<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- ----------------
Commission file number: 1-9627
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
The Zenith 401(k) Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive offices:
Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, CA 91367-5021
<PAGE>
REQUIRED INFORMATION
On behalf of The Zenith 401(k) Plan, the following financial statements and
schedules have been prepared in accordance with the financial reporting
requirements of ERISA and are filed herewith:
1. Statements of Net Assets Available for
Benefits As of December 31, 1997
and 1996
2. Statement Of Changes In Net Assets
Available For Benefits For the Year
Ended December 31, 1997
3. Line 27(a) - Schedule of Assets Held For
Investment Purposes As Of December 31, 1997
4. Line 27(d) - Schedule of Reportable
Transactions For The Year
Ended December 31, 1997
The written consent of Coopers & Lybrand L.L.P. with respect to the annual
financial statements of The Zenith 401(k) Plan is filed as Exhibit 23 to this
annual report.
<PAGE>
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.
The Zenith 401(k) Plan
Date: July 1, 1998 /s/ Michael W. Jacobson
----------------- -------------------------
Michael W. Jacobson
Chairman
Administrative Committee
<PAGE>
THE ZENITH 401(k) PLAN
FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
----------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
Report of Independent Accountants 1
Financial Statements:
Statements of Net Assets Available for Benefits
as of December 31, 1997 and 1996 2
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 1997 3
Notes to Financial Statements 4
Supplemental Schedules:
Line 27(a) - Schedule of Assets Held for Investment Purposes
as of December 31, 1997 15
Line 27(d) - Schedule of Reportable Transactions
for the Year Ended December 31, 1997 16
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
----------
To the Administrative Committee
The Zenith 401(k) Plan
We have audited the accompanying statements of net assets available for benefits
of The Zenith 401(k) Plan (the "Plan") as of December 31, 1997 and 1996, and the
related statement of changes in net assets available for benefits for the year
ended December 31, 1997. 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 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, the net assets available for benefits of the Plan as of
December 31, 1997 and 1996, and the changes in net assets available for benefits
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for purposes
of additional analysis and are not a required part of the basic 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. The fund information in the statement of
net assets available for benefits and the statement of changes in net assets
available for benefits as of and for the year ended December 31, 1997 is
presented for purposes of additional analysis rather than to present the net
assets available for plan benefits and changes in net assets available for plan
benefits of each fund. These supplemental schedules and fund information are the
responsibility of the Plan's management. The supplemental schedules and fund
information have been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
Los Angeles, California
June 12, 1998
1
<PAGE>
THE ZENITH 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
(WITH FUND INFORMATION FOR 1997)
As Of December 31, 1997 And 1996
----------
<TABLE>
<CAPTION>
Non-Participant
And Participant
Directed Participant Directed
----------------- -----------------------------------------------------
State Street
Research
Zenith PBHG Equity Founders Janus
Company Growth Investment Balanced Worldwide
Stock Fund Fund Fund Fund Fund
----------------- ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Investments:
At fair value:
Shares of Zenith Common Stock (cost of
$6,436,645 for 1997 and $6,695,581 for 1996) $7,851,870
Shares of Registered Investment Companies:
PBHG Growth Fund (cost of $1,319,575) $1,327,859
State Street Research Equity Investment Fund
(cost of $831,281) $779,899
Founders Balanced Fund (cost of $748,868) $727,868
Janus Worldwide Fund (cost of $2,392,027) $2,258,472
Scudder Growth & Income Fund (cost of
$2,065,516)
Warburg Pincus Emerging Growth Fund (cost of
$852,239)
Short-Term Investment Fund 166,718
Invested cash
At contract value:
MetLife Guaranteed Fixed Income Contracts
Participants loans receivable
----------- ------------ ----------- ---------- -------------
Total investments 8,018,588 1,327,859 779,899 727,868 2,258,472
Receivables 41,205 22,969 12,063 12,471 34,432
----------- ------------ ----------- ---------- -------------
Net assets available for benefits $8,059,793 $1,350,828 $791,962 $740,339 $2,292,904
----------- ------------ ----------- ---------- -------------
----------- ------------ ----------- ---------- -------------
Participant Directed
------------------------------------------------------
Warburg
Pincus MetLife
Scudder Emerging Guaranteed Participant
Growth & Growth Fixed Income Loans 1997
Income Fund Fund Fund Receivable Total 1996
------------- ---------- ------------ ------------- ---------- -----------
Investments:
At fair value:
Shares of Zenith Common Stock (cost of
$6,436,645 for 1997 and $6,695,581 for 1996) $7,851,870 $ 8,942,372
Shares of Registered Investment Companies:
PBHG Growth Fund (cost of $1,319,575) 1,327,859
State Street Research Equity Investment Fund
(cost of $831,281) 779,899
Founders Balanced Fund (cost of $748,868) 727,868
Janus Worldwide Fund (cost of $2,392,027) 2,258,472
Scudder Growth & Income Fund (cost of
$2,065,516) $2,062,520 2,062,520
Warburg Pincus Emerging Growth Fund (cost of
$852,239) $855,677 855,677
Short-Term Investment Fund 166,718 13,063,710
Invested cash 41,596
At contract value:
MetLife Guaranteed Fixed Income Contracts $9,459,412 9,459,412
Participants loans receivable $349,589 349,589
------------- ---------- ------------- ---------- ----------- -----------
Total investments 2,062,520 855,677 9,459,412 349,589 25,839,884 22,047,678
Receivables 28,108 10,963 16,104 178,315 57,188
------------- ---------- ------------- ---------- ----------- -----------
Net assets available for benefits $2,090,628 $866,640 $9,475,516 $349,589 $26,018,199 $22,104,866
------------- ---------- ------------- ---------- ---------- -----------
------------- ---------- ------------- ---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
THE ZENITH 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
(WITH FUND INFORMATION)
For The Year Ended December 31, 1997
------------
<TABLE>
<CAPTION>
Non-Participant And
Participant Directed Participant Directed
--------------------------- ------------------------------------------------------
State Street
Short Term Zenith PBHG Research Equity Founders Janus
Investment Company Growth Investment Balanced Worldwide
Fund Stock Fund Fund Fund Fund Fund
------------ ------------ ----------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Additions:
Contributions:
Employer $975,226
Employee 115,766 $526,639 $259,638 $270,226 $772,091
Employee rollovers 110 32,052 7,167 3,475 15,410
------------ ----------- --------------- ---------- ---------
Total contributions 1,091,102 558,691 266,805 273,701 787,501
Investment income:
Dividends 317,994 90,879 55,116 155,297
Interest $180,395 12,742
Net appreciation (depreciation) in
fair value of investments (492,989) 12,919 (50,620) (18,998) (120,773)
------------ ------------ ----------- --------------- ---------- ---------
Total investment income 180,395 (162,253) 12,919 40,259 36,118 34,524
------------ ------------ ----------- --------------- ---------- ---------
Total additions 180,395 928,849 571,610 307,064 309,819 822,025
Deductions:
Benefits paid to participants (845,559) (18,585) (17,745) (14,341) (39,435)
Fees (369) (121) (99) (130) (377)
------------ ------------ ----------- --------------- ---------- ---------
Total deductions - (845,928) (18,706) (17,844) (14,471) (39,812)
------------ ------------ ----------- --------------- ---------- ---------
Net increase (decrease)
prior to interfund transfers 180,395 82,921 552,904 289,220 295,348 782,213
Interfund transfers (13,342,889) (965,500) 797,924 502,742 444,991 1,510,691
------------ ------------ ----------- --------------- ---------- ---------
Net (decrease) increase (13,162,494) (882,579) 1,350,828 791,962 740,339 2,292,904
Net assets available for benefits:
Beginning of year 13,162,494 8,942,372 - - - -
------------ ------------ ----------- --------------- ---------- ---------
End of year $ - $8,059,793 $1,350,828 $791,962 $740,339 $2,292,904
------------ ------------ ----------- --------------- ---------- ---------
------------ ------------ ----------- --------------- ---------- ---------
<CAPTION>
Participant Directed
---------------------------------------------------------------------------
Warburg MetLife
Scudder Pincus Guaranteed Participant
Growth & Emerging Fixed Income Loans
Income Fund Growth Fund Fund Receivable Total
------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Additions:
Contributions:
Employer $975,226
Employee $614,097 $227,883 $1,252,894 4,039,234
Employee rollovers 107,159 15,561 61,762 - 242,696
------------- ------------- ------------ ------------ -----------
Total contributions 721,256 243,444 1,314,656 - 5,257,156
Investment income:
Dividends 154,916 50,722 824,924
Interest 404,570 597,707
Net appreciation (depreciation) in
fair value of investments 11,815 9,840 (648,806)
------------- ------------- ------------ ------------ -----------
Total investment income 166,731 60,562 404,570 - 773,825
------------- ------------- ------------ ------------ -----------
Total additions 887,987 304,006 1,719,226 - 6,030,981
Deductions:
Benefits paid to participants (37,103) (24,254) (1,107,712) ($9,114) (2,113,848)
Fees (303) (105) (2,296) (3,800)
------------- ------------- ------------ ------------ -----------
Total deductions (37,406) (24,359) (1,110,008) (9,114) (2,117,648)
------------- ------------- ------------ ------------ -----------
Net increase (decrease)
prior to interfund transfers 850,581 279,647 609,218 (9,114) 3,913,333
Interfund transfers 1,240,047 586,993 8,866,298 358,703 -
------------- ------------- ------------ ------------ -----------
Net (decrease) increase 2,090,628 866,640 9,475,516 349,589 3,913,333
Net assets available for benefits:
Beginning of year - - - - 22,104,866
------------- ------------- ------------ ------------ -----------
End of year $2,090,628 $866,640 $9,475,516 $349,589 $26,018,199
------------- ------------- ------------ ------------ -----------
------------- ------------- ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
----------
1. The Plan:
The following is a general description of The Zenith 401(k) Plan (the
"Plan").
GENERAL
The Plan is a self-directed account plan in compliance with ERISA Section
404(c) originally adopted by Zenith National Insurance Corp.'s ("ZNIC")
Board of Directors effective August 1, 1988. The Plan is offered to all
eligible employees of ZNIC and those of its subsidiaries that elect to
become "participating employers" (the "Company"). The Plan is subject to
the provisions of the Employee Retirement Income Security Act of 1974
("ERISA") and Section 401(a) and Section 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"). All assets of the Plan are held by a
trustee (the "Trustee") in a trust (the "Trust") created by a trust
agreement dated as of December 30, 1996 (the "Trust Agreement"). Prior to
the effective date (January 1, 1997) of the Trust Agreement, the Trustee
was City National Bank under a prior trust agreement; the new Trustee is
Chase Manhattan Bank, N.A. At December 31, 1997 and 1996, there were 1,335
and 1,007 participants, respectively, in the Plan.
PLAN AMENDMENT
Effective January 1, 1997, the following significant changes to the Plan
were made:
a. The name of the Plan was changed to The Zenith 401(k) Plan from The
Zenith Investment Partnership 401(k) Plan.
b. A one-year employment eligibility for participation was imposed; the
minimum age requirement for participation was eliminated.
c. A choice of investment options into which participants may direct
their contributions was given. The choices are the Zenith Company
Stock Fund; PBHG Growth Fund; State Street Research Equity Investment
Fund; Founders Balanced Fund; Janus Worldwide Fund; Scudder Growth &
Income Fund; Warburg Pincus Emerging Growth Fund; and MetLife
Guaranteed Fixed Income Fund.
d. The Plan will comply with ERISA Section 404(c), as a self-directed
account plan.
e. A loan feature was instituted by which participants are able to borrow
the lesser of $50,000 or up to one-half of the value of the
contributions made by the participant.
f. The definition of compensation was broadened to include bonuses,
commissions, overtime, and elective deferrals.
Continued
4
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. The Plan, Continued:
ELIGIBILITY
A person hired by the Company on or before December 31, 1996 is eligible to
join the Plan immediately. A person hired by the Company on or after
January 1, 1997, is eligible to enroll in the Plan on the next quarterly
entry date, after completion of one full year of service with the Company.
CONTRIBUTIONS
Participants may elect to contribute between 1% to 12% of their
compensation up to a maximum of $9,500 for 1997 and 1996 ("Salary Reduction
Contributions"). The maximum is adjusted each year for increases in the
cost of living as provided in applicable regulations. This annual amount is
an aggregate limitation that applies to all of an individual's salary
reduction contributions and similar contributions under other plans. The
Company contributes 33-1/3% of the participant's "matched" contribution
amount (matched contributions are defined as the first 6% of participant's
compensation). The Company's contribution shall not exceed 2% of a
participant's annual compensation. As of January 1, 1997, the definition of
compensation was broadened to include wages, bonuses, commissions and
overtime. The Company's contribution is invested exclusively in the Zenith
Company Stock Fund.
The salary reduction contributions and Company contributions, made on
behalf of each participant, are paid to the Trustee semi-monthly.
Participants may allocate each contribution from their compensation among
the choices in such percentages as they may determine, so long as the
amount directed to the Zenith Company Stock Fund does not exceed twenty
percent of that contribution. The value of each fund will be determined
daily and participants will be able to transfer amounts between funds on
any business day, except that amounts may be only transferred out of, but
not into, the Zenith Company Stock Fund.
PARTICIPANT ACCOUNTS
Each participant's account is credited with: (1) the participant's
contributions, (2) participant rollover contributions from non-Company
plans, (3) the related Company matching contributions, and (4) fund
earnings. Allocations of earnings are based on account balances, as defined
in the Plan Document. These accounts are summarized in the accompanying
financial statements as net assets available for benefits.
Continued
5
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. The Plan, Continued:
VESTING
Each participant has an immediate, fully vested right to receive all salary
reduction contributions, all Company matching contributions made prior to
January 1, 1991, and earnings thereon, upon termination from the Company,
or upon separation caused by death of the participant. All Company matching
contributions made after January 1, 1991 are subject to a five-year
graduated vesting schedule with respect to participants who became employed
by the Company on or after April 1, 1988.
However, irrespective of the vesting schedule, a participant is fully
vested upon his death, disability or attainment of age 65.
FORFEITURES
Upon termination of service, a participant forfeits any non-vested Company
contributions. Such forfeitures are used first to reinstate participant
account balances previously forfeited which are subject to reinstatement
under the terms of the Plan. Any remaining unused forfeitures are used to
reduce current or future years contributions to the Plan by the Company.
In 1997, the Company's contributions were reduced by $22,678 from forfeited
nonvested accounts. At December 31, 1997, forfeited nonvested accounts
totalled $43,255 which remain available to reduce future Company
contributions.
WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT
Except in limited circumstances, withdrawals may not be made by a
participant while employed by the Company. Hardship withdrawals of a
participant's salary reduction contributions are permitted where a
participant has an immediate and heavy financial need (as determined under
Section 401(k)(2)(B)(IV) of the Code) and that need cannot be satisfied
from other resources of the participant. In addition, participants who
reach 59-1/2 years old may take an in-service withdrawal of the vested
portion of their individual account.
Continued
6
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. The Plan, Continued:
INVESTMENTS
Effective January 1, 1997, the Plan expanded participant-directed
investment options. Subject to certain limitations detailed in the Plan
Document, participants may allocate their past and future account balances
attributable to salary reduction contributions and rollovers in any
combination of investment options set out below.
The Company's contributions and any earnings thereon are invested in the
Zenith Company Stock Fund, and are not subject to participant direction
until such participant reaches age fifty-five (55). As of December 31,
1997, $4,419,002 of the investment in the Zenith Company Stock Fund is
participant directed.
Condensed descriptions of investment options (supplied by MetLife) offered
by the Plan are as follows:
INVESTMENT OPTIONS:
ZENITH COMPANY STOCK FUND invests in the common stock of Zenith National
Insurance Corp., par value, $1.00 per share ("Zenith Common Stock").
PBHG GROWTH FUND seeks capital appreciation. This fund normally invests
at least 65% of its total assets in common stocks and convertible
securities of small and medium sized growth companies (market
capitalization or annual revenues up to $2 billion) believed to have an
outlook for strong earnings growth and potential for significant capital
appreciation.
STATE STREET RESEARCH EQUITY INVESTMENT FUND seeks to achieve long-term
growth of capital and, secondarily, long-term growth of income. The fund
invests primarily in the common stocks of established companies with
above-average prospects for growth. Although the fund's investments are not
limited to companies of any particular size, it is anticipated that a
majority of the securities in which the fund invests will be listed on a
national securities exchange.
FOUNDERS BALANCED FUND seeks current income and capital appreciation. The
fund normally invests in a balanced portfolio of dividend-paying common
stocks, U.S. and foreign government obligations and a variety of corporate
fixed-income securities. The equity portion of the fund emphasizes common
stocks with the potential for capital appreciation. While these stocks
generally pay regular dividends, the Fund also may invest in
non-dividend-paying companies. The fund maintains a minimum of 25% of its
assets in investment-grade, fixed-income securities.
Continued
7
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. The Plan, Continued:
INVESTMENTS, Continued
INVESTMENT OPTIONS, Continued:
JANUS WORLDWIDE FUND seeks long-term growth of capital in a manner
consistent with the preservation of capital by investing primarily in
common stocks of foreign and domestic issuers. The fund normally invests in
issuers from at least five different countries, including the United
States; but may at times invest in fewer than five countries or even a
single country.
SCUDDER GROWTH & INCOME FUND seeks long-term growth of capital, current
income and growth of income. The fund invests primarily in common stocks,
preferred stocks, and securities convertible into common stocks of
companies which offer the prospect for growth of earnings while paying
current dividends. The fund allocates investments among different
industries and companies and adjusts its portfolio securities for
investment considerations, not for trading purposes.
WARBURG PINCUS EMERGING GROWTH FUND is a mutual fund with the objective of
maximum capital appreciation. The fund invests primarily a portfolio of
equity securities of small- to medium-sized companies that show positive
earnings and prospects of achieving significant profit and gain in a
relatively short period of time.
METLIFE GUARANTEED FIXED INCOME FUND provides a guarantee by MetLife of
both principal and a rate of interest (6.2% for the year ended December 31,
1997) for a specified period of time. This account consists of one or more
MetLife guaranteed interest contracts, which offer intermediate-term
interest rates and protection from potential market fluctuation in interest
rates during the guarantee period.
PARTICIPANT LOANS RECEIVABLE
Commencing January 1, 1997, participants may borrow from their salary
reduction contributions accounts and rollover accounts a minimum amount of
$1,000 up to a maximum amount equal to the lesser of (a) 50% of the
combined balances of their salary reduction contributions accounts and
rollover accounts, or (b) $50,000, reduced by the highest outstanding loan
balance during the last 12 months. Participants may not obtain a loan of
their matching contributions accounts. Loan transactions are treated as a
transfer to (from) the investment fund from (to) the participant loans
receivable. Loan terms range from one to five years or up to thirty years
for the purchase of a principal residence. The loans are secured by the
balance in the participant's account and bear interest at the prime rate
set by the Chase Manhattan Bank, N.A. as of the close of the
Continued
8
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. The Plan, Continued:
PARTICIPANT LOANS RECEIVABLE, Continued
last business day of the month preceding the calendar quarter in which the
loan is made. Principal and interest are paid ratably through payroll
deductions. Upon termination of employment, participants are required to
pay the outstanding loan amount in full.
PAYMENT OF BENEFITS
Upon termination of employment, retirement, permanent disability or death,
if a distribution is made, a participant receives (1) cash with respect to
the portion of the individual account not invested in the Zenith Company
Stock Fund and (2) at the participant's election, cash or shares of Zenith
Common Stock plus cash in lieu of any fractional shares with respect to the
Zenith Company Stock Fund. Payments are generally processed twice a month.
EXPENSES
The Plan provides that all expenses of the Plan (i.e., legal, accounting,
administration, and brokerage fees) will be paid by the Company, with the
exception of expenses related to the administration of the mutual funds
offered as investment alternatives. Expenses related to the administration
of the mutual funds will be paid by the respective mutual funds, and will
be reflected in the overall investment return of such funds. Trustee
expenses for 1997 totalled $56,261.
TERMINATION
While the Company has not expressed an intent to terminate the Plan, it may
do so at any time. Upon such termination, each participant shall be 100%
vested in his salary reduction contributions account, rollover
contributions account and matching contributions account.
Continued
9
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. The Plan, Continued:
ADMINISTRATION
The Plan is administered by an Administrative Committee appointed by the
Board of Directors of ZNIC.
The Administrative Committee has responsibility for administration of the
Plan, including supervision of the collection of contributions, delivery of
such contributions to the Trustee, and maintenance of necessary records.
The Administrative Committee has contracted with Metropolitan Life
Insurance Company ("MetLife") to provide record keeping services for the
Plan.
The Trustee is Chase Manhattan Bank N.A., New York, New York. The Trustee's
responsibilities include receipt of Plan contributions, investment and
maintenance of Trust assets in the available funds, and distributions under
the Plan of such amounts as the Administrative Committee shall direct from
time to time.
2. Summary Of Significant Accounting Policies:
BASIS OF ACCOUNTING
The financial statements of the Plan are prepared on the accrual basis of
accounting in conformity with generally accepted accounting principles.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Plan's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of additions to and
deductions from net assets during the reporting period. Actual results
could differ from those estimates.
Continued
10
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
2. Summary Of Significant Accounting Policies, Continued:
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investment in the Zenith Company Stock Fund is accounted for
using the unit valuation method. The total value of the fund fluctuates
depending upon the amount of interest earned on its cash, dividends paid on
Zenith Common Stock, expenses, realized gains and losses on its sale of
Zenith Common Stock, and unrealized appreciation or depreciation in the
value of Zenith Common Stock. The value of the Zenith Company Stock Fund is
determined using the year ended closing price of Zenith Common Stock on the
New York Stock Exchange.
The Plan's investments in shares of registered investment companies (mutual
funds) are valued at quoted market prices, which represent the net asset
value of shares held by the Plan at year-end.
Dividends and capital gains distributions declared by a mutual fund are
allocated to each individual participant holding units in the mutual fund.
Each participant's shares as of a record date are multiplied by the
dividend rate declared by the mutual fund. Certain funds declare a daily
dividend rate and each day is a record date for those funds. At the end of
the month, each participant's account balance for each day of the month is
credited with each day's dividend based on the rates declared.
Generally, interest, dividends and capital gain distributions are allocated
to a participant's account in a mutual fund based on the number of units
the participant holds in that mutual fund compared to total units
outstanding for that mutual fund.
Purchases and sales of securities are reflected on a trade-date basis. Each
gain or loss on sales of securities is computed on an average-cost basis.
The net appreciation (depreciation) in the fair value of the Plan's
investments disclosed in the statement of changes in net assets available
for benefits consists of realized gains or losses and unrealized
appreciation (depreciation) on investments.
The Plan's investment in the MetLife Guaranteed Fixed Income Fund is valued
at contract value which represents contributions plus interest earned less
benefits paid and transfers to/from other funds. As of December 31, 1997,
the contract value approximated fair value.
Participant loans are valued at cost, which approximates fair value.
Continued
11
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
2. Summary Of Significant Accounting Policies, Continued:
CONTRIBUTIONS
Company and participant contributions are recorded in the period that a
participant's payroll deduction is made.
3. Investments:
The following are the individual investments, at fair value, that represent
5 percent or more of the Plan's net assets:
<TABLE>
<CAPTION>
December 31
------------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Zenith Company Stock Fund $8,018,588 $ 8,942,372
PBHG Growth Fund 1,327,859 --
Short-Term Investment Fund -- 13,063,710
Janus Worldwide Fund 2,258,472 --
Scudder Growth & Income Fund 2,062,520 --
MetLife Guaranteed Fixed Income Fund 9,459,412 --
</TABLE>
4. Tax Status:
The Plan was designed to qualify under Sections 401(a) and 401(k) of the
Code and for the Trust to be exempt from federal income taxes under Section
501(a) of the Code. The Plan initially received a favorable determination
in 1989 from the Internal Revenue Service as to the above. In 1995, the
Plan applied for, and received, an updated determination letter that the
Plan, as amended, continues to be qualified under Sections 401(a) and
401(k) of the Code and that the Trust continues to be exempt from federal
income taxes under Sections 501(a) of the Code.
As described in Note 1, the Plan was amended effective January 1, 1997. The
amendment had no impact on the net assets available for benefits. ZNIC, as
Plan Sponsor, believes that the Plan, as amended, will continue to be
qualified under Sections 401(a) and 401(k) of the Code and that the Trust
will continue to be exempt from federal income taxes under Section 501(a)
of the Code. An application to the Internal Revenue Service for an updated
determination letter to such effect will be submitted.
Continued
12
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
5. Reconciliation Of Financial Statements To The Form 5500:
Amounts allocated to withdrawing participants for benefit claims that have
been processed and approved for payment prior to December 31, but not yet
paid, are included in net assets available for benefits. For reporting to
the Department of Labor, these amounts are reported as a liability on the
Form 5500.
The following is a reconciliation of net assets available for benefits as
shown in the accompanying financial statements to those shown in the Form
5500 at:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
---------- -----------
<S> <C> <C>
Net assets available for benefits per the
accompanying financial statements $26,018,199 $22,104,866
Less: Amounts allocated to withdrawing
participants (196,333) (445,037)
----------- -----------
Net assets available for benefits per the
Form 5500 $25,821,866 $21,659,829
----------- -----------
----------- -----------
</TABLE>
The following is a reconciliation of benefits paid to participants as shown
in the accompanying financial statements for the year ended December 31,
1997 of those shown in the Form 5500:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Benefits paid to participants per the accompanying financial
statements $2,113,848
Add: Amounts allocated to withdrawing participants at end of year 196,333
Less: Amounts allocated to withdrawing participants at beginning of year (445,037)
----------
Benefits paid to participants per the Form 5500 $1,865,144
----------
----------
</TABLE>
Continued
13
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
6. Federal Income Taxes Applicable To Participants:
The income tax rules affecting Plan participation are complex, subject to
interpretation by the Secretary of the Treasury and subject to change. A
general summary of the federal tax consequences of participation in the
Plan follows. An expanded discussion of tax consequences is available in
the Summary Plan Description/Prospectus dated April 1, 1997, for the Plan.
In general, 401(k) Company and Salary Reduction Contributions are not
subject to tax when made. In addition, earnings and gains on a
participant's account are not subject to tax when credited.
Generally, distributions from the Plan are subject to tax in the year
received from the Plan. However, under certain circumstances, a
distribution, or part thereof, may not be taxed if rolled over to an
Individual Retirement Account or other qualified plan. If taxable, a
distribution may be eligible for special tax treatment under the Code.
In addition to regular taxes, most distributions received before a
participant is age 59-1/2 will be subject to a 10% additional tax. Under
limited circumstances, distributions in excess of Code-determined limits
will be subject to a 15% excise tax.
7. Risk And Uncertainty:
Approximately 30% of the Plan's net assets available for benefits are held
in the Zenith Company Stock Fund which primarily consists of Zenith Common
Stock. Due to the inherent risk associated with securities traded in public
markets, it is reasonably possible that fluctuations in the Zenith Company
Stock Fund could have a significant impact on the net assets of the Plan in
the near term.
Approximately 36% of the Plan's net assets available for benefits are held
in the MetLife Guaranteed Fixed Income Fund. This fund provides a guarantee
by MetLife of both principal and a fixed rate of interest during the
guarantee period.
14
<PAGE>
THE ZENITH 401(k) PLAN
LINE 27(a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
As Of December 31, 1997
----------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(c)
(b) Description Of Investments, Including Maturity Date,
Identity Of Issue, Borrower, Lessor, Rate Of Interest, Collateral, (d) (e)
(a) Or Similar Party Par Or Maturity Value Cost Current Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
** Zenith National Insurance Corp. Common Stock - 304,927 Shares $ 6,436,645 $ 7,851,870
* Short-Term Investment Funds Short-Term Investment Fund - 166,718 Units 166,718 166,718
* PBHG Funds Growth Fund - Mutual Funds - 52,298 Units 1,319,575 1,327,859
* State Street Research Funds Equity Investment Fund - Mutual Fund - 42,875 Units 831,281 779,899
* Founders Funds Balanced Fund - Mutual Fund - 64,129 Units 748,868 727,868
* Janus Funds Worldwide Fund - Mutual Fund - 59,780 Units 2,392,027 2,258,472
* Scudder Funds Growth & Income Fund - Mutual Fund - 75,467 Units 2,065,516 2,062,520
* Warburg Pincus Funds Emerging Growth Fund - Mutual Funds - 22,655 Units 852,239 855,677
* Metropolitan Life Insurance Company Guaranteed Fixed Income Fund at 6.20% 9,459,412 9,459,412
Participant Loans Various Maturity Dates - Interest Rate 8.50% - 349,589
----------- -----------
Total investments $24,272,281 $25,839,884
----------- -----------
----------- -----------
</TABLE>
* Indicates a party-in-interest for which a statutory exemption exists.
** Sponsor and employer and, therefore, a party-in-interest for which a
statutory exemption exists.
15
<PAGE>
THE ZENITH 401(k) PLAN
LINE 27(d) - SCHEDULE OF REPORTABLE TRANSACTIONS(1)
For The Year Ended December 31, 1997
----------
<TABLE>
<CAPTION>
b) Description Of Assets
(Including Interest Rate And (c) Purchase (d) Selling
(a) Identity Of Party Involved Maturity In Case Of A Loan) Price Price
<S> <C> <C> <C>
Zenith National Insurance Corp.(2) Zenith Common Stock $1,103,554
(43 transactions)
Zenith National Insurance Corp.(2) Zenith Common Stock $1,225,049
(177 transactions)
Merrill Lynch Institutional Fund (3) Short-Term Investment 13,342,889
Fund (1 transaction)
PBHG Funds(3) Growth Fund 1,450,098
(132 transactions)
PBHG Funds(3) Growth Fund 135,163
(64 transactions)
State Street Research Funds(3) Equity Investment Fund 889,426
(120 transactions)
State Street Research Funds(3) Equity Investment Fund 58,904
(51 transactions)
Founders Fund(3) Balanced Fund 816,002
(101 transactions)
Founders Fund(3) Balanced Fund 69,135
(58 transactions)
Janus Funds(3) Worldwide Fund 2,690,026
(152 transactions)
Janus Funds(3) Worldwide Fund 310,780
(74 transactions)
Scudder Funds(3) Growth & Income Fund 2,258,951
(158 transactions)
Scudder Funds(3) Growth & Income Fund 208,244
(69 transactions)
Warburg Pincus Funds(3) Emerging Growth Fund 943,794
(130 transactions)
Warburg Pincus Funds(3) Emerging Growth Fund 97,959
(47 transactions)
Metropolitan Life Insurance Company(3) Guaranteed Fixed Income Fund 15,085,639
(101 transactions)
Metropolitan Life Insurance Company(3) Guaranteed Fixed Income Fund 6,016,119
(187 transactions)
(f) Expense (h) Current Value
(e) Lease Incurred With Of Asset On (i) Net Gain
(a) Identity Of Party Involved Rental Transaction (g) Cost Of Asset Transaction Date Or (Loss)
<S> <C> <C> <C> <C> <C>
Zenith National Insurance Corp.(2) $1,103,554 $1,103,554
Zenith National Insurance Corp.(2) 992,776 1,225,049 $232,273
Merrill Lynch Institutional Fund (3) 13,342,889 13,342,889 --
PBHG Funds(3) 1,450,098 1,450,098
PBHG Funds(3) 130,523 135,163 4,640
State Street Research Funds(3) 889,426 889,426
State Street Research Funds(3) 58,145 58,904 759.00
Founders Fund(3) 816,002 816,002
Founders Fund(3) 67,134 69,135 2,001
Janus Funds(3) 2,690,026 2,690,026
Janus Funds(3) 297,999 310,780 12,781
Scudder Funds(3) 2,258,951 2,258,951
Scudder Funds(3) 193,435 208,244 14,809
Warburg Pincus Funds(3) 943,794 943,794
Warburg Pincus Funds(3) 91,555 97,959 6,404
Metropolitan Life Insurance Company(3) 15,085,639 15,085,639
Metropolitan Life Insurance Company(3) 6,016,119 6,016,119 -
</TABLE>
(1) Under ERISA, a reportable transaction is a transaction or series of
transactions during the Plan year that involves more than 5 percent of the
fair value of the Plan assets at the beginning of the Plan year, with
certain exceptions.
(2) Sponsor and employer and, therefore, a party-in-interest for which a
statutory exemption exists.
(3) Indicates a party-in-interest for which a statutory exemption exists.
16
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Zenith National Insurance Corp. on Form S-8 (File Nos. 33-8948, 33-22219
and 333-04399) of our report dated June 12, 1998, on our audits of the
financial statements and supplemental schedules of The Zenith 401(k) Plan as
of December 31, 1997 and 1996, and for the years then ended, which report is
included in this Annual Report on Form 11-K.
Coopers & Lybrand L.L.P.
Los Angeles, California
June 30, 1998
