As filed with the Securities and Exchange Commission on June 28, 2004
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[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 NO. 1-8007
A. Full title of the plan and the address of the plan, if different from that of
the issuer named below:
FREMONT GENERAL CORPORATION
AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
FREMONT GENERAL CORPORATION
2020 SANTA MONICA BOULEVARD
SANTA MONICA, CALIFORNIA 90404
(310)315-5500
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FINANCIAL STATEMENTS
The Fremont General Corporation and Affiliated Companies Investment Incentive
Plan ("Plan") is subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). Therefore, in lieu of the requirements of Items 1-3 of
Form 11-K, the financial statements and schedules of the Plan for the two fiscal
years ended December 31, 2003 and 2002, which have been prepared in accordance
with the financial reporting requirements of ERISA, are attached hereto and
incorporated herein by reference.
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------
23 Consent of Independent Registered Public Accounting Firm.
AUDITED FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES INVESTMENT INCENTIVE PLAN
YEARS ENDED DECEMBER 31, 2003 AND 2002
WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
AUDITED FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
YEARS ENDED DECEMBER 31, 2003 AND 2002
CONTENTS
Report of Independent Registered Public Accounting Firm .......................1
Audited Financial Statements
Statements of Net Assets Available for Benefits ...............................2
Statements of Changes in Net Assets Available for Benefits ....................3
Notes to Financial Statements .................................................4
Supplemental Schedules
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) ...............10
Schedule H, Line 4j - Schedule of Reportable Transactions ....................11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES INVESTMENT INCENTIVE PLAN
We have audited the accompanying statements of net assets available for benefits
of the Fremont General Corporation and Affiliated Companies Investment Incentive
Plan (the "Plan") as of December 31, 2003 and 2002, and the related statements
of changes in net assets available for benefits for the years then ended. 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 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. 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, the net assets available for benefits of the Plan at
December 31, 2003 and 2002, and the changes in its net assets available for
benefits for the years then ended, in conformity with U.S. 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 at end of year) as of December 31, 2003, 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 supplemental schedules 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
Los Angeles, California
June 11, 2004
1
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31
2003 2002
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Investments, at fair value ................................................. $ 137,466,418 $ 67,396,535
Interest and dividends receivable .......................................... 52,483 51,423
Other assets ............................................................... 164,735 68,814
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Net assets available for benefits .......................................... $ 137,683,636 $ 67,516,772
============= =============
See accompanying notes.
2
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31
2003 2002
------------- -------------
ADDITIONS (DEDUCTIONS)
Contributions:
Employee ................................................................ $ 8,953,209 $ 7,642,826
Employer ................................................................ 6,838,670 4,919,518
Interest and dividends ..................................................... 2,097,440 2,306,631
Net appreciation (depreciation) in fair value
of investments .......................................................... 67,494,551 (22,236,165)
Net benefit distributions to participants .................................. (15,217,006) (20,496,582)
------------- -------------
Net increase (decrease) .................................................... 70,166,864 (27,863,772)
Net assets available for benefits at beginning of year ..................... 67,516,772 95,380,544
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Net assets available for benefits at end of year ........................... $ 137,683,636 $ 67,516,772
============= =============
See accompanying notes.
3
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
1. DESCRIPTION OF THE PLAN
The following description of the Fremont General Corporation and Affiliated
Companies Investment Incentive Plan (the "Plan") provides only general
information. Participants should refer to the Plan document for a more complete
description of the Plan's provisions. In the case of any inconsistency between
this document and the Plan document, the Plan document shall prevail.
GENERAL
The Plan is a defined contribution 401(k) plan that commenced on February 1,
1986, and covers eligible employees of Fremont General Corporation ("FGC") and
subsidiaries (collectively, the "Company"). An eligible employee who is employed
by the Company may elect to make salary deferral 401(k) contributions as soon as
administratively feasible following his or her employment date.
CONTRIBUTIONS
Eligible employees may contribute up to 15% of their pretax eligible
compensation. Effective January 1, 2003, the Company began matching 100% of the
first 6% of eligible compensation contributed by the participant. During 2002,
the comparable matching contribution was 85%. Officers participate in the Plan
on the same basis as all other employees. The Company also may elect to make an
additional discretionary contribution. Discretionary employer contributions are
allocated to participants in proportion to their compensation. No discretionary
employer contributions were made in 2003 and 2002.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contributions and
allocations of (a) the Company's contributions and (b) Plan earnings or losses.
Allocations are based on participants' eligible compensation or, in the case of
investment earnings or losses, account balances. Forfeited balances of nonvested
accounts are used to reduce the Company's matching contributions in future
periods.
4
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF THE PLAN (CONTINUED)
VESTING
Participants' salary deferral 401(k) contributions and allocated earnings or
losses thereon are 100% vested at all times. Effective January 1, 2003, all
Company matching and discretionary contributions became fully vested to
participants that were active employees on or after January 1, 2003. Inactive
participants as of January 1, 2003 were subject to the vesting schedule in
effect at December 31, 2002.
DISTRIBUTIONS
Distributions of account balances may be made to participants under the
following circumstances; termination of employment, attainment of age 59 1/2,
retirement, as required for minimum distribution or pursuant to court order, or,
to the designated beneficiary following a participant's death. Participants may
make withdrawals from their account balances in the event of hardship for the
following circumstances: expenses to avoid eviction or foreclosure of their
principal residence, extraordinary uninsured medical expenses for the
participants or their dependents, tuition and related educational expenses for
post-secondary education for the following 12 months for the participants or
their dependents, and costs relating to the purchase of a principal residence.
PARTICIPANTS' LOANS
Participants may borrow from their account balance based on the balance at the
close of business of the prior day. Interest is fixed for the term of the loan.
An approved loan must be repaid fully within a minimum of 12 months to a maximum
of 60 months. A transaction fee of $40 is required from the participant upon
loan issuance.
AMENDMENT AND/OR TERMINATION
Although it has not expressed any intent to do so, the Company has the right to
terminate the Plan at any time for any reason. The Company also reserves the
right to amend the Plan at any time for any reason with or without advance
notice (unless required by law) in accordance with the procedures set forth in
the Plan document.
5
2. SUMMARY OF ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
VALUATION OF INVESTMENTS
All assets of the Plan are held by Merrill Lynch Trust Company, FSB ("Merrill
Lynch").
Investments in mutual funds are stated at current net asset value, which
approximates fair value. The funds' net asset values are determined by Merrill
Lynch. FGC Common Stock is stated at current market value as determined by the
Plan Administrator based on the closing price on the New York Stock Exchange.
The closing price of FGC Common Stock on December 31, 2003, was $16.91 per share
($4.49 per share at December 31, 2002).
INVESTMENT INCOME
Interest and dividends are recorded on the accrual basis.
Realized investment gains and losses are determined using the
specific-identification basis.
INCOME TAX STATUS
The Plan received a determination letter from the Internal Revenue Service dated
January 8, 2002, stating that the Plan is qualified, in form, 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 was amended
subsequent to receiving the determination letter. The Plan Administrator
believes that 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.
6
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
EXPENSES
All administrative expenses of the Plan are paid by the Company. The Plan
utilizes office space provided by the Company for which it pays no rent.
BENEFIT PAYMENTS
Benefit distributions to participants are recorded in the period in which the
distributions are paid. Distributions payable at December 31, 2003 and 2002,
were $181,492 and $68,818, respectively.
FORFEITURES
The balance of amounts forfeited by nonvested accounts of inactive participants
at December 31, 2003, was $423,295. These forfeitures will be used to reduce
employer matching contributions in future periods.
3. INVESTMENTS
During 2003 and 2002, the Plan's investments (including investments purchased,
sold as well as held during the year) appreciated (depreciated) in fair value as
follows:
YEAR ENDED DECEMBER 31
2003 2002
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FGC Common Stock ............................................................ $ 59,809,486 (15,650,946)
Mutual funds ................................................................ 7,685,065 (6,585,219)
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$ 67,494,551 $ (22,236,165)
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7
3. INVESTMENTS (CONTINUED)
Investments that represent 5% or more of the fair value of the Plan's assets are
as follows:
DECEMBER 31
2003 2002
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FGC Common Stock* ........................................................... $ 77,347,574 $ 22,138,719
Mutual Funds:
Merrill Lynch Fundamental Growth Fund .................................... 7,934,640 6,417,089
Merrill Lynch Core Bond Fund** ........................................... ** 4,930,629
Merrill Lynch Basic Value Fund** ......................................... ** 5,018,192
Merrill Lynch Retirement Preservation Fund ............................... 17,190,788 15,192,635
* Nonparticipant-directed
** Balance is less than 5% of the Plan's net assets at December 31, 2003
4. NONPARTICIPANT-DIRECTED INVESTMENTS
For reporting purposes, nonparticipant-directed investments include
participant-directed investments that cannot be separately determined; however,
all investments can be reallocated at the participants' discretion.
Information about the net assets and the significant components of the changes
in net assets relating to the nonparticipant-directed investments is as follows:
DECEMBER 31
2003 2002
------------- -------------
FGC Common Stock ........................................................... $ 77,347,574 $ 22,138,719
8
4. NONPARTICIPANT-DIRECTED INVESTMENTS (CONTINUED)
YEAR ENDED DECEMBER 31
2003 2002
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Change in net assets:-
Contributions ............................................................ $ 8,480,186 $ 6,038,391
Interest and dividends ................................................... 702,925 514,480
Net appreciation (depreciation) in fair value
of investments ......................................................... 59,809,486 (15,650,946)
Net transfers to participant-directed investments ........................ (8,268,976) (1,750,015)
Benefit distributions to participants .................................... (5,514,766) (3,830,860)
------------- --------------
Total ....................................................................... $ 55,208,855 $ (14,678,950)
============= ==============
5. RELATED PARTY TRANSACTIONS
Certain Plan investments are units of mutual funds and common/collective trust
funds managed by Merrill Lynch, the trustee as defined by the Plan. Participants
also have the option to invest in FGC Common Stock. At the Company's discretion,
the investments in FGC common stock may be funded from the Company's employee
benefits trust. The Company's employee benefits trust is also maintained with
Merrill Lynch. These transactions qualify as party-in-interest transactions.
9
SUPPLEMENTAL SCHEDULES
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
EIN 95-2815260 PLAN NO. 003
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003
DESCRIPTION OF
INVESTMENT, INCLUDING
MATURITY DATE, RATE
IDENTITY OF ISSUE, BORROWER, OF INTEREST, PAR OR CURRENT
LESSOR OR SIMILAR PARTY MATURITY VALUE COST VALUE
----------------------------------- -------------------------- ------------- -------------
Merrill Lynch*
Fundamental Growth Fund 497,145 Units $ ** $ 7,934,640
Global Allocation Fund 271,330 Units ** 4,072,668
Core Bond Fund 430,924 Units ** 5,050,430
Balanced Capital Fund 121,047 Units ** 3,198,059
Basic Value Fund 212,854 Units ** 6,504,826
S&P 500 Index Fund 376,930 Units ** 5,141,330
International Index Fund 141,203 Units ** 1,354,138
Retirement Preservation Fund 17,190,788 Units ** 17,190,788
Small Cap Value Fund 65,160 Units ** 1,679,185
Oppenheimer Quest Balance Value Fund 205,211 Units ** 3,359,306
State Street Aurora Fund 60,502 Units ** 2,335,999
Fremont General Corporation* 4,574,073 shares
of common stock 32,448,658 77,347,574
Participants' loans* Interest at the prime rate
plus 2% 2,297,475
-------------
$ 137,466,418
=============
*Indicates a party-in-interest to the Plan.
**Cost information is not necessary as investment is participant directed.
10
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
EIN 95-2815260 PLAN NO. 003
SCHEDULE H, LINE 4j - SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED DECEMBER 31, 2003
CURRENT
EXPENSES VALUE OF
INCURRED ASSET ON
DESCRIPTION PURCHASE SELLING WITH COST OF TRANSACTION NET
IDENTITY OF PARTY INVOLVED OF ASSETS PRICE PRICE TRANSACTION ASSET DATE GAIN
--------------------------- ------------ ----------- ----------- ----------- ------------ ----------- -----------
CATEGORY (III) - A SERIES OF TRANSACTIONS IN EXCESS OF 5% OF PLAN ASSETS
Fremont General Corporation* Common Stock $ 8,311,820 $ - $ - $ 8,311,820 $ 8,311,820 $ -
Fremont General Corporation* Common Stock - 9,504,121 - 5,528,215 9,504,121 3,975,906
There were no category (i), (ii) or (iv) reportable transactions during 2003.
*Indicates a party-in-interest to the Plan.
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.
FREMONT GENERAL CORPORATION
AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
June 28, 2004 /s/ RAYMOND G. MEYERS
----------------------------------------------------
Raymond G. Meyers
on behalf of the Plan Administrator of the
Fremont General Corporation and Affiliated Companies
Investment Incentive Plan