AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 2006
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
OR
TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NO. 001-08007
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
2425 OLYMPIC BOULEVARD - 3RD FLOOR EAST
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, 2005 and 2004, 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, 2005 and 2004
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
AUDITED FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
YEARS ENDED DECEMBER 31, 2005 AND 2004
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 as of December 31, 2005 and 2004, 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. We were not engaged to perform an
audit of the Plan's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Plan's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also 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.
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, 2005 and 2004, 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, 2005, 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.
Los Angeles, California
June 15, 2006
1
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31
2005 2004
------------- -------------
Investments, at fair value .................................................. $ 206,441,595 $ 190,495,848
Interest receivable ......................................................... 3,931 30,796
Other assets ................................................................ 125,613 23,736
------------- -------------
Net assets available for benefits ........................................... $ 206,571,139 $ 190,550,380
============= =============
See accompanying notes.
2
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31
2005 2004
------------- -------------
ADDITIONS (DEDUCTIONS)
Contributions:
Employee .................................................................. $ 18,405,180 $ 14,086,730
Employer .................................................................. 14,221,009 9,994,923
Interest and dividends ...................................................... 7,145,036 3,872,654
Net (depreciation) appreciation in fair value of investments ................ (9,972,868) 38,414,085
Net benefit distributions to participants ................................... (13,777,598) (13,501,648)
------------- -------------
Net increase ................................................................ 16,020,759 52,866,744
Net assets available for benefits at beginning of year ...................... 190,550,380 137,683,636
------------- -------------
Net assets available for benefits at end of year ............................ $ 206,571,139 $ 190,550,380
============= =============
See accompanying notes.
3
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
1. DESCRIPTION OF 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
Employees may elect to have up to 15% of their eligible compensation deferred
and deposited with the plan trustee which will invest the money at the
employee's discretion among a variety of investment funds including the
Company's common stock. Employee contributions are matched by the Company at a
rate of one dollar for every dollar contributed up to 6% of eligible
compensation deferred by the employee. Eligible employees may also make catch-up
contributions permitted under the Internal Revenue Code. The Company may make
additional contributions at its discretion. Company contributions during 2005
and 2004 to eligible employee participants were in shares of Company common
stock. Employees have discretion to diversify out of Company common stock after
the Company's contribution has been allocated into participants' accounts. All
employee contributions are 100% vested. The 401(k) Plan provides that for any
participant who is an employee on or after January 1, 2003, the participant's
interest in his or her matching contributions account is 100% vested.
Disbursement of the employee's account balance will occur upon retirement,
termination of employment or death. Shares of the Company's common stock held in
the 401(k) Plan and allocated to participants' accounts are voted by the 401(k)
Plan's Trustee upon instructions from the participants.
4
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF PLAN (CONTINUED)
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' contributions and eligible compensation
or, in the case of investment earnings or losses, account balances. Forfeited
balances of nonvested accounts are applied towards the Company's matching
contributions in future periods.
Participants' salary deferral 401(k) contributions and allocated earnings or
losses thereon are 100% vested at all times. Company matching and discretionary
contributions became fully vested to participants that were active employees on
or after January 1, 2003. Different vesting rules may apply to participants who
terminated employment with the Company before January 1, 2003.
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.
Effective January 1, 2006, the Plan was amended to add the following
circumstances for hardship withdrawals: burial or funeral expenses for certain
dependents of participants and expenses for the repair of damage to the
principal residence of participants.
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 loan processing fee of $40 is deducted directly from the
paycheck in which the first loan repayment is made.
5
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF PLAN (CONTINUED)
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.
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 based on the composite
closing price as reported on the New York Stock Exchange. The closing price of
FGC common stock on December 31, 2005, was $23.23 per share ($25.18 per share at
December 31, 2004). Participant loans and the Retirement Preservation Fund are
stated at cost, which approximates fair value.
INVESTMENT INCOME
Interest income is recorded on the accrual basis.
Realized investment gains and losses are determined using the
specific-identification basis.
6
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
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, 2005, were
$150,769. There were no distributions payable at December 31, 2004.
FORFEITURES
The balance of amounts forfeited by nonvested accounts of inactive participants
at December 31, 2005, was $47,214 ($367,673 in 2004). These forfeitures will be
applied towards employer matching contributions in future periods.
7
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
During 2005 and 2004, the Plan's investments (including investments purchased,
sold as well as held during the year) (depreciated) appreciated in fair value as
follows:
YEARS ENDED DECEMBER 31
2005 2004
------------ -------------
FGC common stock ............................................................ $ (9,751,103) $ 35,230,583
Mutual funds ................................................................ (221,765) 3,183,502
------------ -------------
$ (9,972,868) $ 38,414,085
============ =============
Investments that represent 5% or more of the fair value of the Plan's assets are
as follows:
DECEMBER 31
2005 2004
------------ -------------
FGC common stock $ 98,922,288 $ 108,951,480
Mutual Funds:
Merrill Lynch Fundamental Growth Fund 12,356,260 9,846,580
Merrill Lynch Retirement Preservation Fund 24,512,196 19,052,512
Merrill Lynch S&P 500 Index Fund 10,332,508 *
* The balance was less than 5% of the fair value of the Plan's assets.
4. 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 that is also maintained with Merrill Lynch. These transactions
qualify as party-in-interest transactions.
8
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following table reconciles net assets available for benefits per the
financial statements to Form 5500 as filed with the Department of Labor:
DECEMBER 31
2005 2004
------------- -------------
Net assets available for benefits per the financial statements ............. $ 206,571,139 $ 190,550,380
Less: Benefit payable to participants ...................................... 150,769 -
------------- -------------
Net assets available for benefits per Form 5500 ............................ $ 206,420,370 $ 190,550,380
============= =============
Amounts payable to participants are reflected as benefit obligations for
financial statement purposes but are not included in net assets on Form 5500.
9
SUPPLEMENTAL SCHEDULES
FREMONT GENERAL CORPORATION AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
EIN: 95-2815260 PLAN NUMBER: 003
SCHEDULE H, LINE 4(i) - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2005
DESCRIPTION OF
INVESTMENT, INCLUDING
MATURITY DATE, RATE
IDENTITY OF ISSUE, BORROWER, OF INTEREST, PAR OR
LESSOR OR SIMILAR PARTY MATURITY VALUE COST CURRENT VALUE
----------------------------- --------------------- ------ -------------
Merrill Lynch:*
Fundamental Growth Fund .............................. 645,236 Units $ ** $ 12,356,260
Global Allocation Fund ............................... 552,563 Units ** 9,360,420
Core Bond Fund ....................................... 594,730 Units ** 6,875,084
Balanced Capital Fund ................................ 187,096 Units ** 4,795,276
Basic Value Fund ..................................... 319,490 Units ** 9,920,181
S&P 500 Index Fund ................................... 675,769 Units ** 10,332,508
International Index Fund ............................. 408,324 Units ** 5,091,803
Retirement Preservation Fund ......................... 24,512,196 Units ** 24,512,196
Value Opportunities .................................. 273,410 Units ** 7,067,637
Oppenheimer Quest Balance Value Fund ................... 302,066 Units ** 5,394,901
Blackrock Aurora Fund .................................. 217,711 Units ** 7,443,538
Fremont General Corporation* ........................... 4,258,385 shares
of common stock ** 98,922,288
Participants' loans* ................................... Interest at the prime
rate plus 2% 4,369,503
-------------
$ 206,441,595
=============
* 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 NUMBER: 003
SCHEDULE H, LINE 4(j) - SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED DECEMBER 31, 2005
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 $ 16,336,277 $ - $ - $ 16,336,277 $ 16,336,277 $ -
Fremont General Corporation* Common Stock - 14,538,350 - 8,403,035 14,538,350 6,135,315
There were no category (i), (ii) or (iv) reportable transactions during 2005.
* Indicates a party-in-interest to the Plan.
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.
FREMONT GENERAL CORPORATION AND AFFILIATED
COMPANIES INVESTMENT INCENTIVE PLAN
June 29, 2006 /s/ RAYMOND G. MEYERS
-------------------------------------------
Raymond G. Meyers
on behalf of the Plan Administrator of the
Fremont General Corporation and Affiliated
Companies Investment Incentive Plan