UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington DC 20549

 

FORM 11-K

 

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the short plan year ended December 31, 2005

o		TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

A.

Full title of the plan and the address of the plan, if different from that of the issuer named below:

PICO HOLDINGS, INC. EMPLOYEES 401(k)
RETIREMENT PLAN AND TRUST

B.

Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

PICO HOLDINGS, INC.
875 Prospect Street, Suite 301
La Jolla, California 92037

 

 

PICO HOLDINGS, INC. EMPLOYEES 401(k)
RETIREMENT PLAN AND TRUST

TABLE OF CONTENTS

		Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits as of December 31, 2005 and September 30, 2005		2
Statements of Changes in Net Assets Available for Benefits for the Three-Month Period December 31, 2005		3
Notes to Financial Statements as of December 31, 2005 and September 30, 2005, and for the Three-Month Period Ended December 31, 2005		4–6
SUPPLEMENTAL SCHEDULE—		7
Form 5500—Schedule H, Part IV, Line 4i—Schedule of Assets (Held at End of Year) as of December 31, 2005		8
NOTE:   All other schedules required by Section 2520.103-10 of the Department of Labor’s Rules and Regulations for           Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted           because they are not applicable.
SIGNATURE		9
EXHIBITS INDEX		10
EX-23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PICO Holdings, Inc. Employees 401(k)
Retirement Plan and Trust
Columbus, Ohio

We have audited the accompanying statements of net assets available for benefits of PICO Holdings, Inc. Employees 401(k) Retirement Plan and Trust (the “Plan”) as of December 31, 2005 and September 30, 2005, and the related statement of changes in net assets available for benefits for the three-month period ended December 31, 2005. 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 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. The Plan is not required to have, nor were we engaged to perform, an audit of its 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2005 and September 30, 2005, and the changes in net assets available for benefits for the three-month period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) as of December 31, 2005, is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. Such supplemental schedule has been subjected to the auditing procedures applied in our audit of the basic 2005 financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic 2005 financial statements taken as a whole.

/s/ Deloitte & Touche LLP

Columbus, Ohio
August 10, 2006

PICO HOLDINGS, INC. EMPLOYEES 401(k)
RETIREMENT PLAN AND TRUST

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2005 AND SEPTEMBER 30, 2005

		December 31,				September 30,
		2005				2005
ASSETS
CASH AND CASH EQUIVALENTS		$				$	5,104
INVESTMENTS:
Mutual funds		$	6,217,446				5,884,842
Common stock			1,842,839				1,955,972
Total investments			8,060,285				7,840,814
RECEIVABLES—
Employer’s profit sharing contributions			49,421				229,156
NET ASSETS AVAILABLE FOR BENEFITS		$	8,109,706			$	8,075,074

See notes to financial statements.

PICO HOLDINGS, INC. EMPLOYEES 401(k)
RETIREMENT PLAN AND TRUST

STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 2005

ADDITIONS:
Interest and dividends		$	203,774
Net depreciation in fair value of investments			(182,009	)
Contributions:
Employer			78,079
Participants			71,231
Total additions			171,075
BENEFITS PAID TO PARTICIPANTS			136,443
NET INCREASE IN NET ASSETS AVAILABLE FOR BENEFITS			34,632
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year			8,075,074
End of year		$	8,109,706

See notes to financial statements.

PICO HOLDINGS, INC. EMPLOYEES 401(k)
RETIREMENT PLAN AND TRUST

NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005 AND SEPTEMBER 30, 2005 AND FOR THE THREE-MONTH
PERIOD ENDED DECEMBER 31, 2005

1.		DESCRIPTION OF PLAN
		The following description of the PICO Holdings, Inc. Employees 401(k) Retirement Plan and Trust (the “Plan”) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
		General—The Plan is a defined contribution 401(k) profit-sharing plan covering eligible employees as defined in the Plan Agreement of PICO Holdings, Inc. (the “Plan Sponsor”). The Plan was adopted to provide retirement benefits to employees of the Plan Sponsor. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) and has been determined to be qualified for tax-exempt status by the Internal Revenue Service (“IRS”).
		Effective October 1, 2005, the Plan year was changed from September 30 to December 31.
		Contributions—Each year, participants may contribute up to the maximum allowed by law of pretax annual compensation, as defined in the Plan, currently $14,000. The Plan Sponsor matches up to 5% of the elective deferral of base compensation that a participant contributes to the Plan. The Plan Sponsor’s matching contribution does not begin until the first day of the quarter after an employee completes one year of service. Additional amounts which represent profit sharing, as defined in the Plan, may be contributed at the option of the Plan Sponsor’s Board of Directors.
		Participant Accounts—Each participant’s account is credited with the participant’s contributions, employer matching contributions, earnings as applicable, and allocations of (a) the Plan Sponsor’s discretionary profit-sharing contributions and (b) Plan earnings, and debited for withdrawals as applicable. Forfeited balances of terminated participants’ nonvested accounts are used to first reinstate previously forfeited account balances of reemployed participants and any remainder will be used to reduce the Plan Sponsor’s discretionary profit sharing contribution for the current or subsequent Plan year in which the forfeiture occurs. Forfeitures of $15,522 three month-period ended December 31, 2005 were used to reduce the Plan Sponsor’s discretionary profit-sharing contribution.
		Vesting—Participants are immediately vested in their contributions, the employer matching contributions, plus earnings thereon. Vesting in the Plan Sponsor’s discretionary profit-sharing contribution portion of their accounts plus actual earnings thereon is based on years of credited service in accordance with the following schedule:

Years of Service		Percentage
Less than three		0%
3		20
4		40
5		60
6		80
7 or more		100

Investment Options—Upon enrollment in the Plan, a participant may direct 100% of elective deferrals, employer match, and discretionary profit-sharing amounts. A participant chooses from a number of different mutual fund options. In addition, participants are able to invest in the stock of the Plan Sponsor.

Loans to Participants—Loans to participants are not permitted under the Plan, and no loans were outstanding at December 31, 2005 and September 30, 2005.

Payment of Benefits—Upon termination of service, a participant may elect to receive either a lump-sum amount equal to the value of the participant’s vested interest in his or her account, or annual installments. If the value of the participant’s account is $5,000 or less, the Trustee shall distribute the entire vested account to the participant. No such amounts were payable at December 31, 2005 and September 30, 2005.

Plan Termination—While the Plan Sponsor has not expressed any intent to discontinue the Plan or its contributions thereto, they have the right to do so at any time, subject to the provisions of ERISA. In the event of partial or total termination of the Plan, participants’ account balances become fully vested and the disposition of the net assets must be made for the benefit of the participants or their beneficiaries (see Note 6).

2.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
		Basis of Presentation—The accounting records of the Plan are maintained on the accrual basis. Purchases and sales of securities are recorded on the trade date. Interest income is recorded as earned and dividend income is recorded on the ex-dividend date.
		Investment Valuation—Investments in mutual funds and PICO Holdings, Inc. common stock fund are valued at quoted market prices.
		Administrative Expenses—The Plan’s expenses are paid by the Plan Sponsor.
		Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of net assets and the changes in net assets during the reporting period and disclosure of contingent assets at the date of the financial statements. Actual results could differ from those estimates.
		Investment Risk—The Plan utilizes various investment instruments. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements.
3.		TAX STATUS
		The IRS has determined and informed the Company, by a letter dated September 17, 2003, that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (“IRC”). The Plan has been amended since the latest determination letter. However, the Plan administrator believes the Plan, as currently designed, is in compliance and is being operated within the applicable requirements of the IRC.

4.		INVESTMENTS
		The Plan’s investments which exceeded 5% of net assets available for benefits as of December 31, 2005 and September 30, 2005, consisted of the following:

		December 31,				September 30,
		2005				2005
PICO Holdings, Inc., common stock		$	1,842,839			$	1,955,972
Mutual funds:
MCM Stable Asset Value Fund			1,277,240				1,225,625
Royce Premier Fund			1,017,366				809,679
American Century Ultra Fund			525,006				607,308
Columbia Intermediate Bond Z			603,593				546,114
Washington Mutual Investors			530,825				526,134
Europacific Growth Fund			541,137				464,361
Dreyfus Emerging Markets			407,125

During the three-month period December 31, 2005 the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated (depreciated) as follows:

Net appreciation (depreciation) in fair value of investments whose fair value was determined by quoted market price:
Common stock		$	(161,162	)		$	894,125
Mutual funds			(20,847	)			497,544
Total		$	(182,009	)		$	1,391,669

5.		RELATED-PARTY TRANSACTIONS
		Plan investments include common stock of PICO Holdings, Inc. PICO Holdings, Inc. is the Plan Sponsor, Smith Barney Corporate Trust Company is the Plan Custodian, and Citistreet Retirement Services is the record keeper. The Plan Sponsor pays all administrative expenses of the Plan.
6.		CHANGES IN PLAN PARTICIPATION
		On March 31, 2003, approximately 51% of Plan participants were terminated from the Plan as a result of PICO Holdings, Inc.’s sale of its subsidiary, Sequoia Insurance Company. Participants’ account balances became fully vested upon termination. At December 31, 2005 and September 30, 2005, one and two Sequoia employees, respectively, maintain account balances in the Plan. The value of these accounts as of December 31, 2005 and September 30, 2005, totaled $110,831 and $136,584, respectively .
7.		EXEMPT PARTY-IN-INTEREST TRANSACTIONS
		At December 31, 2005 and September 30, 2005, the Plan held 57,125 and 55,662 shares, respectively, of common stock of PICO Holdings, Inc., the sponsoring employer, with a cost basis of $814,822 and $759,483, respectively. During the three-months ended December 31, 2005 the Plan recorded no dividend income from such shares.

******

SUPPLEMENTAL SCHEDULE

PICO HOLDINGS, INC. EMPLOYEES 401(k)
RETIREMENT PLAN AND TRUST

FORM 5500—SCHEDULE H, PART IV, LINE 4i—SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2005

		Number								Fair
		of								Market
Description		Shares				Cost				Value
INVESTMENTS:
Mutual funds:
ABN AMRO Montag & Caldwell Growth—N Share			7,106			$	174,498			$	169,135
American Century Ultra Fund			17,448				594,691				525,006
Citi S&P 500 Index Funds			14,214				169,840				179,944
Columbia Intermediate Bond Z			67,896				614,652				603,593
Dreyfus Emerging Markets			18,831				348,244				407,125
Dreyfus US Treasury Long			2,025				32,373				33,028
Europacific Growth Fund			13,211				416,261				541,137
Gabelli Growth Fund			4,914				143,829				141,562
Gabelli Global Growth Fund			1,116				20,863				22,807
ING GNMA Income Fund			2,606				22,308				21,941
AIM Global Health Care Fund			7,314				213,155				220,360
MCM Stable Asset Value Fund			88,229				1,194,940				1,277,240
Merrill Lynch International Value Fund			1,640				36,539				44,284
Neuberger Berman Focus Trust Fund			9,467				289,579				225,605
Royce Premier Fund			60,342				768,764				1,017,366
RS Smaller Company Growth Fund			7,440				178,400				157,053
T. Rowe Price International Bond Fund			10,589				106,043				99,435
Washington Mutual Investors			17,240				481,210				530,825
Total mutual funds							5,806,189				6,217,446
* PICO Holdings, Inc., common stock			57,125				814,822				1,842,839
TOTAL						$	6,621,011			$	8,060,285

*Party-in-interest.

SIGNATURE

     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.

PICO HOLDINGS, INC.
EMPLOYEES 401(k) RETIREMENT PLAN AND TRUST
ANNUAL REPORT ON FORM 11-K

For plan year ended December 31, 2005

INDEX TO THE EXHIBITS

Exhibit Number		Description
23		Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm