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, 2003
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, 2003 and 2002
The Allmerica Financial Agents' Retirement Plan
December 31, 2003 and 2002
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm................... 1
Statements of Net Assets Available for Benefits........................... 2
Statements of Changes in Net Assets Available for Benefits................ 3
Notes to Financial Statements............................................. 4-9
Additional Information*
Schedule H, line 4i - Schedule of Assets (Held At End of Year)............10-11
* 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 Registered Public Accounting Firm
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 statement 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,
2003 and 2002, 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 the standards of the Public Company Accounting
Oversight Board (United States). Those standards 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
at end of year) as of December 31, 2003 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. The 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.
As described in Note 6 to the financial statements, on June 22, 2004, the Board
of Directors of First Allmerica Financial Life Insurance Company, the Sponsor of
the Plan, voted to terminate the Plan.
Boston, MA
June 23, 2004
The Allmerica Financial Agents'Retirement Plan
Statements of Net Assets Available for Benefits
At December 31,
--------------------------------------------------------------------------------
2003 2002
------ ------
Assets
Investments, at fair value:
Non-affiliated mutual funds:
Fidelity Advisor Equity Income Fund $ 7,490,730 * $ 15,058,786
Dreyfus Cash Management Plus Fund 5,905,727 * 7,635,641
SSgA S&P 500 Index Fund 4,311,296 * 9,335,946
Putnam Vista Fund 2,124,769 * 5,243,759
Dreyfus Premier Core Bond Fund 2,101,767 * 5,604,367
CRM Small Cap Value Fund 1,775,030 * 4,223,438
Alliance Bernstein Premier Growth
Institutional Fund 1,770,177 * 4,463,315
TCW Galileo Small Cap Growth Fund 765,737 1,177,917
MFS High-Income Fund 261,488 390,149
Berger International Core Fund - 5,184,238
----------- -----------
26,506,721 58,317,556
Allmerica Financial Corporation
Stock Fund, at fair value:
Allmerica Financial
Corporation Stock 1,857,274 2,926,352
Cash and equivalents 82,439 146,429
----------- -----------
1,939,713 * 3,072,781
Investment with First Allmerica Financial Life
Insurance Company, at contract value:
Fixed Fund 3,607,260 * 6,905,989
Participant loans 182,815 2,606,097
Other assets - 160,842
----------- -----------
32,236,509 71,063,265
----------- -----------
Other receivables 127,996 1,055,472
----------- -----------
Net assets available for benefits $ 32,364,505 $ 72,118,737
=========== ===========
*Amount represents five percent or more of net assets available for benefits at
December 31, 2003.
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,
-------------------------------------------------------------------------
2003 2002
------ ------
Investment income (loss):
Net appreciation (depreciation) of:
Non-affiliated mutual funds $ 5,135,030 $(14,907,004)
Allmerica Financial Corporation
Stock Fund 3,106,412 (8,265,695)
Interest and dividend income 471,004 1,391,877
Other gain (loss) 148,771 (83,154)
------------ ------------
8,861,217 (21,863,976)
------------ ------------
Contributions:
Employer contributions - 914,523
Participant contributions - 3,084,337
------------ ------------
- 3,998,860
------------ ------------
Total investment gain (loss)
and contributions 8,861,217 (17,865,116)
------------ ------------
Benefit payments (48,615,449) (5,908,674)
------------ ------------
Net decrease during year (39,754,232) (23,773,790)
Transfers into Plan - 202,916
Net assets available for benefits,
beginning of year 72,118,737 95,689,611
------------ ------------
Net assets available for benefits,
end of year $ 32,364,505 $ 72,118,737
============ ============
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 common-law 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"). The Plan's recordkeeper is Hewitt Associates LLC.
State Street Bank and Trust Company is the Trustee of the Plan and of the AFC
Stock Fund. The Sponsor holds those assets invested in its Fixed Fund.
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).
On October 13, 2003, the Board of Directors of First Allmerica Financial Life
Insurance Company voted to change its recordkeeper from Hewitt Associates LLC to
Fidelity Management Trust Company, effective January 1, 2004. Additionally, the
Board of Directors voted to appoint Fidelity Management Trust Company Trustee of
the Plan, effective January 1, 2004. The Fixed Fund was liquidated at fair value
effective January 1, 2004 upon the appointment of Fidelity Management Trust
Company as the recordkeeper and Trustee. These funds were reinvested in other
investment vehicles offered by the Plan.
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
For the 2002 Plan year, the plan allowed the employer to contribute 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
4
NOTE 1 - Description of plan (continued)
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 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 were allocated to
the same investment vehicles as the participant contributions. For the Plan year
ended December 31, 2002, the Board elected to provide for a 3% contribution.
This contribution was made to the Plan in March 2003. No contribution was made
for the 2003 Plan year pursuant to the aforementioned provisions as a result of
the Plan's partial termination (see Note 4 - Plan partial termination).
Reallocated forfeitures
Forfeitures of employer contributions related to nonvested terminated
participants have been transferred to the Dreyfus Cash Management Plus Fund in
2003 and 2002. Balances forfeited prior to 2002 remain in this fund until such
time that the Plan Administrator reallocates them to the remaining eligible
participants of the Plan. At December 31, 2003 unallocated forfeitures of
$1,181,832 were available for reallocation to the remaining eligible
participants. In accordance with rules and procedures that have been approved by
the IRS, these funds were reallocated in 2004. Beginning in 2001, the Board of
Directors authorized the Plan to use forfeitures to reduce employer
contributions. Forfeitures in the amount of $215,298 were used to reduce
employer contributions in 2002. Forfeited amounts are allocated to the Plan's
investment vehicles based upon the investment elections of each eligible
participant. The other receivables represent interest attributed to prior year
forfeited balances and reinstatement of forfeited balances.
Participant accounts
Due to the partial termination of the Plan (see Note 4 - Plan partial
termination), participants in the Plan were not eligible to make 401(k)
contributions during 2003. 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 for 2002.
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 the year, to accelerate the amount they defer up to a
maximum of $12,000 for 2002. The 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.
As directed by participant election, contributions are 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.
5
NOTE 1 - Description of plan (continued)
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
$50,141 and $254,966 in 2003 and 2002, respectively. Effective January 1, 2003,
no new loans could be initiated by participants.
Distributions and vesting provisions
At December 31, 2002, all employer contributions for 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
were payable in the event of retirement, death, or separation from service
(including disability) as defined in the Plan document. After the Plan's partial
termination, account balances are payable at the request of the participant.
Distributions to participants are payable either through a lump sum payment or
through periodic payments. If a lump sum distribution is elected, the
participant has the option of taking the AFC Stock Fund in-kind.
The amounts vested at December 31, 2003 and 2002 were $32,364,505 and
$70,810,360, respectively. Unvested amounts in 2002 relate to forfeited employer
contributions of terminated participants who generally have withdrawn their
funds from the Plan and whose forfeited balances were not yet 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 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
1.85% and 3.36% for monies invested during 2003 and 2002, respectively. The
average rate of return for the Fixed Fund for the years ended December 31, 2003
and 2002 were 4.22% and 5.41%, respectively.
The insurance contracts underlying 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, 2003 and 2002.
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, which are based on the published net asset values of the funds. The
investment returns of the non-affiliated mutual funds of the Sponsor were as
follows:
Year Ended Year Ended
Non-Affiliated Mutual Funds December 31, 2003 December 31, 2002
--------------------------- ----------------- -----------------
Fidelity Advisor Equity Income Fund 29.16 % (15.20)%
Dreyfus Cash Management Plus Fund 0.84 % 1.59 %
SSgA S&P 500 Index Fund 28.59 % (22.34)%
Putnam Vista Fund 33.39 % (30.67)%
Dreyfus Premier Core Bond Fund 7.32 % 5.88 %
CRM Small Cap Value Fund 48.33 % (17.83)%
Alliance Bernstein Premier Growth
Institutional Fund 22.68 % (30.81)%
TCW Galileo Small Cap Growth Fund 48.78 % (47.50)%
MFS High-Income Fund 22.76 % 0.76 %
Berger International Core Fund* (11.39)% (19.56)%
*The Berger International Core Fund was liquidated as of March 31, 2003, due
to a reorganization by Berger's parent company. The return for the year
ended December 31, 2003 represents the return recognized for the three
months ended March 31, 2003, which is the period in which the Plan had
assets invested in the fund.
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 is stated at fair value as determined by quoted market prices
of both AFC common stock and cash equivalents held in the Fund. The average
investment return for 2003 and 2002 was 190.75% and (75.34)%, respectively.
7
NOTE 2 - Significant accounting policies (continued)
Participant loans are valued at their outstanding values, which approximate fair
value.
Purchases and sales of securities are accounted for as of the trade date.
Dividends are recorded on the ex-dividend date and interest income is recorded
on an accrual basis.
Net appreciation (depreciation) on the fair value of investment includes
realized gains and (losses) and unrealized appreciation (depreciation) of the
investments.
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.
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.
Fees to State Street Bank and Trust for trustee related services are voluntarily
assumed and paid directly by the Sponsor. The Sponsor pays all other expenses
incurred in the administration of the Plan.
Payments of Benefits
Benefits are recorded when paid.
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. The Plan Administrator believes that the Plan continues to be designed and
is currently being operated in compliance with the applicable provisions 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
8
NOTE 4 - Plan partial termination (continued)
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 - Other matters
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 2002, certain employees became agents of the Company. This resulted in
the transfer of $202,916 from The Allmerica Financial Employees' 401(k) Matched
Savings Plan to the Plan. There were no assets transferred between plans during
2003.
NOTE 6 - Subsequent events
During the first five months of 2004, there have been participant initiated
withdrawals of approximately $8 million, primarily resulting from the
aforementioned termination of agent contracts.
On June 22, 2004, the Board of Directors of First Allmerica Financial Life
Insurance Company voted to terminate the Plan as a result of the aforementioned
termination of Agent contracts. Pending approval from the IRS, the Sponsor is
developing a plan regarding the timing and the distribution of Plan assets.
9
The Allmerica Financial Agents' Retirement Plan
Form 5500, Schedule H, Line 4i
Schedule of Assets (Held at End of Year)
At December 31, 2003
--------------------------------------------------------------------------------
Identity of Description of Shares or
Issue Investments Units Current Value
Investment with First
Allmerica Financial
Life Insurance Company**:
Fixed Fund Group annuity contracts with $ 3,607,260 *
interest rates from 1.85% to
5.90%
Investments with non-affiliated
mutual funds:
Fidelity Advisor Equity Diversified portfolio of mid- to 286,781 7,490,730 *
Income Fund large-cap value companies.
Dreyfus Cash Management Plus Short-term money market fund 453,071 5,905,727 *
Fund that invests primarily in
high-quality domestic and
foreign U.S. Dollar denominated
money market instruments.
SSgA S&P 500 Common stocks which comprise S&P 234,820 4,311,296 *
Index Fund 500 Composite Stock Index
Putnam Vista Fund Growth oriented, mid-cap fund 265,929 2,124,769 *
with domestic focus.
Dreyfus Premier Core Bond Broad-based, intermediate-term 185,140 2,101,767 *
Fund bond fund designed to offer
diversified exposure to the
domestic fixed-income market.
CRM Small Cap Value Fund Small-cap fund focused on long 72,837 1,775,030 *
term capital appreciation by
investing in value oriented
securities.
Alliance Bernstein Premier Large-cap growth fund investing 197,124 1,770,177 *
Growth Institutional Fund in companies with above average
earnings growth.
TCW Galileo Small Small- to mid-cap aggressive 52,197 765,737
Cap Growth Fund growth fund
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, 2003
--------------------------------------------------------------------------------
Identity of Description of Shares or
Issue Investments Units Current Value
MFS High-Income Fund Portfolio that seeks high 21,705 261,488
current income by investing in
higher yielding, lower rated
debt of financially weaker
companies
Allmerica Financial Corporation
Stock Fund**:
Allmerica Financial Common stock traded on the New
Corporation Stock York Stock Exchange 1,857,274 *
Cash and equivalents 82,439
Participant loans Interest rates from 5.75% to 182,815
10.50%
Total investments 32,236,509
Other receivables 127,996
-------------
Total assets held at
end of year $ 32,364,505
=============
* 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)
/s/ Barbara Z. Rieck
---------------------
Plan Administrator: First Allmerica Financial
Life Insurance Company by Barbara Z. Rieck
Manager of Retirement Services
June 24, 2004
12
Exhibit Index
Exhibit 23.1 Consent of Independent Registered Public Accounting Firm
13