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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period from _______________ to __________________
COMMISSION FILE NUMBER: 0-8483
A. Full title of the plan and address of the plan, if
different from that of the issuer named below:
THE RETIREMENT PLAN FOR EMPLOYEES
OF THE CENTRAL RESERVE LIFE INSURANCE COMPANY
B. Name of issuer of the securities held pursuant to the
plan and address of its principal executive office:
CERES GROUP, INC.
17800 Royalton Road
Cleveland, Ohio 44136
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The Retirement Plan for Employees of
Central Reserve Life Insurance Company
Financial Statements and Supplemental Schedule
(Modified Cash Basis)
December 31, 1999 and 1998 and Year Ended December 31, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................................................ 1
FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits
(Modified Cash Basis).................................................................................. 2
Statement of Changes in Net Assets Available for Benefits
(Modified Cash Basis).................................................................................. 3
Notes to Financial Statements (Modified Cash Basis)....................................................... 4
SUPPLEMENTAL SCHEDULE
Schedule H, Line 4i--Schedule of Assets Held for
Investment Purposes at End of Year..................................................................... 9
</TABLE>
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Report of Independent Auditors
Board of Trustees
The Retirement Plan for Employees of
Central Reserve Life Insurance Company
We have audited the accompanying statements of net assets available for benefits
(modified cash basis) of the Retirement Plan for Employees of Central Reserve
Life Insurance Company as of December 31, 1999 and 1998, and the related
statement of changes in net assets available for benefits (modified cash basis)
for the year ended December 31, 1999. 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 in accordance with auditing standards generally accepted
in the 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note B, the financial statements and supplemental schedule were
prepared on a modified cash basis of accounting, which is a comprehensive basis
of accounting other than accounting principles generally accepted in the United
States.
In our opinion, the financial statements referred to above present fairly, in
all material respects, information regarding the Plan's net assets available for
benefits (modified cash basis) as of December 31, 1999 and 1998, and changes
therein (modified cash basis) for the year ended December 31, 1999, on the basis
of accounting described in Note B.
Our audits were performed for the purposes of forming an opinion on the
financial statements taken as a whole. The accompanying supplemental schedule of
assets held for investment purposes at end of year as of December 31, 1999 is
presented for purposes of additional analysis and is not a required part of the
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 auditing procedures applied in our audits of the financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP
Cleveland, Ohio
June 16, 2000
1
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The Retirement Plan for Employees of Central
Reserve Life Insurance Company
Statements of Net Assets Available for Benefits
(Modified Cash Basis)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1999 1998
----------------------------------------
<S> <C> <C>
ASSETS
Investments held by Massachusetts Mutual
Life Insurance Company
Deposit Administration Group Annuity
Contract #FL-2372 (variable interest rate),
at contract value $ 7,648,112 $ 5,410,799
Ceres Group, Inc. Common Stock,
at fair value 245,238 65,817
Pooled Separate Investment Accounts,
at fair value 6,477,397 8,505,295
--------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $ 14,370,747 $ 13,981,911
======================================
</TABLE>
See notes to financial statements.
2
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The Retirement Plan for Employees of Central
Reserve Life Insurance Company
Statement of Changes in Net Assets Available for Benefits
(Modified Cash Basis)
Year Ended December 31, 1999
<TABLE>
<S> <C>
ADDITIONS
Investment income
Net depreciation in fair value of investments $ (36,851)
Interest 344,794
---------------------
Total investment income 307,943
---------------------
Contributions
Employer 136,368
Employee 553,838
---------------------
Total contributions 690,206
---------------------
Total additions 998,149
---------------------
DEDUCTIONS
Benefits paid to participants or beneficiaries 547,955
Administrative expenses 61,358
---------------------
Total deductions 609,313
---------------------
NET INCREASE 388,836
Net assets available for benefits at beginning of year 13,981,911
---------------------
NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 14,370,747
=====================
</TABLE>
See notes to financial statements
3
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The Retirement Plan for Employees of
Central Reserve Life Insurance Company
Notes to Financial Statements (Modified Cash Basis)
December 31, 1999 and 1998 and
Year Ended December 31, 1999
A. DESCRIPTION OF THE PLAN
The following description provides only general information regarding The
Retirement Plan for Employees of Central Reserve Life Insurance Company (the
"Plan"). Participants should refer to the Plan document for a more complete
description of the Plan's provisions.
GENERAL
Effective January 1, 1998, the Plan was amended to allow for participant
contributions. Previously, the Plan was a non-contributory money purchase plan.
As a result of the amendment, the participant's interest in employer
contributions and subsequent earnings allocated to the participant's account
prior to January 1, 1998 became 100% vested. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
All employees of Central Reserve Life Insurance Company ("Central") that have 6
months of service with Central and have attained 20 1/2 years of age are
eligible to participate in the Plan. Central is a wholly-owned subsidiary of
Ceres Group, Inc., ("Ceres") a public registrant, formerly known as Central
Reserve Life Corporation.
CONTRIBUTIONS
Participants may make contributions to the Plan through payroll deferrals.
Participants can elect to make pre-tax contributions from 1% to 10% of their
compensation. Additionally, participants can elect to make after-tax
contributions up to 10% of their compensation. Central will match 100% of the
participants contributions that are contributed to the Ceres Group, Inc. Stock
Fund, up to a maximum $1,000 per year ("Matching Contribution").
In addition, Central may contribute to the Plan a profit sharing contribution,
as determined by the Board of Directors ("Profit Sharing Contribution"). All
eligible, active employees who have worked at least 1,000 hours during the plan
year and are employed on the last day of the plan year and participants who die,
or leave employment during the plan year due to retirement or disability, will
share in this contribution. There was no profit sharing contribution made for
the 1999 plan year.
Employees may roll over funds into the Plan from other qualified plans.
4
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The Retirement Plan for Employees of
Central Reserve Life Insurance Company
Notes to Financial Statements (Modified Cash Basis) (continued)
A. DESCRIPTION OF THE PLAN (CONTINUED)
VESTING
A participant's interest in Matching Contributions and Profit-Sharing
Contributions allocated to the participant's account becomes vested based upon
years of service as follows: 0% vested up to three years; 33% vested after three
years; 67% vested after 4 years; and 100% vested after five years.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contributions and
allocations of (a) Central's contributions and (b) Plan earnings, and is charged
with an allocation of administrative expenses. Allocations are based on
participant earnings or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's account.
PAYMENT OF BENEFITS
On termination of service, a participant may receive a lump-sum amount equal to
the vested value of his or her account, or upon death, disability or retirement,
elect to receive annual installments over a stated period of time, or over his
or her lifetime.
INVESTMENT OPTIONS
Upon enrollment in the Plan, participants may direct their participant
contributions and any Profit-Sharing Contribution for investment in any of the
investment mediums offered by the Plan.
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The Retirement Plan for Employees of
Central Reserve Life Insurance Company
Notes to Financial Statements (Modified Cash Basis) (continued)
B. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements are presented on a cash basis modified to
the extent that net appreciation (depreciation) of the fair value of investments
is recorded currently; certain other income, contributions and related assets
are recognized when received rather than when earned; and certain expenses and
related liabilities are recognized when paid rather than when incurred.
VALUATION OF INVESTMENTS AND RELATED INCOME
Ceres Group, Inc. Common Stock is valued at the last reported sales price of the
stock on the last business day of the plan year. The Massachusetts Mutual Pooled
Separate Investment Accounts are valued at the fair values, as determined by
Massachusetts Mutual Life Insurance Company ("Massachusetts Mutual"), of the
underlying investments. The Massachusetts Mutual Deposit Administration Group
Annuity Contract ("DAC") is valued at contract value. DAC funds deposited during
1999 were guaranteed to earn 5.00%. DAC Funds deposited as of December 31, 1998
were guaranteed to earn 6.10%. Guaranteed interest rates are determined annually
by Massachusetts Mutual Life Insurance Company.
The aggregate cost of investment sales is the average cost per share or per unit
at the time of the sale. Interest income is recorded when credited by
Massachusetts Mutual.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
RECLASSIFICATION
Certain prior year amounts have been restated to conform to the current year
presentation.
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The Retirement Plan for Employees of
Central Reserve Life Insurance Company
Notes to Financial Statements (Modified Cash Basis) (continued)
C. INVESTMENTS
Massachusetts Mutual serves as the trustee for certain assets of the Plan with
the balance held in trust by Investors Bank & Trust Company of Boston,
Massachusetts.
During 1999, the Plan's investments (including investments purchased, sold, as
well as held during the year) appreciated (depreciated) in fair value as
determined by quoted market prices as follows:
<TABLE>
<CAPTION>
Net
Appreciation
(Depreciation)
in Fair Value
of Investments
----------------------
<S> <C>
Ceres Group, Inc. Common Stock $ (69,728)
Pooled Separate Accounts 32,877
----------------------
Total $ (36,851)
======================
</TABLE>
Individual investments that represent 5% or more of the Plan's net assets are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1999 1998
-------------------------------------
<S> <C> <C>
Deposit Administration Group Annuity
Contract #FL-2372, variable interest
rate--Guarantee Interest Fund $ 7,648,112 $ 5,410,799
Pooled Separate Investment Accounts
Massachusetts Mutual Separate Investment Account A,
Core Equity Fund 1,640,921 3,900,279
Massachusetts Mutual Separate Investment Account M,
Balanced Fund 2,934,241 3,160,970
</TABLE>
7
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The Retirement Plan for Employees of
Central Reserve Life Insurance Company
Notes to Financial Statements (Modified Cash Basis) (continued)
D. PLAN TERMINATION
Central has the right under the Plan to discontinue contributions at any time
and terminate the Plan, subject to the provisions of ERISA. In the event of
termination of the Plan, participants will become 100 percent vested in their
accounts and the assets of the Plan will be distributed to the participants
based on the amounts in their respective accounts.
E. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated January 7, 2000, stating the Plan is qualified under Section 401(a) of the
Internal Revenue Code (the "Code") and therefore, the related trust is exempt
from taxation. Once qualified, the Plan is required to operate in conformity
with the Code to maintain its qualification. The Plan Administrator believes the
Plan is being operated in compliance with the applicable requirements of the
Code and, therefore, believes that the Plan is qualified and the related trust
is tax exempt.
F. SUBSEQUENT EVENTS
Effective January 1, 2000, the Plan was amended to change the Plan name to the
Ceres Group, Inc. 401(k) Plan, make participant loans available, include
Continental General Insurance Company a subsidiary of Ceres as a participating
employer in the Plan and added the matching contribution equal to 25% of the
participant's contribution of up to the first 6% of their annual compensation
that a participant contributes to the Plan. In addition, effective January 1,
2000, the Continental General Savings plan was merged into the Plan.
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The Retirement Plan for Employees of
Central Reserve Life Insurance Company
EIN: 34-0970995 Plan Number: 001
Schedule H, Line 4i--Schedule of Assets Held
for Investment Purposes at End of Year
December 31, 1999
<TABLE>
<CAPTION>
Description of Investment
Including Maturity Date, Rate Units/Shares/
Identity of Issuer, Borrower, of Interest, Collateral, Interest Current
Lessor, or Similar Party Par or Maturity Value Rate Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
* Massachusetts Mutual Life Deposit Administration Group Annuity
Insurance Company Contract #FL-2372, variable interest
rate, Guarantee Interest Fund 5.00-6.10% $ 7,648,112
* Massachusetts Mutual Life Separate Investment Account M, Balanced
Insurance Company Fund 4,507 1,640,921
* Massachusetts Mutual Life Separate Investment Account A, Core
Insurance Company Equity Fund 582 2,934,241
* Massachusetts Mutual Life Separate Investment Account E, Core Bond
Insurance Company Fund 338 322,088
* Massachusetts Mutual Life Separate Investment Account BC, Destiny
Insurance Company Conservative Fund 1,354 230,726
* Massachusetts Mutual Life Separate Investment Account I,
Insurance Company International Equity Fund 286 106,596
* Massachusetts Mutual Life Separate Investment Account BP, Destiny
Insurance Company Moderate Fund 1,817 339,021
* Massachusetts Mutual Life Separate Investment Account BA, Destiny
Insurance Company Aggressive Fund 1,861 369,260
* Massachusetts Mutual Life Separate Investment Account BE, Destiny
Insurance Company Ultra Aggressive Fund 2,393 534,544
* Ceres Group, Inc. Ceres Group Inc. Common Stock 27,800 245,238
-------------------
$ 14,370,747
===================
</TABLE>
* Denotes party in interest.
9
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THE RETIREMENT PLAN FOR EMPLOYEES
OF CENTRAL RESERVE LIFE INSURANCE COMPANY
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Plan Administrator has duly caused this annual report to be signed on its
behalf by the undersigned hereunto duly authorized.
THE RETIREMENT PLAN FOR EMPLOYEES
OF CENTRAL RESERVE LIFE INSURANCE COMPANY
By: /s/ Charles E. Miller, Jr.
--------------------------------------
Charles E. Miller, Jr.
Plan Administrator
Dated: June 27, 2000
10
