Retirement Plan
Form 5500, Schedule H, Line 4i
Schedule of Assets (Held at End of Year)
At December 31, 2002
--------------------------------------------------------------------------------
Identity of Description of Shares or
Issue Investments Units Current Value
Investment with First
Allmerica Financial
Life Insurance Company**:
Fixed Fund Interest rates from 3.36% to $ 6,905,989*
5.90%
Investments with Non-Affiliated
Mutual Funds:
Fidelity Advisor Equity Diversified portfolio of mid-to 734,575 15,058,786*
Income Fund large-cap value companies.
SSgA S&P 500 Common stocks which comprise S&P 643,415 9,335,946*
Index Fund 500 Composite Stock Index.
Dreyfus Cash Management Short-term money market fund 611,954 7,635,641*
Plus Fund that invests primarily in
high-quality domestic and
foreign U.S. Dollar denominated
money market instruments.
Dreyfus Premier Core Bond Broad-based, intermediate-term 529,749 5,604,367*
Fund bond fund designed to offer
diversified exposure to the
domestic fixed-income market.
Putnam Vista Fund Growth oriented, mid-cap fund 875,419 5,243,759*
with domestic focus.
Berger International Core Portfolio of value oriented, 628,392 5,184,238*
Fund foreign mid- and large-cap
multinational companies
(sub-advised by Bank of Ireland
Asset Management)
Alliance Bernstein Premier Large-cap growth fund investing 609,742 4,463,315*
Growth Institutional Fund in companies with above average
earnings growth.
CRM Small Cap Value Fund Small-cap fund focused on long 257,056 4,223,438*
term capital appreciation by
investing in value oriented
securities.
10
The Allmerica Financial Agents' Retirement Plan
Form 5500, Schedule H, Line 4i (continued)
Schedule of Assets (Held at End of Year)
At December 31, 2002
---------------------------------
Identity of Description of Shares or
Issue Investments Units Current Value
Investments with Non-Affiliated
Mutual Funds (continued):
TCW Galileo Small Small- to mid-cap aggressive 119,464 1,177,917
Cap Growth Fund growth fund
MFS High-Income Fund Portfolio that seeks high 39,754 390,149
current income by investing in
higher yielding, lower rated
debt of financially weaker
companies
Allmerica Financial Common stock traded on the New 273,590 3,072,781
Corporation Stock Fund** York Stock Exchange and cash
equivalents
Participant loans Interest rates from 5.75% to 2,606,097
10.50%
Other assets Individual annuities and life 160,842
insurance purchased from the
First Allmerica Financial Life
Insurance Company and 28
shares of non-participant
directed AFC common stock**
-----------
Total investments $71,063,265
===========
* Amount represents five percent or more of net assets available for benefits.
** Represents party-in-interest
11
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
THE ALLMERICA FINANCIAL
AGENTS' RETIREMENT PLAN
-----------------------
(Name of Plan)
----------------------------------------------
Plan Administrator: First Allmerica Financial
Life Insurance Company by Barbara Z. Rieck
Manager of Retirement Services
June 25, 2003
12
Exhibit Index
Exhibit 23.1 Consent of Independent Accountants
Exhibit 99.1 Certification of Bruce C. Anderson in the capacity of
Chief Executive Officer
Exhibit 99.2 Certification of Warren E. Barnes in the capacity of
Chief Financial Officer
13