UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended December 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from________to________.
Commission file number 1-8029 .
A. The Ryland Group, Inc. Retirement Savings Opportunity Plan
B. The Ryland Group, Inc.
11000 Broken Land Parkway
Columbia, Maryland, 21044
<PAGE>
THE RYLAND GROUP, INC. Retirement Savings Opportunity Plan
Information Required by Form 11-K
INDEX
Page Numbers
Report of Independent Auditors 1
Item 4. Audited Financial Statements
and Schedules prepared in
accordance with ERISA 2-16
Signatures 17
Index of Exhibits 18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Employee Benefits Committee
The Ryland Group, Inc.
We have audited the accompanying statements of net assets available for plan
benefits of The Ryland Group, Inc. Retirement Savings Opportunity Plan (the
"Plan") as of December 31, 1998 and 1997, and the related statements of changes
in net assets available for plan 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 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 plan benefits of the Plan at
December 31, 1998 and 1997, and the changes in its net assets available for plan
benefits for the years then ended, in conformity with 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 for investment purposes as of December 31, 1998 and reportable transactions
for the year then ended are presented for purpose 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. The supplemental schedules have been subjected to the auditing procedures
applied in our audits of the financial statements and, in our opinion, are
fairly stated in all material respects in relation to the financial statements
taken as a whole.
/s/ Ernst & Young LLP
Baltimore, Maryland
June 21, 1999
1
<PAGE>
Item 4: Audited Financial Statements and Schedules prepared
in accordance with ERISA
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
The Ryland Group, Inc.
Retirement Savings Opportunity Plan
December 31, December 31,
1998 1997
----------- -----------
ASSETS
Accrued interest and dividends $ 230,187 $ 277,740
Investments at fair value:
Cash 0 35,023,942
Short-term investments 4,428,850 4,914,849
Preferred stock of
The Ryland Group, Inc.
Unallocated 0 47,508
Allocated 16,409,295 19,405,844
Common stock of
The Ryland Group, Inc. 0 94,352
Mutual funds 45,615,599 0
Loans to participants 1,235,512 1,541,953
----------- -----------
Total investments 67,689,256 61,028,448
----------- -----------
Total Assets 67,919,443 61,306,188
----------- -----------
LIABILITIES
Accrued liabilities 0 1,856
----------- -----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $67,919,443 $61,304,332
=========== ===========
See notes to financial statements.
2
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
The Ryland Group, Inc.
Retirement Savings Opportunity Plan
Year Ended Year Ended
December 31, December 31,
1998 1997
------------ -----------
ADDITIONS
Contributions:
Employer $ 4,136,096 $ 7,149,212
Participants 5,277,234 4,011,867
Rollovers 517,813 564,458
----------- -----------
Total contributions 9,931,143 11,725,537
Interest:
Short-term investments 282,544 40,172
CIGNA Income Fund 0 284,860
Participant loans 129,800 140,134
----------- -----------
Total interest 412,344 465,166
Dividends:
The Ryland Group, Inc.
Preferred stock 1,007,106 1,629,535
Common stock 0 3,952
Mutual funds 2,493,080 2,796,000
----------- -----------
Total dividends 3,500,186 4,429,487
----------- -----------
Total Additions 13,843,673 16,620,190
DEDUCTIONS
Benefit payments to participants 11,419,065 12,494,407
Interest expense on loan payable
to The Ryland Group, Inc. 0 929,994
Administrative expenses 0 164,248
----------- -----------
Total Deductions 11,419,065 13,588,649
Net realized and unrealized
appreciation in fair value
of investments 4,190,503 11,166,942
----------- -----------
Increase in net assets
available for plan benefits 6,615,111 14,198,483
Net assets available for plan
benefits at beginning of year 61,304,332 47,105,849
----------- -----------
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT END OF YEAR $67,919,443 $61,304,332
=========== ===========
See notes to financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
The financial statements of The Ryland Group, Inc. Retirement Savings
Opportunity Plan ("the Plan" or "the RSOP", previously known as "The Ryland
Group, Inc. Retirement and Stock Ownership Plan") are prepared on the accrual
basis of accounting.
The preparation of financial statements in accordance with 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.
The Plan's investments are stated at fair value. Shares of registered investment
companies are valued at quoted market prices which represents the net asset
value of shares held by the Plan at year-end. The Preferred Stock of The Ryland
Group, Inc. (the "Company"), is valued monthly by an independent appraiser, with
a minimum value of $25.25 guaranteed by the Company. Units of the Vanguard
Savings Trust are valued at net asset value at year-end. Ryland common stock is
valued at the last reported sale price on the last business day of the Plan
year. Participant loans are valued at their outstanding balance, which
approximates fair value.
The change in the difference between current fair value and the cost of
investments is reflected in the statement of changes in net assets available for
plan benefits as net realized and unrealized appreciation or depreciation in
fair value of investments.
Purchases and sales of investments are recorded on a trade-date basis. The net
realized gain or loss on sale of investments reflects the difference between the
proceeds received and the cost of the specific investment shares sold (see also
Note D) and is reflected in the statement of changes in net assets available for
plan benefits in net realized and unrealized appreciation in fair value of
investments. Expenses relating to the purchase or sale of investments are added
to their cost or deducted from their proceeds.
Effective January 1, 1998, the Company pays all administrative expenses incurred
by the Plan.
The Plan accounts for benefits due but unpaid as a component of net assets
available for plan benefits. Benefits due but unpaid were $0 and $40,295 at
December 31, 1998 and December 31, 1997 respectively.
NOTE B: DESCRIPTION OF THE PLAN
General
The RSOP was established on August 16, 1989. Designed to be an employee stock
ownership plan with a deferred compensation and profit sharing arrangement, the
Plan permits deferral of a portion of participants' pretax income pursuant to
Section 401(k) of the Internal Revenue Code. Participant contributions into the
Plan are combined with Company contributions, which are allocated to
participants as a match of their pretax deferrals. The Plan is subject to the
Employee Retirement Income Security Act of 1974.
Employee Eligibility
All full-time employees are eligible to participate in the Plan the first pay
period of the quarter following 30 days of employment.
Each eligible participant could elect to contribute on a pretax basis, through a
system of payroll deductions, any whole number percentage, from one percent (1%)
to twelve percent (12%), of the eligible participant's compensation. Beginning
in January 1, 1999, each eligible participant may elect to contribute from one
percent (1%) to nineteen percent (19%), of the eligible participant's
compensation. In accordance with IRS regulations, no employee could contribute
more than $10,000 to the Plan for the 1998 calendar year. The RSOP offers the
participants several investment options for their contributions.
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE B: DESCRIPTION OF THE PLAN-CONTINUED
Employee Contributions and Investment Options
Effective January 1, 1998, the Plan established new participant investment fund
options available from the Vanguard Funds. In anticipation of transferring the
Plan's existing assets to the new investment fund options, all prior investments
in the Putnam Voyager Fund, Fidelity Growth Company Fund, CIGNA Income Fund,
American Balanced Fund, Wells Fargo Equity Index Fund and Standish Fixed Income
Fund were liquidated in December 1997. The proceeds were held in cash and
short-term investments at December 31, 1997.
Effective January 1, 1998, the Plan changed its trustee from Wachovia Bank to
The Vanguard Fiduciary Trust Company (the "Trustee").
The following are descriptions of the participant investment options available
during 1998:
Vanguard 500 Index Fund - Seeks to provide long-term growth of capital and
income from dividends by holding all of the 500 stocks that make up the
unmanaged Standard & Poor's 500 Composite Stock Price Index, a widely recognized
benchmark of U.S. stock market performance. At December 31, 1998, 872 employees
were participating in this option.
Vanguard Explorer Fund - Seeks to provide long-term growth of capital by
investing in a diversified group of small company stocks with prospects for
above-average growth. At December 31, 1998, 975 employees were participating in
this option.
Vanguard International Growth Fund - Seeks to provide long-term growth of
capital by investing in stocks of high-quality, seasoned companies based outside
the United States. Stocks are selected from more than 15 countries. At December
31, 1998, 200 employees were participating in this option.
Vanguard Total Bond Market Index Fund - Seeks to provide a high level of
interest income by attempting to match the performance of the unmanaged Lehman
Brothers Aggregate Bond Index, which is widely recognized measure of the entire
taxable U.S. bond market. At December 31, 1998, 514 employees were participating
in this option.
Vanguard U.S. Growth Fund - Seeks to provide long-term growth of capital by
investing in large, high-quality, seasoned U.S. companies with records of
exceptional growth and above-average prospects for future growth. At December
31, 1998, 1,273 employees were participating in this option.
Vanguard Wellington Fund - Seeks to provide income and long-term growth of
capital without undue risk to capital by investing about 65% of its assets in
stocks and the remaining 35% bonds. At December 31, 1998, 990 employees were
participating in this option.
Vanguard Windsor II Fund - Seeks to provide long-term growth of capital and
income from dividends by investing in a diversified group of out-of-favor stocks
of large-capitalization companies. The stock generally sell at prices below the
overall market average compared to their dividend income and future return
potential. At December 31, 1998, 445 employees were participating in this
option.
Vanguard Retirement Savings Trust - Seeks stability of principal and a high
level of current income consistent with a two- to three-year average maturity.
The trust is a tax-exempt collective trust invested primarily in investment
contracts issued by insurance companies and commercial banks, and similar types
of fixed-principal investments. The trust intends to maintain a constant net
asset value of $1.00 per share. At December 31, 1998, 530 employees were
participating in this option.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE B: DESCRIPTION OF THE PLAN-CONTINUED
Company Contributions
As of January 1, 1994, the RSOP was amended to allow the Company to make both
matching and discretionary contributions in the form of Preferred Shares, cash
or a combination of both. In instances where cash was all or part of the
Company's contribution, it was divided among the current investment funds based
on each participant's current investment fund option selections. In instances
where both Preferred Shares and cash were contributed to participant accounts,
all participants received a protata protion of each. Beginning January 1, 1998,
participants no longer received Preferred Stock in connection with Company
matching contributions to their accounts. The Company made no discretionary
contributions for the years ended December 31, 1998 and 1997.
Vesting
Participants' contributions are fully vested at all times. Prior to January 1,
1998 the Plan provided for graduated vesting of Company contributions of 25%
after two years' service and 25% additional vesting for each year thereafter
until the fifth year, at which time participants were 100% vested. Beginning
January 1, 1998, the Plan provides for vesting of Company contributions of 20%
after one year of service and 20% additional vesting for each year thereafter
until the fifth year, at which time the participants are 100% vested.
Participants are automatically vested upon death, disability or retirement at
age 65.
Participant Loans
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum equal to the lesser of $50,000 or 50% of their vested account balance.
Loan transactions are treated as a transfer from(to) the investment fund
to(from) the loan fund. Loan terms range from 1-5 years or up to 15 years for
the purchase of a primary residence. The loans are secured by the balance in the
participant's account and bear interest at a rate of prime plus one percent.
Principal and interest is paid ratably through payroll deductions.
RSOP Loan
The "RSOP Loan" was a loan between the Company and the Plan, the proceeds of
which were used by the Plan to acquire the Preferred Stock (see Note C below).
Through September 1997, to the extent employer contributions, including matching
contributions and discretionary contributions, were used to make an RSOP Loan
payment, such contributions were made in cash. After each RSOP loan payment was
made, a number of shares of Preferred Stock were released from the RSOP Loan
suspense account based on a predetermined formula. Following the release of the
Preferred Stock and allocation of a portion of the shares attributable to
dividends, shares of Preferred Stock were allocated among the participants'
accounts based on the amount of the required matching contributions. On October
1, 1997, the Company purchased 248,881 preferred shares that had not been
released for allocation to participants accounts (see Note C below).
Other
The Company expects and intends to continue the Plan but reserves the right to
amend, suspend or terminate the Plan at any time. If the Company terminates the
Plan, each participant will become fully vested in all of his or her accounts
under the Plan and will be entitled to a distribution of such accounts in
accordance with the terms of the Plan.
Earnings on investments, net gains or losses on sales of investments and
unrealized appreciation or depreciation in fair value of investments are
allocated to individual participant accounts based on a ratio of the
individual's account balance to the total fund balance.
Additional information about the Plan agreement is contained in the pamphlet The
Ryland Retirement Savings Opportunity Plan. Copies of this pamphlet are
available from the Company's Employee Benefits Department.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE C: PREFERRED STOCK AND THE LOAN PAYABLE TO RYLAND
On August 31, 1989, the Company sold 1,267,327 shares of non-transferable Series
A ESOP Convertible Preferred Stock, par value $1.00, to the Plan for $31.5625
per share, or an aggregate purchase price of approximately $40,000,000. Each
share of Preferred Stock will pay an annual cumulative dividend of $2.2094, and
is convertible initially into one share of the Company's Common Stock. During
1998 and 1997, the Company paid approximately $1,007,000 and $1,630,000,
respectively, in dividends on the Preferred Stock. Each share of Preferred Stock
is entitled to a number of votes equal to the shares into which it is
convertible, and the holders of the Preferred Stock generally vote together with
the Common Stock on all matters. The conversion and voting rights of the
Preferred Stock are subject to anti-dilution adjustments.
The Plan's purchase of the Preferred Stock was financed by a loan to the Plan
from the Company in the amount of $40,000,000. The interest rate on the loan was
9.99% and through September, 1997, the loan was being repaid by the Plan through
dividends received on the Preferred Stock and Company contributions. On October
1, 1997, the Company purchased 248,881 shares of Preferred Stock from the Plan
at an independently appraised value of $33.1875 per share, representing
preferred shares that secured the loan and had not been released for allocation
to participant's accounts. The Company retired these preferred shares. The Plan
used the proceeds to pay off the related loan balance. Principal payments of
$13,260,701 were made during 1997. The Plan incurred approximately $930,000 of
interest on this loan in 1997. Participants received allocations of the
Preferred Stock as debt payments were made. During 1997 there were 61,001 shares
released, and allocated to participants. Beginning January 1, 1998, participants
no longer received preferred shares in connection with Company matching
contributions to their account; therefore as of December 31, 1998, there were no
unallocated preferred shares. At December 31, 1997 there were 1,228 unallocated
preferred shares with an approximate value of $48,000.
NOTE D: DISTRIBUTIONS
A participant who terminates employment with the Company by reason of a
separation from service, death, disability or retirement will be paid the
current value of his/her contributions to the Plan, plus the vested portion of
his/her account, if any, attributable to Company contributions. Distributions
from a participant's vested portion of his/her Convertible Preferred Stock
account will be made at the participant's election either in cash or whole
shares of Common Stock of the Company. If the participant elects to receive
Common Stock, the Trustee will convert each share of Preferred Stock held in the
participant's Convertible Preferred Stock account into one share of Common Stock
and will receive from the Company an additional cash contribution to cover any
differential between the current Common Stock price and the appraised value of
the Preferred Stock. The Trustee will use the cash to acquire (on the open
market) additional shares of Common Stock and then distribute to the participant
the total number of shares of Common Stock that were acquired. If the
participant elects to receive cash, the Trustee will convert each share of
Preferred Stock into the number of shares of Common Stock into which such
Preferred Stock is convertible, and will receive in cash from the Company any
differential between the current Common Stock price and the appraised value of
the Preferred Stock. The Trustee will then sell the shares of Common Stock on
the open market and distribute to the participant the cash proceeds plus the
differential contribution made by the Company. The non-vested portion of the
Company's contributions credited to the terminating participant is forfeited
immediately. All forfeitures are used to reduce future matching contributions
required from the Company.
The cash received by the Trustee from the Company to fund any differential
between the current market price of the Company's Common Stock and the appraised
value of the Preferred Shares is recorded as an employer contribution in the
Statement of Changes in Net Assets Available for Plan Benefits. This cash is not
included in the computation of the realized gain or loss from the converted
Preferred Shares.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE E: INVESTMENTS
During 1998 and 1997, the Plan's investments (including investments bought and
sold, as well as held during the year) appreciated in fair value by $4,190,503
and $11,166,942, respectively. Investments that represent five percent or more
of the Plan's net are separately identified.
Net
Appreciation
(Depreciation)
For the Year Ended in Fair Value Fair Value at
December 31, 1998 During Year End of Year
- ---------------------------- ----------- -----------
Vanguard 500 Index Fund $ 1,007,964 $ 6,241,789
Vanguard Explorer Fund 308,142 8,886,015
Vanguard International Growth Fund 19,064 420,059
Vanguard Total Bond Market Index Fund 43,923 4,039,540
Vanguard U.S. Growth Fund 3,197,238 14,748,261
Vanguard Wellington Fund (19,347) 8,681,703
Vanguard Windsor II Fund (92,928) 2,598,232
Vanguard Retirement Savings Trust 0 4,428,850
Preferred Stock -
The Ryland Group, Inc. (273,553) 16,409,295
Loans to Participants 0 1,235,512
----------- -----------
Total $ 4,190,503 $67,689,256
=========== ===========
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE E: INVESTMENTS-CONTINUED
Mutual fund investment balances were converted to cash at the end of 1997 in
connection with the transition to the Vanguard Funds in January 1998.
Net
Appreciation
(Depreciation)
For the Year Ended in Fair Value Fair Value at
December 31, 1997 During Year End of Year
- --------------------------- --------------- ------------
Common Stock-
The Ryland Group, Inc. $ 35,210 $ 94,352
Putnam Voyager Fund 1,990,055 0
American Balanced Fund 609,286 0
Fidelity Growth Fund 687,563 0
Wells Fargo S&P 500 284,444 0
CIGNA Income Fund 24,563 0
Wachovia Short-Term Investment Fund 0 4,914,849
Loans to Participants 0 1,541,953
Preferred Stock -
The Ryland Group, Inc. 7,566,891 19,453,352
Standish Fixed Income Fund (31,070) 0
Cash 0 35,023,942
------------ ------------
Total $ 11,166,942 $ 61,028,448
============ ============
The maximum accounting loss the Plan would incur if parties to the financial
instruments failed to perform would be the current value of the investments
as stated on the statement of net assets available for plan benefits. None
of the investments are secured by collateral.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE F: INCOME TAX STATUS
The Internal Revenue Service ruled (November 15, 1994) that the Plan qualifies
under Section 401(a) of the Internal Revenue Code (IRC) and is, therefore, not
subject to tax under present income tax law. Once qualified, the Plan is
required to operate in conformity with the IRC to maintain its qualification.
The Employee Benefits Committee is not aware of any course of action or series
of events that have occurred that might adversely affect the Plan's qualified
status.
NOTE G: YEAR 2000 (Unaudited)
The Plan is heavily reliant on the information systems of third parties
including those of the Plan sponsor, trustee and record keeper. Based upon
information available at the time, the Company is not aware of any Year 2000
issues which will have a material impact on the Plan's operations. However, in
the event that one of the aforementioned parties experiences a system
interruption or failure, it may have a material adverse financial impact on the
Plan.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
<TABLE>
<CAPTION>
NOTE H: NET ASSETS AVAILABLE FOR PLAN BENEFITS BY FUND AS OF DECEMBER 31, 1998
500 Index Explorer Int'l Ttl Bond U.S Growth
Fund Fund Growth Fund Mkt Idx Fund
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Receivables:
Accrued interest and dividends $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
Total receivables -- -- -- -- --
Investments at fair value:
Short-term investments
Preferred stock of
The Ryland Group, Inc.
Mutual funds 6,241,789 8,886,015 420,059 4,039,540 14,748,261
Loans to participants -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total investments 6,241,789 8,886,015 420,059 4,039,540 14,748,261
----------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS 6,241,789 8,886,015 420,059 4,039,540 14,748,261
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Wellington Windsor II Retire Ryland Loan
Fund Fund Svs Trust Preferred Fund Total
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Receivables:
Accrued interest and dividends $ -- $ -- $ -- $ 230,187 $ -- $ 230,187
----------- ----------- ----------- ----------- ----------- -----------
Total receivables -- -- -- 230,187 -- 230,187
Investments at fair value:
Short-term investments 4,428,850 4,428,850
Preferred stock of
The Ryland Group, Inc. 16,409,295 16,409,295
Mutual funds 8,681,703 2,598,232 -- -- -- 45,615,599
Loans to participants -- -- -- -- 1,235,512 1,235,512
----------- ----------- ----------- ----------- ----------- -----------
Total investments 8,681,703 2,598,232 4,428,850 16,409,295 1,235,512 67,689,256
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS 8,681,703 2,598,232 4,428,850 16,639,482 1,235,512 67,919,443
=========== =========== =========== =========== =========== ===========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE H: NET ASSETS AVAILABLE FOR PLAN BENEFITS BY FUND AS OF DECEMBER 31, 1997
Putnam American Standish Fidelity Wells Fargo Ryland Loan
Voyager Balanced Fixed Income Growth CIGNA S&P 500 Preferred Fund Total
----------- ---------- ---------- ----------- ---------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Receivables:
Accrued interest
and dividends $ -- $ -- $ -- $ -- $ -- $ -- $ 277,740 $ -- $ 277,740
----------- ---------- ---------- ----------- ---------- ---------- ------------ ---------- -----------
Total receivables -- -- -- -- -- -- 277,740 -- 277,740
Investments
at fair value:
Cash 11,346,213 8,305,109 2,652,842 10,148,227 1,258 2,610,923 (40,630) 35,023,942
Short-term
investments 4,912,032 2,817 4,914,849
Preferred stock of
The Ryland Group, Inc. 19,453,352 19,453,352
Common stock of
The Ryland Group, Inc. 94,352 94,352
Loans to participants 1,541,953 1,541,953
----------- ---------- ---------- ----------- ---------- ---------- ------------ ---------- -----------
Total investments 11,346,213 8,305,109 2,652,842 10,148,227 4,913,290 2,610,923 19,509,891 1,541,953 61,028,448
----------- ---------- ---------- ----------- ---------- ---------- ------------ ---------- -----------
Total Assets 11,346,213 8,305,109 2,652,842 10,148,227 4,913,290 2,610,923 19,787,631 1,541,953 61,306,188
----------- ---------- ---------- ----------- ---------- ---------- ------------ ---------- -----------
LIABILITIES
Accrued liabilities -- -- -- -- 1,856 -- -- -- 1,856
----------- ---------- ---------- ----------- ---------- ---------- ------------ ---------- -----------
Total Liabilities -- -- -- -- 1,856 -- -- -- 1,856
----------- ---------- ---------- ----------- ---------- ---------- ------------ ---------- -----------
NET ASSETS
AVAILABLE FOR
PLAN BENEFITS $11,346,213 $8,305,109 $2,652,842 $10,148,227 $4,911,434 $2,610,923 $ 19,787,631 $1,541,953 $61,304,332
=========== ========== ========== =========== ========== ========== ============ ========== ===========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE I: ALLOCATION OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS BY FUND FOR THE YEAR ENDED DECEMBER 31, 1998
Putnam American Standish Fidelity Wells Fargo 500 Index Explorer
Voyager Balanced Fixed Income Growth CIGNA S&P 500 Fund Fund
----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS
Contributions:
Employer $ $ $ $ $ $ $ 700,771 $ 731,529
Participants 1,073,178 1,066,143
Rollovers 129,064 66,546
----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
Total contributions 1,903,013 1,864,218
Earnings on investments
Interest and dividends 84,699 80,569
----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
Total Additions -- -- -- -- -- -- 1,987,712 1,944,787
----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
DEDUCTIONS
Benefit payments
to participants 419,682 1,960,459
----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
Total Deductions -- -- -- -- -- -- 419,682 1,960,459
----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
Net realized and
unrealized appreciation
(depreciation) in fair
value of investments 1,007,964 308,142
Interfund transfers (11,346,213) (8,305,109) (2,652,842) (10,148,227) (4,911,434) (2,610,923) 3,665,795 8,593,545
----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
Net (decrease) increase
in net assets available
for plan benefits (11,346,213) (8,305,109) (2,652,842) (10,148,227) (4,911,434) (2,610,923) 6,241,789 8,886,015
Net assets available
for plan benefits
at beginning of year 11,346,213 8,305,109 2,652,842 10,148,227 4,911,434 2,610,923 -- --
----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
NET ASSETS AVAILABLE
FOR PLAN BENEFITS
AT END OF YEAR $ -- $ -- $ -- $ -- $ -- $ -- $6,241,789 $ 8,886,015
=========== =========== =========== =========== =========== ========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Int'l Ttl Bond U.S. Growth Wellington Windsor II Retire Ryland Loan
Growth Fund Mkt Idx Fund Fund Fund Svs Trust Preferred Fund Total
-------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS
Contributions:
Employer $ 70,251 $ 178,933 $ 832,442 $ 547,410 $ 248,507 $ 427,186 $ 399,067 $ -- $ 4,136,096
Participants 114,203 260,429 1,257,084 803,417 386,345 316,435 -- -- 5,277,234
Rollovers 33,382 12,378 91,050 66,611 76,123 42,659 -- -- 517,813
-------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- -----------
Total contributions 217,836 451,740 2,180,576 1,417,438 710,975 786,280 399,067 -- 9,931,143
Earnings on investments
Interest and dividends 8,019 210,245 906,431 956,835 246,282 282,544 1,007,106 129,800 3,912,530
-------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- -----------
Total Additions 225,855 661,985 3,087,007 2,374,273 957,257 1,068,824 1,406,173 129,800 13,843,673
-------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- -----------
DEDUCTIONS
Benefit payments
to participants 37,237 375,508 2,026,429 1,191,534 178,868 1,026,226 3,793,236 409,886 11,419,065
-------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- -----------
Total Deductions 37,237 375,508 2,026,429 1,191,534 178,868 1,026,226 3,793,236 409,886 11,419,065
-------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- -----------
Net realized and
unrealized appreciation
(depreciation) in fair
value of investments 19,064 43,923 3,197,238 (19,347) (92,928) -- (273,553) -- 4,190,503
Interfund transfers 212,377 3,709,140 10,490,445 7,518,311 1,912,771 4,386,252 (487,533) (26,355) --
-------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- -----------
Net (decrease) increase
in net assets available
for plan benefits 420,059 4,039,540 14,748,261 8,681,703 2,598,232 4,428,850 (3,148,149) (306,441) 6,615,111
Net assets available
for plan benefits
at beginning of year -- -- -- -- -- -- 19,787,631 1,541,953 61,304,332
-------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- -----------
NET ASSETS AVAILABLE
FOR PLAN BENEFITS
AT END OF YEAR $420,059 $4,039,540 $14,748,261 $8,681,703 $2,598,232 $4,428,850 $16,639,482 $1,235,512 $67,919,443
======== ========== =========== ========== ========== ========== =========== ========== ===========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE I: ALLOCATION OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS BY FUND FOR THE YEAR ENDED DECEMBER 31, 1997
Ryland Putnam American Standish Fidelity
Common Voyager Balanced Fixed Income Growth
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ADDITIONS
Contributions:
Employer $ -- $ 176,036 $ 90,933 $ 35,535 $ 108,817
Participants -- 1,438,793 684,208 278,716 969,461
Rollovers -- 110,284 113,176 46,442 138,594
------------ ------------ ------------ ------------ ------------
Total contributions -- 1,725,113 888,317 360,693 1,216,872
Earnings on investments:
Interest and dividends 4,067 703,574 930,030 231,205 967,727
------------ ------------ ------------ ------------ ------------
Total Additions 4,067 2,428,687 1,818,347 591,898 2,184,599
------------ ------------ ------------ ------------ ------------
DEDUCTIONS
Benefit payments to participants 76,133 2,678,459 1,350,134 907,538 2,127,178
Interest expense on loan payable to
The Ryland Group, Inc. -- -- -- -- --
Administrative expenses 4 50,115 34,869 13,952 41,250
------------ ------------ ------------ ------------ ------------
Total Deductions 76,137 2,728,574 1,385,003 921,490 2,168,428
------------ ------------ ------------ ------------ ------------
Net realized and unrealized
appreciation (depreciation)
in fair value of investments 35,210 1,990,055 609,286 (31,070) 687,563
Interfund transfers (118,608) (1,532,453) (140,909) (21,312) 605,079
------------ ------------ ------------ ------------ ------------
Net (decrease) increase in net assets
available for plan benefits (155,468) 157,715 901,721 (381,974) 1,308,813
Net assets available for plan benefits
at beginning of year 155,468 11,188,498 7,403,388 3,034,816 8,839,414
------------ ------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS AT END OF YEAR $ -- $ 11,346,213 $ 8,305,109 $ 2,652,842 $ 10,148,227
============ ============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Wells Fargo Ryland Loan
CIGNA S&P 500 Preferred Fund Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ADDITIONS
Contributions:
Employer $ 47,049 $ 17,472 $ 6,673,370 $ -- $ 7,149,212
Participants 370,565 270,124 -- -- 4,011,867
Rollovers 27,419 128,543 -- -- 564,458
------------ ------------ ------------ ------------ ------------
Total contributions 445,033 416,139 6,673,370 -- 11,725,537
Earnings on investments:
Interest and dividends 286,622 1,759 1,629,535 140,134 4,894,653
------------ ------------ ------------ ------------ ------------
Total Additions 731,655 417,898 8,302,905 140,134 16,620,190
------------ ------------ ------------ ------------ ------------
DEDUCTIONS
Benefit payments to participants 1,233,709 260,838 3,348,835 511,583 12,494,407
Interest expense on loan payable to
The Ryland Group, Inc. -- -- 929,994 -- 929,994
Administrative expenses 24,058 -- -- -- 164,248
------------ ------------ ------------ ------------ ------------
Total Deductions 1,257,767 260,838 4,278,829 511,583 13,588,649
------------ ------------ ------------ ------------ ------------
Net realized and unrealized
appreciation (depreciation)
in fair value of investments 24,563 284,444 7,566,891 -- 11,166,942
Interfund transfers (247,215) 1,598,371 (290,905) 147,952 --
------------ ------------ ------------ ------------ ------------
Net (decrease) increase in net assets
available for plan benefits (748,764) 2,039,875 11,300,062 (223,497) 14,198,483
Net assets available for plan benefits
at beginning of year 5,660,198 571,048 8,487,569 1,765,450 47,105,849
------------ ------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS AT END OF YEAR $ 4,911,434 $ 2,610,923 $ 19,787,631 $ 1,541,953 $ 61,304,332
============ ============ ============ ============ ============
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
RETIREMENT SAVINGS OPPORTUNITY PLAN
EIN: 52-0849948 PLAN: 003
Line 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1998
Description of Investment,
Including Maturity Date,
Identity of Issue, Borrower, Rate of Interest, Par or Current
Lessor or Similar Party Maturity Value Cost Value
-------------------------- ------------------------ ----------- ------------
<S> <C> <C> <C>
Vanguard 500 Index Fund Registered Investment Co $ 5,291,785 $ 6,241,789
Vanguard Explorer Fund Registered Investment Co $ 8,581,285 $ 8,886,015
Vanguard Int'l Growth Fund Registered Investment Co $ 401,279 $ 420,059
Vanguard Ttl Bond Mkt Idx Registered Investment Co $ 4,000,067 $ 4,039,540
Vanguard U.S. Growth Registered Investment Co $12,013,272 $14,748,261
Vanguard Wellington Fund Registered Investment Co $ 8,811,394 $ 8,681,703
Vanguard Windsor II Fund Registered Investment Co $ 2,695,520 $ 2,598,232
Vanguard Retire Svs Trust Common/Collective Trust $ 4,428,850 $ 4,428,850
* The Ryland Group, Inc. Preferred Stock $13,153,483 $16,409,295
Participant Loans High - 9.5% $ 1,235,512 $ 1,235,512
Low - 8.75%
* Indicates party in-interest to the Plan.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
EIN: 52-0849948 PLAN: 003
Line 27d - Schedule of Reportable Transactions
FOR THE YEAR ENDED DECEMBER 31, 1998
Description Current Value
of Assets of Asset
Identity of (including interest rate and Purchase Selling Cost of on Transaction Net Gain
Party Involved maturity in case of a loan) Price Price Asset Date or (Loss)
- ------------------ ---------------------------- ---------- ---------- ---------- ----------- ------------
Category (i) - series of transactions in excess of 5 percent of plan assets at
beginning of the year.
<S> <C> <C> <C> <C> <C> <C>
The Vanguard Group Vanguard Explorer Fund $11,346,369 -- $11,346,369 $11,346,369 --
The Vanguard Group Vanguard U.S. Growth 10,151,541 -- 10,151,541 10,151,541 --
The Vanguard Group Vanguard Wellington Fund 8,307,441 -- 8,307,441 8,307,441 --
The Vanguard Group Vanguard Retire Savings Trst 5,121,450 -- 5,121,450 5,121,450 --
Category (iii) - series of transactions in excess of 5 percent of plan assets at
beginning of the year.
The Vanguard Group Vanguard 500 Index Fund $ 6,090,641 -- -- $ 6,090,641 --
The Vanguard Group Vanguard 500 Index Fund -- $ 858,184 $ 800,244 858,184 $ 57,940
The Vanguard Group Vanguard Explorer Fund 13,807,245 -- -- 13,807,275 --
The Vanguard Group Vanguard Explorer Fund -- 5,240,628 5,241,488 5,240,628 (860)
The Vanguard Group Vanguard Ttl Bond Mkt Idx 4,712,828 -- -- 4,712,828 --
The Vanguard Group Vanguard Ttl Bond Mkt Idx -- 719,250 714,839 719,250 4,411
The Vanguard Group Vanguard U.S. Growth 14,854,405 -- -- 14,854,405 --
The Vanguard Group Vanguard U.S. Growth -- 3,308,614 2,863,532 3,308,614 445,082
The Vanguard Group Vanguard Wellington Fund 11,095,642 -- -- 11,095,642 --
The Vanguard Group Vanguard Wellington Fund -- 2,400,006 2,290,100 2,400,006 109,906
The Vanguard Group Vanguard Windsor II Fund 2,989,566 -- -- 2,989,566 --
The Vanguard Group Vanguard Windsor II Fund -- 298,406 294,046 298,406 4,360
The Vanguard Group Vanguard Retire Savings Trst 7,265,943 -- -- 7,265,943 --
The Vanguard Group Vanguard Retire Savings Trst -- 2,837,093 2,837,093 2,837,093 --
N/A ** Ryland Preferred Stock -- 3,415,404 2,839,445 3,415,404 575,959
There were no category (ii) or (iv) reportable transactions during 1998
* Commissions and fees related to purchases and sales of investments are included in the cost of the investment
or the proceeds from the sale and are not separately identified by the Trustee.
** Indicates party-in-interest to the Plan.
</TABLE>
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the Plan) have duly caused this Annual
Report to be signed by the undersigned thereunto duly authorized.
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
Date: June 29, 1999 By: /s/ Michael D. Mangan
----------------------------
Michael D. Mangan
Executive Vice President
and Chief Financial
Officer of The Ryland
Group, Inc.
17
<PAGE>
Page Of
Sequentially
Numbered Pages
--------------
INDEX OF EXHIBITS
23 Consent of Ernst & Young, LLP, Independent Auditors 19
18
Exhibit 23 CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-32431) pertaining to the Retirement Savings Opportunity Plan of The
Ryland Group, Inc. of our report dated June 21, 1999, with respect to the
financial statements and schedules of The Ryland Group, Inc. Retirement Savings
Opportunity Plan included in this Annual Report (Form 11-K) for the year ended
December 31, 1998.
/s/ Ernst & Young LLP
Baltimore, Maryland
June 21, 1999
19
