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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
COMMISSION FILE NUMBER: 0-8483
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
CERES GROUP, INC. 401(K) PLAN
(FORMERLY THE RETIREMENT PLAN FOR EMPLOYEES
OF CENTRAL RESERVE LIFE INSURANCE COMPANY)
B. Name of issuer of the securities held pursuant to the plan
and the address of its principal executive office:
CERES GROUP, INC.
17800 Royalton Road
Cleveland, Ohio 44136-5197
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CERES GROUP, INC. 401(K) PLAN
(FORMERLY THE RETIREMENT PLAN FOR EMPLOYEES OF
CENTRAL RESERVE LIFE INSURANCE COMPANY)
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
(MODIFIED CASH BASIS)
DECEMBER 31, 2000 AND 1999 AND
YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
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 at End of Year)......... 10
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REPORT OF INDEPENDENT AUDITORS
Board of Trustees
Ceres Group, Inc. 401(k) Plan
We have audited the accompanying statements of net assets available for benefits
(modified cash basis) of the Ceres Group, Inc. 401(k) Plan (formerly The
Retirement Plan for Employees of Central Reserve Life Insurance Company) as of
December 31, 2000 and 1999, and the related statement of changes in net assets
available for benefits (modified cash basis) for the year ended December 31,
2000. 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, 2000 and 1999, and changes
therein (modified cash basis) for the year ended December 31, 2000, 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 at end of year) as of December 31, 2000 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 the 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.
Cleveland, Ohio
June 12, 2001
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CERES GROUP, INC. 401(K) PLAN
(FORMERLY THE RETIREMENT PLAN FOR EMPLOYEES OF
CENTRAL RESERVE LIFE INSURANCE COMPANY)
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
(MODIFIED CASH BASIS)
DECEMBER 31,
------------------------------------------
2000 1999
------------------- -------------------
ASSETS
Investments held by Massachusetts Mutual
Life Insurance Company:
Deposit Administration Group Annuity
Contract #FL-2372 (variable interest rate),
at contract value $ 6,465,956 $ 7,648,112
Ceres Group, Inc. Common Stock, at fair value 658,687 245,238
Pooled Separate Investment Accounts, at fair value 13,577,334 6,477,397
Participant loans 522,712 --
------------------- -------------------
Net assets available for benefits $ 21,224,689 $ 14,370,747
=================== ===================
See notes to financial statements.
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CERES GROUP, INC. 401(K) PLAN
(FORMERLY 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, 2000
ADDITIONS
Investment income:
Net appreciation in fair value of investments $ 13,074
Interest 419,864
--------------------
Total investment income 432,938
--------------------
Contributions
Employer 319,049
Employee 1,302,017
Rollover 523,868
--------------------
Total contributions 2,144,934
--------------------
Transfers from Continental Retirement Savings Plan 8,914,806
--------------------
Total additions 11,492,678
--------------------
DEDUCTIONS
Benefits paid to participants or beneficiaries 4,570,085
Administrative expenses 68,651
--------------------
Total deductions 4,638,736
--------------------
Net increase 6,853,942
Net assets available for benefits at beginning of year 14,370,747
--------------------
Net assets available for benefits at end of year $ 21,224,689
====================
See notes to financial statements
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CERES GROUP, INC. 401(K) PLAN
(FORMERLY THE RETIREMENT PLAN FOR EMPLOYEES OF
CENTRAL RESERVE LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS (MODIFIED CASH BASIS)
DECEMBER 31, 2000 AND 1999 AND
YEAR ENDED DECEMBER 31, 2000
A. DESCRIPTION OF THE PLAN
Effective January 1, 2000, The Retirement Plan for Employees of Central Reserve
Life Insurance Company was amended to change the name of the plan to the Ceres
Group, Inc. 401(k) Plan (the "Plan"). In addition, the Continental Retirement
Savings Plan ("Continental Plan") was merged into the Plan, effective January 1,
2000 and $8,914,806 was transferred to the Plan representing participant account
balances of the Continental Plan as of that date. The following description
provides only general information regarding the Plan and 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 Ceres Group, Inc. ("Ceres"), a public registrant, that have
attained 18 years of age are eligible to participate in the Plan commencing the
first day of the month following an individual's month of hire.
PLAN CHANGES
Effective January 1, 2000 and in addition to the changes noted above, the Plan
was amended to provide for participant loans available, added the matching
contribution equal to 25% of the participant's contribution of up to the first
6% of the annual compensation that a participant contributes to the Plan
("Company Match Contribution"), and include Continental General Insurance
Company, a wholly-owned subsidiary of Ceres, as a participating employer in the
Plan.
Commencing August 1, 2000, employees of Pyramid Life Insurance Company
("Pyramid"), a wholly-owned subsidiary of Ceres acquired on July 26, 2000, are
eligible to participate in the Plan. Certain Pyramid employees elected to
convert their Unitrin, Inc. balances to the Plan and these contributions are
included as rollovers on the Statement of Changes in Net Assets Available for
Benefits.
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CERES GROUP, INC. 401(K) PLAN
(FORMERLY 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)
CONTRIBUTIONS
Participants may make contributions to the Plan through payroll deferrals.
Participants can elect to make pre-tax contributions from 1% to 15% of their
compensation. Additionally, participants can elect to make after-tax
contributions up to 15% of their compensation. In addition to the Company Match
Contribution, Ceres will match 100% of the participant's contributions to the
Ceres Group, Inc. Stock Fund, up to a maximum $1,000 per year ("Stock Match
Contribution").
In addition, Ceres 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 over 1,000 hours during the plan year
and who are employed on the last day of the plan year share in this
contribution. Participants who leave employment during the plan year due to
retirement, death or disability will also share in the contribution. There was
no profit sharing contribution made for the 2000 plan year.
Employees may roll over funds into the Plan from other qualified plans.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contributions and
allocations of (a) Ceres' 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.
VESTING
A participant's interest in the Profit Sharing Contribution, Company Match
Contribution and Stock Match Contribution 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.
The accounts transferred from the Continental Plan are also fully vested except
for the Continental General Employer Basic Contributions, which become vested
based on years of
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CERES GROUP, INC. 401(K) PLAN
(FORMERLY 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
service as follows: 0% vested up to three years; 20% vested after three years;
40% vested after four years; 60% vested after five years; 80% vested after six
years; and 100% vested after 7 years.
PARTICIPANT LOANS
Participants may borrow up to half of their vested account balance. The smallest
amount that may be borrowed is $1,000. The largest amount that may be borrowed
is $50,000. Loan terms exceeding 5 years are permitted under the Plan.
Participants may only have one outstanding loan. A loan is secured by the
balance in the participant's account and bears interest at the Prime lending
rate plus 1%.
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. However, there are two exceptions to a
participant's right to exercise investment control as follows:
- The first $1,000 of before-tax contributions that participant's direct
for investment in the Company Stock Fund for any particular plan year
must remain in the Company Stock Fund for a minimum of two years (to
the extent they continue to be held under the Plan), commencing with
the month those before-tax contributions actually are contributed and
invested. This restriction does not apply to any investment in the
Company Stock Fund, made with before-tax contributions that do not
trigger Stock Match Contributions; and
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CERES GROUP, INC. 401(K) PLAN
(FORMERLY 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
- All Stock Match Contributions, made by the Company because the
participant agreed to invest all or portion of their before-tax
contributions in the Company Stock Fund, must remain invested in the
Company Stock Fund while held under the Plan.
PLAN TERMINATION
Ceres 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.
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) in 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 value, 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
2000 were guaranteed to earn 6.25%. DAC Funds deposited as of December 31, 1999
were guaranteed to earn 5.00%. 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.
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CERES GROUP, INC. 401(K) PLAN
(FORMERLY THE RETIREMENT PLAN FOR EMPLOYEES OF
CENTRAL RESERVE LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS (MODIFIED CASH BASIS) (CONTINUED)
B. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 2000, 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:
NET
APPRECIATION
(DEPRECIATION)
IN FAIR VALUE
OF INVESTMENTS
---------------------
Ceres Group, Inc. Common Stock $ (64,307)
Pooled Separate Accounts 77,381
---------------------
Total $ 13,074
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CERES GROUP, INC. 401(K) PLAN
(FORMERLY THE RETIREMENT PLAN FOR EMPLOYEES OF
CENTRAL RESERVE LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS (MODIFIED CASH BASIS) (CONTINUED)
C. INVESTMENTS (CONTINUED)
Individual investments that represent 5% or more of the Plan's net assets are as
follows:
DECEMBER 31,
----------------------------------------
2000 1999
------------------ ------------------
Deposit Administration Group Annuity
Contract #FL-2372, variable interest
rate--Guarantee Interest Fund $ 6,465,956 $ 7,648,112
Pooled Separate Investment Accounts
Massachusetts Mutual Separate Investment Account
BP, Destiny Moderate Fund 6,731,480 339,021
Massachusetts Mutual Separate Investment Account A,
Core Equity Fund 2,076,652 2,934,241
Massachusetts Mutual Separate Investment Account M,
Balanced Fund 1,091,120 1,640,921
D. 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.
E. SUBSEQUENT EVENT
Effective January 1, 2001, the Plan was amended to increase the Company
Match Contribution to 50% of the participant's contribution of up to the first
6% of an individual's annual compensation that is contributed to the Plan.
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CERES GROUP, INC. 401(K) PLAN
(FORMERLY 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 AT END OF YEAR)
DECEMBER 31, 2000
DESCRIPTION OF INVESTMENT
IDENTITY OF ISSUE, INCLUDING MATURITY DATE, RATE UNITS/SHARES/
BORROWER, OF INTEREST, COLLATERAL, INTEREST CURRENT
LESSOR, OR SIMILAR PARTY PAR OR MATURITY VALUE RATE VALUE
- ----------------------------------------------------------------------------------------------------------------------
* Massachusetts Mutual Life Deposit Administration Group Annuity
Insurance Company Contract #FL-2372, variable interest
rate, Guarantee Interest Fund 6.20-6.25% $ 6,465,956
* Massachusetts Mutual Life Separate Investment Account M, Balanced
Insurance Company Fund (Babson) 2,997 1,091,120
* Massachusetts Mutual Life Separate Investment Account A, Core
Insurance Company Equity Fund (Babson) 400 2,076,652
* Massachusetts Mutual Life Separate Investment Account E, Core
Insurance Company Bond Fund (Babson) 581 614,947
* Massachusetts Mutual Life Separate Investment Account BC, Destiny
Insurance Company Conservative Fund 1,458 264,298
* Massachusetts Mutual Life Separate Investment Account I,
Insurance Company International Equity Fund (Oppenheimer) 1,093 370,385
* Massachusetts Mutual Life Separate Investment Account BP, Destiny
Insurance Company Moderate Fund 35,418 6,731,480
* Massachusetts Mutual Life Separate Investment Account BA, Destiny
Insurance Company Aggressive Fund 3,894 764,214
* Massachusetts Mutual Life Separate Investment Account BE, Destiny
Insurance Company Ultra Aggressive Fund 3,124 675,997
* Massachusetts Mutual Life Separate Investment Account W8, Equity
Insurance Company Growth (Am. Century) 2,085 249,806
* Massachusetts Mutual Life Separate Investment Account S, Small
Insurance Company Cap Equity (Babson) 181 127,913
* Massachusetts Mutual Life Separate Investment Account L, Growth
Insurance Company Equity (MFS) 4,992 610,522
* Ceres Group, Inc. Ceres Group, Inc. Common Stock 89,689 658,687
* Loan participants Various maturities 6.81-10.5% 522,712
-------------------
$ 21,224,689
===================
* Denotes party in interest.
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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.
CERES GROUP, INC. 401(k) PLAN (formerly 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 28, 2001
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