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 EMPLOYEES'
401(K) MATCHED SAVINGS 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
Employees' 401(k) Matched
Savings Plan
Financial Statements
and Additional Information
December 31, 2003 and 2002
The Allmerica Financial Employees' 401(k) Matched Savings 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 Employees'
401(k) Matched Savings 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 Employees' 401(k) Matched Savings 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.
Boston, MA
June 23, 2004
The Allmerica Financial Employees' 401(k) Matched Savings 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 $ 60,495,628* $ 49,393,176
SSgA S&P 500 Index Fund 44,039,499* 33,702,795
Dreyfus Premier Core Bond Fund 33,467,190* 34,458,681
Dreyfus Cash Management Plus Fund 33,328,427* 47,429,131
CRM Small Cap Value Fund 15,903,590 9,251,789
Putnam Vista Fund 12,828,137 9,260,538
Alliance Bernstein Premier Growth
Institutional Fund 9,642,704 6,843,130
TCW Galileo Small Cap Growth Fund 4,308,779 982,224
MFS High-Income Fund 1,947,065 664,482
Berger International Core Fund - 7,597,659
---------------- ----------------
215,961,019 199,583,605
Allmerica Financial Corporation
Stock Fund, at fair value:
Allmerica Financial Corporation Stock 23,848,138 8,173,450
Cash and equivalents 1,058,553 408,982
---------------- ----------------
24,906,691* 8,582,432
Investment with First Allmerica Financial Life
Insurance Company, at contract value:
Fixed Fund 116,772,652* 97,754,242
Participant loans 7,311,395 8,339,109
Other assets - 184,181
---------------- ----------------
Net assets available for benefits $ 364,951,757 $ 314,443,569
================ ================
* 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 Employees' 401(k) Matched Savings Plan
Statements of Changes in Net Assets Available for Benefits
For the years ended December 31,
--------------------------------------------------------------------------------
2003 2002
----------------- -----------------
Investment gain (loss):
Net appreciation (depreciation) of:
Non-affiliated mutual funds $ 33,992,888 $ (32,138,302)
Allmerica Financial Corporation
Stock Fund 16,783,197 (27,288,493)
Interest and dividend income 7,747,968 10,111,449
Other gain (loss) 96,778 (48,516)
---------------- ----------------
58,620,831 (49,363,862)
---------------- ----------------
Contributions:
Employer contributions 5,320,009 4,976,086
Employee contributions 18,210,228 18,043,753
---------------- ----------------
23,530,237 23,019,839
---------------- ----------------
Total investment gain (loss) and 82,151,068 (26,344,023)
contributions ---------------- ----------------
Benefit payments (31,642,880) (48,575,773)
---------------- ----------------
Net increase (decrease) during year 50,508,188 (74,919,796)
Transfers out of Plan - (202,916)
Net assets available for benefits,
beginning of year 314,443,569 389,566,281
---------------- ----------------
Net assets available for benefits,
end of year $ 364,951,757 $ 314,443,569
================ ================
The accompanying notes are an integral part of these financial statements.
3
The Allmerica Financial Employees' 401(k) Matched Savings Plan
Notes to Financial Statements
--------------------------------------------------------------------------------
NOTE 1 - Description of plan
The following description of The Allmerica Financial Employees' 401(k) Matched
Savings 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 eligible employees of First
Allmerica Financial Life Insurance Company ("FAFLIC," "the Sponsor" or "the
Company"), a wholly-owned subsidiary 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. The Sponsor holds those assets invested in its Fixed Fund.
On October 13, 2003, the Board of Directors 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 recordkeeper and Trustee.
These funds were reinvested in other investment vehicles offered by the Plan.
Eligibility
Active employees are eligible for participation in the Plan on the first day of
employment with the Company, as defined by the Plan document.
Employer contributions
The Plan has a 401(k) match provision. Employees are eligible to receive
matching contributions in the Plan on the first day of the calendar month
coincident with or next following completion of one year of service, as defined
by the Plan document. Under this provision, the amount of the match is
determined by the Sponsor's Board of Directors and is announced at the beginning
of each year. Employer contributions are 100% vested to the participant
immediately upon receipt. In addition, the Board of Directors may require that
all matching contributions be made to the AFC Stock Fund. However, this
restriction was not imposed during the 2003 or 2002 plan year.
In 2003 and 2002, the matching contribution rate was 50% of the first 6% of
participants' 401(k) contributions made to the Plan in each pay period. The
matching contribution rate was not applied to any 2003 or 2002 401(k) "Catch-up
Contributions" made by participants (see "Participant accounts"). These
contributions were allocated to the same investment vehicles as the employee
contributions.
4
NOTE 1 - Description of plan (continued)
Forfeitures
Forfeitures of employer contributions related to nonvested terminated
participants have been transferred to the Dreyfus Cash Management Plus Fund in
2003 and 2002. Forfeited amounts are used to offset the employer contributions
and are allocated to the Plan's investment vehicles based upon the investment
elections of each eligible participant. Forfeitures in the amount of $69,589 and
$495,908 were used to reduce employer contributions in 2003 and 2002,
respectively.
Participant accounts
Active participants in the Plan are eligible to make 401(k) deferral
contributions through the use of a salary reduction plan up to a maximum of
$12,000 for 2003 and $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 $14,000 for 2003 and $12,000 for 2002. The amount deferred in excess
of the annual limit is not eligible to receive the Company match. This provision
was effective January 1, 2002. In 2003, 99 employees accelerated their
deferrals, which amounted to $180,440 in additional contributions. During 2002,
69 employees accelerated their deferrals resulting in additional contributions
of $66,664.
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 active 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 employees. Interest income on participant loans totaled
$492,746 and $690,633 in 2003 and 2002, respectively.
Distributions and vesting provisions
Vested account balances are payable in the event of retirement, death, or
separation from service (including disability) as defined in the Plan document.
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.
5
NOTE 1 - Description of plan (continued)
A participant's account balance is immediately vested and includes the employer
matching contribution, the rollover account, the after-tax voluntary
contribution account and the tax deductible voluntary contribution account. In
addition, all employer profit sharing contributions for active participants
(contributed for the plan years 1994 and prior) are now fully vested.
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 prepared 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 disclosures 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.
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 rate was
5.42% and 6.00% for monies invested in 2003 and 2002, respectively. The average
rate of return for the Fixed Fund for the years ended December 31, 2003 and 2002
was 5.42% and 6.00%, 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.
6
NOTE 2 - Significant accounting policies (continued)
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 and the separate
investment accounts 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)%
SSgA S&P 500 Index Fund 28.59 % (22.34)%
Dreyfus Premier Core Bond Fund 7.32 % 5.88 %
Dreyfus Cash Management Plus Fund 0.84 % 1.59 %
CRM Small Cap Value Fund 48.33 % (17.83)%
Putnam Vista Fund 33.39 % (30.67)%
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 investment
return for 2003 and 2002 was 190.75% and (75.34)%, respectively.
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 fair the value of investments includes
realized gains and (losses) and unrealized appreciation (depreciation) of the
investments.
7
NOTE 2 - Significant accounting policies (continued)
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. As of December 31, 2003, all of the
annuities and life insurance contracts have been surrendered or reassigned.
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 net asset value of Plan assets in each respective fund. These fees are
used to reduce charges from 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.
Payment 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 February 21, 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 termination
Although the Sponsor has not expressed any intent to terminate the Plan or
discontinue contributions, it may do so at any time. Should the Plan terminate
or discontinue contributions, the Plan provides that each participant's interest
in the Plan's assets as of the termination date shall become 100% vested and
non- forfeitable and be either payable to the participant or applied to purchase
a non-forfeitable retirement annuity at the participant's option.
8
NOTE 5 - Significant transactions and other matters
During 2002, the Sponsor adopted a restructuring plan related to its life
insurance and annuity business. This restructuring resulted in the elimination
of approximately 476 positions, of which 411 employees were terminated as of
December 31, 2003 and 63 vacant positions were eliminated. As a result of these
initiatives plan assets declined during 2002, resulting from increased
withdrawals related to these terminated employees.
During 2002, certain employees became agents of the Company. This resulted in
the transfer of $202,916 of Plan assets to The Allmerica Financial Agents'
Retirement Plan in accordance with Plan provisions. There were no assets
transferred between plans during 2003.
9
The Allmerica Financial Employees' 401(k) Matched Savings Plan
Form 5500, Schedule H, Line 4i
Schedule of Assets (Held at End of Year)
At December 31, 2003
--------------------------------------------------------------------------------
Identity of Description Shares or Contract or
Issue of Investments Units Current Value
Investment with First
Allmerica Financial Life
Insurance Company**:
Fixed Fund Group annuity contract with $ 116,772,652 *
interest rate at 5.42%
Investments with
non-affiliated mutual funds:
Fidelity Advisor Equity Diversified portfolio of mid- to 2,316,065 60,495,628 *
Income Fund large-cap value companies
SSgA S&P 500 Index Fund Common stocks which comprise S&P 500 2,398,666 44,039,499 *
Composite Stock Index
Dreyfus Premier Core Bond Broad-based, intermediate-term bond 2,948,048 33,467,190 *
Fund fund designed to offer diversified
exposure to the domestic fixed-income
market
Dreyfus Cash Management Short-term money market fund that 3,196,589 33,328,427 *
Plus Fund invests primarily in high-quality
domestic and foreign U.S. Dollar
denominated money market instruments
CRM Small Cap Small-cap fund focused on long-term 652,589 15,903,590
Value Fund capital appreciation by investing in
value-oriented securities
Putnam Vista Fund Growth oriented, mid-cap fund with 1,605,524 12,828,137
domestic focus
10
The Allmerica Financial Employees' 401(k) Matched Savings Plan
Form 5500, Schedule H, Line 4i (continued)
Schedule of Assets (Held at End of Year)
At December 31, 2003
--------------------------------------------------------------------------------
Identity of Description Shares or Contract or
Issue of Investments Units Current Value
Investments with
Non-Affiliated Mutual Funds
(continued):
Alliance Bernstein Premier Large-cap growth fund investing in 1,073,798 $ 9,642,704
Growth Institutional Fund companies with above average earnings
growth
TCW Galileo Small Small-to mid-cap aggressive growth 293,714 4,308,779
Cap Growth Fund fund
MFS High-Income Fund Portfolio that seeks high current 161,618 1,947,065
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 York 23,848,138 *
Corporation Stock Stock Exchange
Cash and equivalents 1,058,553
Participant loans Interest rates from 5.0% to 10.5% 7,311,395
---------------
Total Investments $ 364,951,757
===============
* 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 EMPLOYEES'
401(K) MATCHED SAVINGS 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