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 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, 2002 and 2001
The Allmerica Financial Employees' 401(k) Matched Savings 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 Employees'
401(k) Matched Savings 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 Employees' 401(k) Matched Savings 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 Employees' 401(k) Matched Savings 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 $ 49,393,176 * $ 67,271,076
Dreyfus Cash Management Plus Fund 47,429,131 * 12,580,734
Dreyfus Premier Core Bond Fund 34,458,681 * 34,526,769
SSgA S&P 500 Index Fund 33,702,795 * 50,277,278
Putnam Vista Fund 9,260,538 14,733,399
CRM Small Cap Value Fund 9,251,789 11,041,801
Berger International Core Fund 7,597,659 9,991,660
Alliance Bernstein Premier Growth
Institutional Fund 6,843,130 10,254,493
TCW Galileo Small Cap Growth Fund 982,224 1,165,968
MFS High-Income Fund 664,482 289,620
---------------- ---------------
199,583,605 212,132,798
Allmerica Financial Corporation
Stock Fund, at fair value 8,582,432 33,581,727
Investment with First Allmerica Financial Life
Insurance Company, at contract value:
Fixed Fund 97,754,242 * 134,192,821
Participant loans 8,339,109 9,406,238
Other assets 184,181 252,697
---------------- ---------------
Net assets available for benefits $ 314,443,569 $ 389,566,281
================ ===============
* 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 Employees' 401(k) Matched Savings 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 $ (32,138,302) $ (16,909,736)
Separate investment accounts - (10,280,626)
Allmerica Financial Corporation
Stock Fund (27,288,493) (20,795,007)
Interest and dividend income 10,111,449 10,832,093
Other loss (48,516) (18,682)
------------------- --------------------
(49,363,862) (37,171,958)
------------------- --------------------
Contributions:
Employer contributions 4,976,086 5,381,833
Employee contributions 18,043,753 19,741,144
------------------- --------------------
23,019,839 25,122,977
------------------- --------------------
Total investment loss and contributions (26,344,023) (12,048,981)
------------------- --------------------
Benefit payments (48,575,773) (33,190,631)
------------------- --------------------
Net decrease during year (74,919,796) (45,239,612)
Transfers out of Plan (202,916) -
Net assets available for benefits,
beginning of year 389,566,281 434,805,893
------------------- --------------------
Net assets available for benefits,
end of year $ 314,443,569 $ 389,566,281
=================== ====================
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"). 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 those assets invested in its Fixed
Fund. The Plan's recordkeeper is Hewitt Associates LLC.
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 Company performance at the discretion of 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 2002 or
2001 plan year.
In 2002 and 2001, 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 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
2002 and 2001. 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 $495,908
and $375,303 were used to reduce employer contributions in 2002 and 2001,
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
$11,000 for 2002 and $10,500 for 2001.
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, 69 employees accelerated their deferrals resulting in
additional contributions of $66,664.
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 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
$690,633 and $842,106 in 2002 and 2001, respectively.
5
NOTE 1 - Description of plan (continued)
Distributions and vesting provisions
Vested account balances become payable upon retirement, death, or separation
from service (including disability) as defined in the Plan document.
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.
The amounts vested at December 31, 2002 and 2001 were $314,374,822 and
$378,763,927, respectively. Unvested amounts relate to employer contributions
of terminated particpants with less than five years of a continuous break in
service.
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
6.00% for monies invested in 2002 and 2001. The average rate of return for the
Fixed Fund for both years ended December 31, 2002 and 2001 was 6.00%.
6
NOTE 2 - Significant accounting policies (continued)
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
December 31, 2002 December 31, 2001
----------------- -----------------
Non-Affiliated Mutual Funds
---------------------------
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 to
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 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.
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 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.
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. Therefore, no provision for income tax is required.
8
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.
NOTE 5 - Significant transactions and other matters
During 2002, the Sponsor adopted a restructuring plan related to its life
insurance and annuity business. This initiative resulted in the elimination of
approximately 475 positions, of which 366 employees were terminated as of
December 31, 2002 and 63 vacant positions were eliminated. Plan assets have
declined during 2002 as a result of 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.
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, 2002
--------------------------------------------------------------------------------
Identity of Description Shares or Contract or
Issue of Investments Units Current Value
Investment with First
Allmerica Financial Life
Insurance Company**:
Fixed Fund Interest rate at 6.00% $ 97,754,242 *
Investments with
Non-Affiliated Mutual Funds:
Fidelity Advisor Equity Diversified portfolio of mid- to 2,409,423 49,393,176 *
Income Fund large-cap value companies
Dreyfus Cash Management Short-term money market fund that 4,586,066 47,429,131 *
Plus Fund invests primarily in high-quality
domestic and foreign U.S. Dollar
denominated money market instruments
Dreyfus Premier Core Bond Broad-based, intermediate-term bond 3,257,186 34,458,681 *
Fund fund designed to offer diversified
exposure to the domestic fixed-income
market
SSgA S&P 500 Index Fund Common stocks which comprise S&P 500 2,322,729 33,702,795 *
Composite Stock Index
Putnam Vista Fund Growth oriented, mid-cap fund with 1,546,000 9,260,538
domestic focus
CRM Small Cap Small-cap fund focused on long-term 563,103 9,251,789
Value Fund capital appreciation by investing in
value-oriented securities
Berger International Portfolio of value oriented, foreign 920,928 7,597,659
Core Fund mid- and large-cap multinational
companies (sub-advised by Bank of
Ireland Asset Management)
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, 2002
--------------------------------------------------------------------------------
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 934,854 6,843,130
Growth Institutional Fund companies with above average earnings
growth
TCW Galileo Small Small- to mid-cap aggressive growth 99,617 982,224
Cap Growth Fund fund
MFS High-Income Portfolio that seeks high current 67,707 664,482
Fund income by investing in higher
yielding, lower rated debt of
financially weaker companies
Allmerica Financial Common stock traded on the New York 764,149 8,582,432
Corporation Stock Stock Exchange and cash equivalents
Fund **
Participant loans Interest rates from 5.25% to 10.50% 8,339,109
Other assets Individual annuities and life 184,181
insurance contracts purchased from
First Allmerica Financial Life
Insurance Company **
--------------------
Total Investments $314,443,569
====================
* 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 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