<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to ___________.
Commission file number 001-12294
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A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
ARM Financial Group, Inc. Savings Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
ARM Financial Group, Inc.
515 West Market Street
Louisville, Kentucky 40202
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<PAGE>
Financial Statements
and Schedules
ARM Financial Group, Inc.
Savings Plan
YEARS ENDED DECEMBER 31, 1998 AND 1997
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
ARM Financial Group, Inc.
Savings Plan
Financial Statements and Schedules
Years Ended December 31, 1998 and 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.................................................1
Financial Statements
Statements of Net Assets Available for Benefits ...............................2
Statement of Changes in Net Assets Available for Benefits......................3
Notes to Financial Statements ................................................4
Schedules
Form 5500, Line 27a - Schedule of Assets Held for Investment Purposes.........10
Form 5500, Line 27d - Schedule of Reportable Transactions.....................11
</TABLE>
<PAGE>
Report of Independent Auditors
Plan Administrator
ARM Financial Group, Inc. Savings Plan
We have audited the accompanying statements of net assets available for benefits
of ARM Financial Group, Inc. Savings Plan as of December 31, 1998 and 1997, and
the related statement of changes in net assets available for benefits for the
year ended December 31, 1998. These financial statements and schedules are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, information regarding the net assets available for
benefits of the Plan as of December 31, 1998 and 1997, and the changes in its
net assets available for benefits for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment purposes as of December 31, 1998 and reportable transactions
for the year then ended, are presented for purposes of additional analysis and
are not a required part of the financial statements but are 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. These supplemental schedules are the responsibility of the Plan's
management. The Fund Information in the statements of net assets available for
benefits and the statement of changes in net assets available for benefits is
presented for purposes of additional analysis rather than to present the net
assets available for benefits and changes in net assets available for benefits
of each fund. The supplemental schedules and Fund Information have been
subjected to the auditing procedures applied in our audits of the financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP
Louisville, Kentucky
June 1, 1999
1
<PAGE>
ARM Financial Group, Inc. Savings Plan
Statements of Net Assets Available for Benefits
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
--------------------------------
<S> <C> <C>
ASSETS
Investments, at fair value:
ARM Financial Group, Inc. common stock $ 262,730 -
Shares of registered investment companies:
Fidelity Asset Manager 1,761,452 1,917,638
Fidelity Contrafund 2,771,391 2,160,309
Fidelity Intermediate Bond 650,967 763,016
Fidelity Magellan 3,572,146 2,614,991
Fidelity Overseas 234,304 180,160
Spartan U.S. Equity Index 707,233 565,626
Common trust:
Fidelity Managed Income Portfolio 1,977,017 1,791,148
Interest bearing cash 6,454 -
Participant loans receivable 60,310 75,001
--------------------------------
Total investments 12,004,004 10,067,889
Contributions receivable - 43,418
--------------------------------
Net assets available for benefits $ 12,004,004 $ 10,111,307
--------------------------------
--------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
ARM Financial Group, Inc. Savings Plan
Statement of Changes in Net Assets Available for Benefits, with Fund Information
Year Ended December 31, 1998
<TABLE>
<CAPTION>
ARM FINANCIAL FIDELITY
GROUP, INC. FIDELITY ASSET FIDELITY INTERMEDIATE FIDELITY
COMMON STOCK MANAGER CONTRAFUND BOND MAGELLAN
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<S> <C> <C> <C> <C> <C>
ADDITIONS
Contributions:
Participants $ 12,701 $ 95,524 $ 210,133 $ 42,480 $ 211,499
Employer 7,902 57,272 129,102 25,820 120,693
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20,603 152,796 339,235 68,300 332,192
Interest income 241 - - - -
Dividend income:
ARM Financial Group, Inc.
common stock 613 - - - -
Other - 317,905 203,544 39,541 163,792
Net realized and
unrealized appreciation
(depreciation) in fair
value of
investments:
ARM Financial Group, Inc.
common stock 70,081 - - - -
Registered investment
companies - (65,720) 452,811 6,174 716,926
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Total additions 91,538 404,981 995,590 114,015 1,212,910
DEDUCTIONS
Benefit payments - (503,409) (222,312) (262,592) (279,236)
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Net increase (decrease)
before fund transfers 91,538 (98,428) 773,278 (148,577) 933,674
Interfund transfers, net 177,646 (63,347) (173,801) 34,095 12,568
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Net increase 269,184 (161,775) 599,477 (114,482) 946,242
Net assets available for
benefits:
Beginning of year - 1,923,227 2,171,914 765,449 2,625,904
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End of year $ 269,184 $ 1,761,452 $ 2,771,391 $ 650,967 $ 3,572,146
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<CAPTION>
FIDELITY
MANAGED PARTICIPANT
FIDELITY SPARTAN U.S. INCOME LOANS
OVERSEAS EQUITY INDEX PORTFOLIO RECEIVABLE TOTAL
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<S> <C> <C> <C> <C> <C>
ADDITIONS
Contributions:
Participants $ 54,664 $ 143,221 $ 62,460 $ - $ 832,682
Employer 28,999 69,348 34,257 - 473,393
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83,663 212,569 96,717 - 1,306,075
Interest income - - 120,823 3,844 124,908
Dividend income:
ARM Financial Group, Inc.
common stock - - - - 613
Other 4,265 11,811 - - 740,858
Net realized and
unrealized appreciation
(depreciation) in fair
value of
investments:
ARM Financial Group, Inc.
common stock - - - - 70,081
Registered investment
companies 13,402 111,043 - - 1,234,636
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Total additions 101,330 335,423 217,540 3,844 3,477,171
DEDUCTIONS
Benefit payments (11,608) (106,196) (187,083) (12,038) (1,584,474)
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Net increase (decrease)
before fund transfers 89,722 229,227 30,457 (8,194) 1,892,697
Interfund transfers, net (37,905) (93,324) 150,565 (6,497) -
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Net increase 51,817 135,903 181,022 (14,691) 1,892,697
Net assets available for
benefits:
Beginning of year 182,487 571,330 1,795,995 75,001 $ 10,111,307
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End of year $ 234,304 $ 707,233 $ 1,977,017 $ 60,310 $ 12,004,004
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</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
ARM Financial Group, Inc. Savings Plan
Notes to Financial Statements
December 31, 1998
1. DESCRIPTION OF PLAN
The following description of the ARM Financial Group, Inc. Savings Plan (the
"Plan") as of December 31, 1998 provides only general information. Participants
should refer to the Summary Plan Description for a more comprehensive
description of the Plan's provisions.
GENERAL. The Plan is a qualified defined contribution plan covering employees of
ARM Financial Group, Inc. (the "Company") who have one year of service and are
age twenty-one or older or were employed by the Company as of April 1, 1995, or
have completed at least one year of service with an eligible predecessor
employer. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). The Plan was amended
effective February 1, 1999 to allow employees to participate immediately upon
employment; however, the Company match does not begin until they have
completed 1 year of service.
CONTRIBUTIONS. Participants may elect to contribute 1% to 15% of their
compensation up to a maximum, as described by the Internal Revenue Code, for any
calendar year. Participants may also make after-tax contributions, up to a
maximum of 10% of eligible compensation, and contribute amounts representing
rollover distributions from other qualified plans. The Company contributes an
amount equal to 100% of the pretax annual contribution made by a participant up
to 5% of eligible compensation. After-tax contributions are not subject to
matching by the Company.
PARTICIPANT ACCOUNTS. Each participant's account is credited with the
participant's contribution and allocations of (a) the Company's contribution and
(b) Plan earnings. Expenses incurred in connection with the operation of the
Plan, such as professional and administrative fees, are paid directly by the
Company. Forfeited balances of terminated participants' non-vested accounts are
used to reduce future Company contributions. The benefit to which a participant
is entitled is the benefit that can be provided from the participant's vested
account.
VESTING. Participants are immediately vested in their contributions plus actual
earnings thereon. Vesting in the Company's matching portion of their accounts
plus actual earnings thereon is based on years of continuous service with the
Company or eligible predecessor employer. A participant is 50% vested after one
year of credited service and 100% vested after two years of credited service.
4
<PAGE>
ARM Financial Group, Inc. Savings Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF PLAN (CONTINUED)
INVESTMENT OPTIONS. Upon enrollment in the Plan, a participant may direct
contributions to any of the following seven investment fund options administered
by Fidelity Management Trust Company ("Fidelity"). They include the Fidelity
Asset Manager (a balanced fund), Fidelity Contrafund (a growth fund), Fidelity
Intermediate Bond (a fixed income fund), Fidelity Magellan (a growth fund),
Fidelity Overseas (a growth fund), Spartan U.S. Equity Index (a growth fund),
and Fidelity Managed Income Portfolio (primarily consisting of variable and
fixed rate investment contracts). Participants may change their investment
options at any time. In addition, as of July 15, 1998, participants can direct
their contributions to an eighth option, ARM Financial Group, Inc. common stock.
PARTICIPANT LOANS RECEIVABLE. Participants may borrow from their accounts a
minimum of $1,000 and a maximum equal to the lesser of $50,000 or 50% of their
vested account balance. Loan terms range from one to five years or up to ten
years for the purchase of a primary residence. The loans are secured by the
balance in the participant's account and bear interest at a rate commensurate
with prevailing rates at the date of commencement of the loan. Principal and
interest are paid ratably on at least a quarterly basis and generally through
semi-monthly payroll deductions.
PAYMENT OF BENEFITS. On termination of service due to death, disability,
retirement, or any other reason, a participant may elect to receive either a
lump-sum amount equal to the value of the participant's vested interest in his
or her account, or periodic payments if the vested account balance is over
$3,500.
PLAN TERMINATION. Although it has not expressed any intent to do so, the Company
has the right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants will become 100% vested in their accounts.
ADMINISTRATIVE EXPENSES. Administration expenses of the Plan are paid by the
Company.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING. The accompanying financial statements of the Plan are
prepared under the accrual basis of accounting.
5
<PAGE>
ARM Financial Group, Inc. Savings Plan
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS. ARM Financial Group, Inc. common stock is valued at the last
reported sales price on the last business day of the plan year. The Plan's
investments in shares of registered investment companies are valued at quoted
market prices, which represent the net asset value of shares or units held by
the Plan at year end. The fair value of the participation units owned by the
Plan in the common trust fund is based on quoted redemption values on the last
business day of the plan year.
The Plan accounts for participant loans receivable as a separate fund which is
reported in the accompanying financial statements at cost, which approximates
fair value. Benefit payments for this fund represent withdrawals from the Plan
which are utilized to repay a participant's loan. All other normal borrowings
and payments are reflected in interfund transfers.
PAYMENT OF BENEFITS. Benefits are recorded when paid.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
3. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits as
reported in the accompanying financial statements to the Form 5500:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
-------------------------------
<S> <C> <C>
Net assets available for benefits per the accompanying
financial statements $ 12,004,004 $ 10,111,307
Amounts allocated to withdrawn participants - (24,256)
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Net assets available for benefits per Form 5500 $ 12,004,004 $ 10,087,051
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-------------------------------
</TABLE>
6
<PAGE>
ARM Financial Group, Inc. Savings Plan
Notes to Financial Statements (continued)
3. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 (CONTINUED)
The following is a reconciliation of benefits paid to participants as reported
in the accompanying financial statements to the Form 5500 for the year ended
December 31, 1998:
<TABLE>
<S> <C>
Benefits paid to participants per the accompanying financial statements $ 1,584,474
Less: Amounts allocated to withdrawn participants at December 31, 1997 24,256
-------------
Benefits paid to participants per Form 5500 $ 1,560,218
-------------
-------------
</TABLE>
4. INCOME TAX STATUS
The Internal Revenue Service ruled on December 3, 1996 that the Plan qualifies
under Section 401(a) of the Internal Revenue Code (IRC) and, therefore, the
related trust is exempt from taxation. Once qualified, the Plan is required to
operate in conformity with the IRC 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.
5. YEAR 2000 ISSUE (UNAUDITED)
The Company has undertaken a Year 2000 project that includes the Plan. The
Company has completed the assessment phase of the project for all production
applications, hardware (personal computers and servers), system software,
vendors and business partners. Although the Company is still receiving
information from a few vendors and business partners and assessing the various
logistic concerns with its facilities, the Company's major production systems
are substantially Year 2000 compliant. Where Year 2000 problems were found, the
necessary upgrades and repairs have begun and are scheduled for completion no
later than September 30, 1999.
The Company is also conducting certification testing. Certification testing,
which serves to verify that the results of repairs and assessments have been
completed for all mission critical production systems and the few problems that
were discovered have been repaired and re-tested. The Company's Year 2000
project is well underway and management believes that it will be Year 2000
compliant by September 30, 1999. However, as a precaution, the Company is
developing a contingency and business resumption plan to address various
logistic concerns with its facilities. The contingency and business resumption
plan is scheduled for completion no later than September 30, 1999.
7
<PAGE>
ARM Financial Group, Inc. Savings Plan
Notes to Financial Statements (continued)
5. YEAR 2000 ISSUE (UNAUDITED) (CONTINUED)
Although the Company anticipates no major interruption of business activities,
that will be dependent, in part, upon the activity of third parties. Even though
the Company has assessed and continues to assess third party issues, including
Fidelity, it has no direct ability to influence the compliance actions of such
parties. Accordingly, while the Company believes its actions in this regard
should have the effect of reducing Year 2000 risks, it is unable to eliminate
them or to estimate the ultimate effect of Year 2000 risks will have on the
Company's and the Plan's operations.
The cost of the Company's Year 2000 initiatives has not been and is not expected
to be material to the Company's results of operations or financial condition.
The estimated date on which the Company believes it will complete its Year 2000
compliance efforts, and the expenses related to the Company's Year 2000
compliance efforts are based upon management's best estimates, which were based
on assumptions of future events, including the availability of certain
resources, third party modification plans and other factors. There can be no
assurance that these results and estimates will be achieved and the actual
results could materially differ from those anticipated.
8
<PAGE>
SCHEDULES
9
<PAGE>
ARM Financial Group, Inc. Savings Plan
Schedule of Assets Held for Investment Purposes
Form 5500, Line 27a-Schedule of Assets Held for Investment Purposes
EIN: 61-1244251 and Plan Number: 001
December 31, 1998
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT,
INCLUDING MATURITY DATE,
IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, PAR OR CARRYING
LESSOR OR SIMILAR PARTY MATURITY VALUE COST VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest bearing cash 6,454 shares $ 6,454 $ 6,454
ARM Financial Group, Inc. common stock 11,726 shares 196,348 262,730
Registered investment companies:
Fidelity Asset Manager 101,291 shares 1,667,197 1,761,452
Fidelity Contrafund 48,801 shares 2,060,503 2,771,391
Fidelity Intermediate Bond 63,385 shares 643,460 650,967
Fidelity Magellan 29,566 shares 2,463,416 3,572,146
Fidelity Overseas 6,512 shares 224,110 234,304
Spartan U.S. Equity Index 16,088 shares 575,513 707,233
Common trust:
Fidelity Managed Income Portfolio 1,977,020 units 1,977,020 1,977,017
Participant loans receivable 7% - 11.5% - 60,310
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$ 12,004,004
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--------------
</TABLE>
10
<PAGE>
ARM Financial Group, Inc. Savings Plan
Schedule of Reportable Transactions
Form 5500, Line 27d-Schedule of Reportable Transactions
EIN: 61-1244251 and Plan Number: 001
Year Ended December 31, 1998
<TABLE>
<CAPTION>
CURRENT
VALUE OF
ASSET ON
PURCHASE SELLING COST OF TRANSACTION REALIZED
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE ASSET DATE NET GAIN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fidelity Management Trust Company Fidelity Asset Manager, registered investment company
Purchases $ 684,209 $ - $ 684,209 $ 684,209 N/A
Sales - 774,678 655,265 774,678 119,413
Fidelity Management Trust Company Fidelity Contrafund, registered investment company
Purchases 1,042,070 - 1,042,070 1,042,070 N/A
Sales - 883,800 825,183 883,800 58,617
Fidelity Management Trust Company Fidelity Intermediate Bond, registered investment company
Purchases 215,871 - 215,871 215,871 N/A
Sales - 334,095 331,561 334,095 2,534
Fidelity Management Trust Company Fidelity Magellan, registered investment company
Purchases 929,514 - 929,514 929,514 N/A
Sales - 689,287 594,932 689,287 94,355
Fidelity Management Trust Company Fidelity Managed Income Portfolio, collective trust
Purchases 2,173,372 - 2,173,372 2,173,372 N/A
Sales - 1,987,500 1,987,500 1,987,500 -
</TABLE>
11
<PAGE>
ARM Financial Group, Inc. Savings Plan
Schedule of Reportable Transactions (Continued)
Form 5500, Line 27d-Schedule of Reportable Transactions
EIN: 61-1244251 and Plan Number: 001
Year Ended December 31, 1998
<TABLE>
<CAPTION>
CURRENT
VALUE OF
ASSET ON
PURCHASE SELLING COST OF TRANSACTION REALIZED
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE ASSET DATE NET GAIN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fidelity Management Trust Company Spartan U.S. Equity Index, registered investment company
Purchases $ 941,483 $ - $ 941,483 $ 941,483 N/A
Sales - 910,920 869,289 910,920 41,631
</TABLE>
There were no category (i), (ii) or (iv) transactions for the year ended
December 31, 1998.
12
<PAGE>
SIGNATURES
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.
ARM FINANCIAL GROUP, INC. SAVINGS PLAN
By: /s/ JILL KEINSLEY
------------------------------------
Jill Keinsley
Human Resources Officer and
Plan Administrator
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-61775) pertaining to the Savings Plan of ARM Financial Group, Inc.
of our report dated June 1, 1999, with respect to the financial statements and
schedules of the ARM Financial Group, Inc. Savings Plan included in this Annual
Report (Form 11-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Louisville, Kentucky
June 18, 1999
