<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
For the Fiscal Year Ended December 31, 1999
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
A. 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>
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, 1999 and 1998
2. Statement of Changes in Net Assets Available for
Benefits for the Year Ended December 31, 1999
3. Schedule of Assets Held for Investment Purposes As of
December 31, 1999
4. Schedule of Reportable Transactions For the Year
Ended December 31, 1999
The written consent of PricewaterhouseCoopers LLP with respect to the annual
financial statements of The Zenith 401(k) Plan is filed as Exhibit 23 to this
annual report.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The Zenith 401(k) Plan
Date: June 9, 2000 /s/ Michael W. Jacobson
---------------------------
Michael W. Jacobson
Chairman Administrative Committee
<PAGE>
THE ZENITH 401(k) PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
-------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Accountants 1
Financial Statements:
Statement of Net Assets Available for Benefits
as of December 31, 1999 and 1998 2
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 1999 3
Notes to Financial Statements 4-13
Supplemental Schedules:
Schedule of Assets Held for Investment Purposes
as of December 31, 1999 14
Schedule of Reportable Transactions
for the Year Ended December 31, 1999 15
</TABLE>
Certain schedules have been omitted because they are not applicable, not
material, or because the information is included in the financial statements or
notes thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Administrative Committee of
The Zenith 401(k) Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of The Zenith 401(k) Plan (the "Plan") at December 31, 1999 and 1998, and the
changes in net assets available for benefits for the year ended December 31,
1999 in conformity with accounting principles generally accepted in the United
States. 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 of these statements in
accordance with auditing standards generally accepted in the United States,
which 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, 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 the opinion expressed above.
Our audits were conducted 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 the
purpose 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. These supplemental
schedules are the responsibility of the Plan's management. The supplemental
schedules and have been subjected to the auditing procedures applied in the
audits 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.
June 5, 2000
<PAGE>
THE ZENITH 401(k) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of December 31, 1999 1998
------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments $30,484,413 $30,009,923
Receivables:
Accrued interest 3,087
Contributions 22,109 96,213
----------- -----------
Net assets available for benefits $30,509,609 $30,106,136
=========== ===========
</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
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
-------------------------------------------------------------------------------------------------------
<S> <C>
Additions:
Contributions:
Employer $ 875,558
Participant 3,632,978
Rollovers 1,694,500
-----------
Total contributions 6,203,036
Investment income:
Dividends 903,433
Interest 533,398
Net appreciation in the fair value of investments 3,489,564
-----------
Total investment income 4,926,395
Total additions 11,129,431
-----------
Deductions:
Benefits paid to participants (10,722,246)
Fees (3,712)
------------
Total deductions (10,725,958)
------------
Net increase 403,473
Net assets available for benefits:
Beginning of year 30,106,136
-----------
End of year $30,509,609
===========
</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
GENERAL
The Zenith 401(k) Plan (the "Plan") is a self-directed account plan in
compliance with the Employee Retirement Income Security Act of 1974
("ERISA") Section 404(c), effective August 1, 1988. The Plan is offered to
all eligible employees of Zenith National Insurance Corp. ("Zenith
National") and those of its subsidiaries that elect to become
"participating employers" (collectively, the "Company"). The Plan is
subject to the provisions of ERISA and Sections 401(a) and 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). At December 31,
1999 and 1998, there were 955 and 1,536 participants, respectively, in the
Plan.
Effective March 31, 1999, Zenith Insurance Company, a wholly owned
subsidiary of Zenith National, completed the sale of all of the issued and
outstanding capital stock of its wholly owned subsidiary, CalFarm Insurance
Company ("CalFarm") to Nationwide Mutual Insurance Company ("Nationwide").
The Boards of Directors of Zenith National and CalFarm determined that the
sale of CalFarm with the attendant termination of CalFarm as an affiliate
of Zenith National resulted in CalFarm's no longer being a "participating
employer" in the Plan and that such event may be considered a partial
termination of the Plan. Accordingly, the two Boards deemed that the Plan
was partially terminated as of the day before the closing of the sale with
respect to CalFarm employees employed by it on February 22, 1999 ("Affected
CalFarm Employees").
Upon such partial termination, the Affected CalFarm Employees were fully
vested in their Plan accounts and such Plan accounts of the Affected
CalFarm Employees became distributable to, and at the direction of, the
Affected CalFarm Employees, subject to two limitations: (1) All Plan
accounts below $5,000 must be distributed and (2) a Plan account may not
be distributed after December 31, 2001 as long as the Employee is employed
by CalFarm or Nationwide unless they otherwise fall within a qualifying
category.
Of the 404 Affected CalFarm Employees, 327 have take distributions totaling
$8,242,457 in the year ended December 31, 1999. The remaining 77 Affected
CalFarm Employees have remained in the Plan with a total account balance of
$2,923,285 as of December 31, 1999.
ADMINISTRATION
The Plan is administered by an Administrative Committee appointed by the
Board of Directors of Zenith National. The Administrative Committee has
responsibility for administration of the Plan, including supervision of the
collection of contributions, delivery of such contributions to the trustee
of the Plan (Chase Manhattan Bank, N.A. (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.
4
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1. THE PLAN (CONTINUED)
All assets of the Plan are held by the Trustee in a trust (the "Trust")
created by a trust agreement dated as of December 30, 1996. 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.
ELIGIBILITY
An employee of the Company is eligible to enroll in the Plan on the next
quarterly entry date after completion of one full year of service with the
Company. There are no age restrictions.
CONTRIBUTIONS
Participants may elect to contribute between 1% to 12% of their
compensation up to a maximum of $10,000 for 1999 and 1998 ("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 matching contribution shall not exceed 2% of a
participant's annual compensation.
Compensation includes wages, bonuses, commissions, overtime and elective
deferrals. The Company's matching contribution is invested exclusively in
the Zenith Company Stock Fund except as defined in the Plan document.
The Salary Reduction Contributions and Company matching contributions are
transferred to the Trustee semi-monthly.
Participants may allocate their Salary Reduction Contributions among
investment options in such percentages as they determine, so long as the
amount directed to the Zenith Company Stock Fund does not exceed 20% of
that contribution. The value of each fund is determined daily and
participants are able to transfer amounts between funds on any business
day, except that amounts may only be transferred out of, but not into, the
Zenith Company Stock Fund.
PARTICIPANT ACCOUNTS
Each participant's account is credited with: (1) Salary Reduction
Contributions, (2) participant rollover contributions from non-Company
plans, (3) 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.
5
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
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 nonvested Company
matching 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 Company matching contributions to the
Plan.
In 1999, Company matching contributions were reduced by $74,715 from
forfeited nonvested accounts. At December 31, 1999 and 1998, forfeited
nonvested accounts totaled $91,166 and $72,404, respectively, which
remained available to reduce future Company matching contributions.
WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT
Except in limited circumstances, participants may not make withdrawals from
their accounts while employed by the Company. Hardship withdrawals of a
participant's Salary Reduction Contributions are permitted only if 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 may take an in-service withdrawal of the vested portion
of the individual accounts.
INVESTMENTS
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.
Company matching 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 55. Upon attainment of age 55, the
participant is able to direct the funds up to certain percentage
limitations as defined in the Plan Document. As of December 31, 1999 and
1998, $2,269,050 and $2,972,673, respectively, of the investment in the
Zenith Company Stock Fund was participant-directed and $3,479,516 and
$4,469,674, respectively, was nonparticipant-directed.
6
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1. THE PLAN (CONTINUED)
Information about the significant components of the changes in net assets
available for plan benefits relating to the nonparticipant-directed
investment in the Zenith Company Stock Fund is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Year Ended
December 31, 1999
-------------------------------------------------------------------------------------
<S> <C>
Additions:
Contributions $ 787,513
Investment income (loss) (151,561)
-----------
Total additions 635,952
-----------
Deductions:
Benefits paid to participants (1,639,731)
Transfers, fees and other 13,621
-----------
Total deductions (1,626,110)
-----------
Net decrease $ (990,158)
===========
-------------------------------------------------------------------------------------
</TABLE>
INVESTMENT OPTIONS
ZENITH COMPANY STOCK FUND invests in the common stock of Zenith National,
par value, $1.00 per share.
PBHG GROWTH FUND seeks to provide capital appreciation. The fund invests
primarily in common stocks of small- and medium-sized growth companies
believed to have an outlook for strong growth in earnings and the potential
for significant capital appreciation.
STATE STREET RESEARCH ARGO 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.
FOUNDERS BALANCED FUND seeks to provide current income and capital
appreciation. The fund invests primarily in a balanced portfolio of
dividend-paying common stocks, U.S. and foreign government obligations and
a variety of corporate fixed-income securities.
JANUS WORLDWIDE FUND seeks to provide long-term growth of capital
consistent with preservation of capital. The fund invests primarily in
common stocks of foreign and domestic companies.
SCUDDER GROWTH & INCOME FUND seeks long-term growth of capital, current
income and growth of income. The fund invests primarily in the common
stocks and securities convertible into common stocks of companies with good
prospects for earnings growth over time.
7
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1. THE PLAN (CONTINUED)
WARBURG PINCUS EMERGING GROWTH FUND seeks to provide maximum capital
appreciation. The fund invests primarily in the common stocks of small and
medium sized companies with emerging or renewed growth potential.
METLIFE GUARANTEED FIXED INCOME FUND provides a MetLife guarantee of both
principal and a rate of interest (6.0% and 6.3% for the years ended
December 31, 1999 and 1998, respectively) determined as of the beginning of
the year for a period of one year. This account normally consists of one or
more MetLife guaranteed interest contracts, which offer the advantages of
intermediate-term interest rates and protection from potential market
fluctuation in interest rates during the guarantee period.
PARTICIPANT LOANS RECEIVABLE
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 Company matching contributions. Loan
transactions are treated as a transfer to (from) the investment fund from
(to) the participant loans receivable. Loan terms range from 1 to 5 years
or up to 30 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 charged by Chase Manhattan Bank, N.A. as of the close of the
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
National 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. Plan expenses
excluding expenses related to the administration of the mutual funds for
1999 totaled $101,846.
8
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1. THE PLAN (CONTINUED)
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 their Company matching contributions.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
year presentation.
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
("GAAP").
USE OF ESTIMATES
The preparation of the financial statements in conformity with GAAP
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.
INVESTMENT VALUATION AND INCOME RECOGNITION
The accounting for the Plan's investment in the Zenith Company Stock Fund
is the unit valuation method. The total value of the fund fluctuates
depending upon the amount of interest earned on cash held in the fund,
dividends paid on Zenith National common stock, expenses, realized gains
and losses on its sale of Zenith National common stock, and unrealized
appreciation or depreciation in the value of Zenith National common stock.
The value of the Zenith Company Stock Fund is determined using the closing
price of Zenith National common stock on the New York Stock Exchange.
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.
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.
9
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Gains or losses on sales of securities are computed on an average-cost
basis.
Net appreciation (depreciation) in the fair value of 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, 1999
and 1998, the contract value approximated fair value. The contract value
does not contain any reserves for credit risk of the contract issuer or
otherwise.
Participant loans are valued at cost, which approximates fair value.
CONTRIBUTIONS
Salary Reduction Contributions and Company matching 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% or more of net assets available for Plan benefits:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
December 31,
----------------------------------------------
1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Zenith Company Stock Fund $ 5,725,049 $ 7,346,134
PBHG Growth Fund 3,152,171 1,807,872
Janus Worldwide Fund 6,745,906 4,107,910
Scudder Growth & Income Fund 2,651,821 2,951,759
MetLife Guaranteed Fixed Income Fund 7,963,243 9,440,429
--------------------------------------------------------------------------------------------------
</TABLE>
Of the investment in the Zenith Company Stock Fund, the
nonparticipant-directed portion (see Note 1) exceeds 5% of net assets
available for Plan benefits.
10
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
The Plan's investments (including gains and losses on investments bought
and sold, as well as held during the year) appreciated in value as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Year Ended
December 31,
1999
-----------------------------------------------------------------------------------------------------------
<S> <C>
Zenith Company Stock Fund $ (266,309)
Investments in registered investment companies 3,755,873
-----------------------------------------------------------------------------------------------------------
Total net appreciation in the fair value of investments $ 3,489,564
-----------------------------------------------------------------------------------------------------------
</TABLE>
4. TAX STATUS
The Plan received a determination letter from the IRS, dated November 16,
1998, which states that the Plan qualifies under Sections 401(a) and 401(k)
of the Code and the Trust is exempt from federal income taxes under Section
501(a) of the Code.
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 that will be shown
in the Form 5500 for the year ended December 31, 1999 and those shown in
the Form 5500 for the year ended December 31, 1998:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
December 31,
-----------------------------------------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net assets available for benefits per the
accompanying financial statements $30,509,609 $30,106,136
Amounts allocated to withdrawing participants (11,082) (601,430)
-----------------------------------------------------------------------------------------------------------
Net assets available for benefits per Form 5500 $30,498,527 $29,504,706
-----------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
5. RECONCILIATION OF FINANCIAL STATEMENTS TO THE FORM 5500 (CONTINUED)
The following is a reconciliation of benefits paid to participants as shown
in the accompanying financial statements to those that will be shown in
the Form 5500:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Year Ended
December 31,
1999
-----------------------------------------------------------------------------------------------------------
<S> <C>
Benefits paid to participants per the accompanying financial
statements $(10,722,246)
Amounts allocated to withdrawing participants at end of year 11,082
Amounts allocated to withdrawing participants at beginning of
year (601,430)
-----------------------------------------------------------------------------------------------------------
Benefits paid to participants per Form 5500 $(11,312,594)
-----------------------------------------------------------------------------------------------------------
</TABLE>
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.
In general, Salary Reduction Contributions and Company matching
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. CONCENTRATION OF CREDIT RISK
At December 31, 1999 and 1998, approximately 19% and 25%, respectively, of
net assets available for benefits were held in the Zenith Company Stock
Fund which primarily consists of Zenith National common stock. At December
31, 1999, approximately 10% of net assets available for benefits were held
in the PBHG Growth Fund which invests primarily in common stocks of small-
and medium-sized growth companies. At December 31, 1999 and 1998,
approximately 22% and 14%, respectively, of net assets available for
benefits were held in the Janus Worldwide Fund which invests in common
stocks of foreign and domestic issuers. Due to the inherent risk associated
with securities traded in public markets, it is
12
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
7. CONCENTRATION OF CREDIT RISK (CONTINUED)
reasonably possible that fluctuations in the Zenith Company Stock Fund, the
PBHG Growth Fund and the Janus Worldwide Fund could have a significant
impact on the net assets available for benefits in the near term.
At December 31, 1999 and 1998, approximately 26% and 31%, respectively, of
net assets available for benefits were 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.
No other fund accounts for 10% or more of net assets available for
benefits.
13
<PAGE>
THE ZENITH 401(k) PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1999
(SEE REPORT OF INDEPENDENT ACCOUNTANTS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
(a) (b) Identity of Issue, Borrower, (c) Description of Investments, (d) Cost (e) Current
Lessor, or Similar Party Including Maturity Date, Value
Rate of Interest, Collateral,
Par or Maturity Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
** Zenith National Insurance Corp. Common Stock $5,272,351 $5,116,629
* Short-Term Investment Funds Short-Term Investment Fund 608,420 608,420
* PBHG Funds Growth Fund - Mutual Fund 3,152,171
* State Street Research Funds ARGO Fund - Mutual Fund 1,160,047
* Founders Funds Balanced Fund - Mutual Fund 985,139
* Janus Funds Worldwide Fund - Mutual Fund 6,745,906
* Scudder Funds Growth & Income Fund - Mutual Fund 2,651,821
* Warburg Pincus Funds Emerging Growth Fund - Mutual Fund 1,474,417
* MetLife Insurance Company Guaranteed Fixed Income Fund at 6.0% 7,963,243
Participant Loans Various Maturity Dates - interest
rate ranges from 7.75% - 8.50% 626,620
-----------
Total investments $30,484,413
===========
</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.
14
<PAGE>
THE ZENITH 401(k) PLAN
SCHEDULE OF REPORTABLE TRANSACTIONS(1)
FOR THE YEAR ENDED DECEMBER 31, 1999
(SEE REPORT OF INDEPENDENT ACCOUNTANTS)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
(a) Identity of (b) Description of (c) Purchase (d) Selling (g) Cost of (h) Current Value of (i) Net Gain
Party Assets (Including Price Price Asset Asset on or (Loss)
Involved Interest Rate Transaction
and Maturity Date
in Case of a
Loan)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Zenith National Zenith National
Insurance comment stock
Corp.(2)
(49 transactions) $1,082,641 $1,082,641 $1,082,641
(124 transactions) $2,509,750 2,649,724 2,509,750 $(139,974)
</TABLE>
(1) Under ERISA, a reportable transaction is a transaction or a series of
transactions during the Plan year that involves more than 5% 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.
15
