================================================================================
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 OF 1934
[FEE REQUIRED]
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____ to ____
Commission File Number 1-13578
-------
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
DOWNEY FINANCIAL CORP.
3501 JAMBOREE ROAD
NEWPORT BEACH, CA 92660
================================================================================
<PAGE>
REQUIRED INFORMATION
I. Financial Statements.
Financial statements and schedules prepared in accordance with the
financial reporting requirements of the Employee Retirement Income Security
Act of 1974, together with independent auditors' report thereon.
II. Exhibits:
Consent of Independent Auditors.
SIGNATURES
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 on its behalf by the undersigned, hereunto duly authorized.
DOWNEY SAVINGS AND LOAN
ASSOCIATION, F.A. EMPLOYEES'
RETIREMENT AND SAVINGS PLAN
Date: May 14, 1999 By: /s/ THOMAS E. PRINCE
---------------- ---------------------------
Thomas E. Prince
Member, Administrative Committee
<PAGE>
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Financial Statements and Supplemental Schedules
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Index to Financial Statements and Supplemental Schedules
PAGE
Independent Auditors' Report ........................................... 1
Statements of Net Assets Available for Plan Benefits - December 31, 1998
and 1997 .......................................................... 2
Statements of Changes in Net Assets Available for Plan Benefits - Years
ended December 31, 1998 and 1997 .................................. 3
Notes to Financial Statements .......................................... 4
SCHEDULES
Line 27a - Schedule of Assets Held for Investment Purposes -
December 31, 1998 ................................................. 14
Line 27d - Schedule of Reportable Transactions - Year ended
December 31, 1998 ................................................. 15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Administrative Committee
Downey Savings and Loan Association, F.A.
Employees' Retirement and Savings Plan:
We have audited the accompanying statements of net assets available for Plan
benefits of the Downey Savings and Loan Association, F.A. Employees' Retirement
and Savings 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 Downey
Savings and Loan Association, F.A. Employees' Retirement and Savings Plan as of
December 31, 1998 and 1997 and the changes in 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 basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes and schedule of 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. The supplemental schedules
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.
/s/ KPMG LLP
Los Angeles, California
May 14, 1999
<PAGE>
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
---------- ----------
<S> <C> <C>
Investments, at fair value:
Mutual funds ................................ $13,581,446 10,060,539
Money market funds .......................... 4,577,296 3,901,857
Downey Financial Corp. common stock ......... 3,930,044 3,587,931
Participant loans ........................... 920,883 586,675
---------- ----------
23,009,669 18,137,002
---------- ----------
Receivables:
Employer's contribution ..................... 1,607,464 1,266,521
Employees' contributions .................... -- 73,028
Investment income ........................... 882 930
Other ....................................... 19,323 1,998
---------- ----------
1,627,669 1,342,477
---------- ----------
Total assets ......................... 24,637,338 19,479,479
---------- ----------
LIABILITIES
Other ........................................... -- (19,958)
---------- ----------
Total liabilities .................... -- (19,958)
---------- ----------
Net assets available for Plan benefits $24,637,338 19,459,521
========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Statements of Changes in Net Assets Available for Plan Benefits
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Additions to net assets attributed to:
Dividends ........................................... $ 46,477 38,117
Interest and realized and unrealized gains and losses 2,209,930 3,318,069
---------- ----------
2,256,407 3,356,186
Contributions:
Employer .......................................... 1,905,888 1,507,150
Employee .......................................... 2,613,614 1,920,928
---------- ----------
Total additions .............................. 6,775,909 6,784,264
---------- ----------
Deductions from net assets attributed to:
Benefits paid to participants ....................... (1,586,550) (982,223)
Fees for participant loans .......................... (11,542) --
---------- ----------
Total deductions ............................. (1,598,092) (982,223)
---------- ----------
Net increase ................................. 5,177,817 5,802,041
Net assets available for Plan benefits:
Beginning of year ................................... 19,459,521 13,657,480
---------- ----------
End of year ......................................... $24,637,338 19,459,521
========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(1) DESCRIPTION OF THE PLAN
(A) GENERAL
The Downey Savings and Loan Association, F.A. Employees' Retirement
and Savings Plan (the Plan) was established as a profit sharing plan
on January 1, 1978 and was originally called the Employees' Profit
Sharing Plan of Downey Savings and Loan Association. The Plan was
amended and restated in its entirety as of October 1, 1997, and
continues to qualify as both a profit sharing plan and a qualified
cash or deferred arrangement under Internal Revenue Code Sections
401(a) and 401(k). The following description provides only general
information. Participants should refer to the Plan agreement for a
more complete description of the Plan's provisions.
The Plan is a defined contribution plan which provides retirement
benefits for eligible employees of Downey Savings and Loan
Association, F.A., its affiliates and subsidiaries (Downey). It is
subject to the provisions of the Employee Retirement Income Security
Act of 1974 (ERISA).
(B) ADMINISTRATION OF THE PLAN
The Plan is administered by Downey (the Plan Administrator). Downey
Savings and Loan Association, F.A. Administrative Committee (the
Committee) also administers the Plan and consists of at least three
members and has the authority to control and manage the operation and
administration of the Plan. The assets of the Plan are held in a
nondiscretionary trust by Fidelity Management Trust Company as trustee
and are administered under a trust agreement which requires that the
trustee hold, administer and distribute the funds of the Plan in
accordance with the text of the Plan and the instructions of the Plan
Administrator, the Committee or its designees.
(C) CONTRIBUTIONS
All employees of Downey are eligible to participate in the Plan
provided they are 21 years of age and have completed one year of
service. Each year, participants may contribute up to 15% of their
compensation, as defined in the Plan. Participants may roll over into
the Plan amounts representing distributions from other qualified
plans.
Downey makes a matching contribution equal to 25% of the participant's
pretax contributions which do not exceed 4% of the participant's
compensation. In addition, Downey makes annual contributions based
upon the participant's annual compensation and a participant age
weighted factor. Contributions are subject to certain limitations.
(D) PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's
contributions and allocations of Downey's matching and discretionary
contributions and the Plan's earnings and losses. Allocations are
based on participant earnings or account balances, as defined.
Forfeitures reduce the amount of employer contributions. For the years
ended December 31, 1998 and 1997, participant forfeitures totaled
$39,425 and $53,483, respectively.
(Continued)
4
<PAGE>
(E) VESTING
Participants are immediately vested in their contributions plus actual
earnings thereon. Vesting in Downey's matching and discretionary
contributions plus actual earnings thereon is based on years of
continuous service. A participant vests at the rate of 20% after one
year of credited service and 20% each year thereafter until 100%
vesting is reached after five years of credited service.
(F) INVESTMENT OPTIONS
At December 31, 1998, the investment options available to the Plan's
participants were as follows:
o Stock Fund - The fund provides Plan participants with an
opportunity to invest in Downey Financial Corp. stock.
o Fidelity Retirement Money Market Fund - The fund seeks to
preserve capital and maintain a high degree of liquidity
while providing income. The fund invests in high quality,
short-term U.S. dollar denominated money market instruments
of domestic and foreign issuers.
o PIMCO Low Duration Inst. Fund - The fund seeks total return
- both income and capital appreciation - consistent with
prudent investment management.
o Templeton Foreign Fund - The fund seeks long-term growth of
capital.
o Fidelity Puritan Fund - The fund seeks income consistent
with preservation of capital
o Fidelity Growth & Income Fund - The fund seeks long term
growth, current income and growth of income, consistent with
reasonable investment risk.
o Fidelity Low-Priced Stock Fund - The fund seeks capital
appreciation.
o Spartan U.S. Equity Index Fund - The fund seeks to provide
investment results that correspond to the total performance
of common stocks of companies publicly traded in the United
States.
(G) PARTICIPANT LOANS
From the beginning of the Plan and through September 30, 1997,
participants could borrow from their fund accounts in the event of
financial hardship, as defined within the Plan. Beginning October 1,
1997 and thereafter, based on the amended and restated Plan,
participants may borrow from their fund accounts for general purposes,
as defined within the Plan. Participant loans are limited to 50% of
the participant's current vested fund balance. Loan transactions are
treated as a transfer to (from) the investment funds. The loans are
secured by the balance in the participant's account and bear a fixed
rate of interest equal to prime plus 2% at the time the loan is
originated. Participants pay $75 to establish a loan and then pay
$6.25 on a quarterly basis for maintenance. Principal and interest are
paid ratably through payroll deductions.
(Continued)
5
<PAGE>
(H) PAYMENTS OF BENEFITS
Upon termination of service, a participant may elect to receive either
a single sum payment in cash or Downey stock equal to the value of the
vested interest in his or her account, or a series of substantially
equal annual or more frequent installments over a period not to exceed
five years.
(I) PLAN TERMINATION
Although it has not expressed any intent to do so, Downey has the
right under the Plan to discontinue contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of
Plan termination, participants will become 100% vested in their
accounts.
(2) SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF ACCOUNTING
The financial statements of the Plan have been prepared on the accrual
basis of accounting.
(B) INVESTMENTS
Publicly traded securities are carried at fair value based on
published market quotations. Purchases and sales of investments are
recorded on a trade-date basis.
(C) PARTICIPANT LOANS
Participant loans are included in the statements of net assets
available for Plan benefits at cost, which approximates fair value of
the notes. The notes are payable through payroll deductions.
(D) ADMINISTRATIVE EXPENSES
All administrative costs of the Plan, excluding investment management
fees and fees for participant loans, are paid by Downey.
(E) USE OF ESTIMATES
The Plan Administrator has made a number of estimates and assumptions
relating to the reporting of assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Accordingly, actual results may differ from those
estimates.
(F) RECLASSIFICATION
Certain reclassifications of the prior year's reported amounts have
been made to conform to the current year's reporting format.
(Continued)
6
<PAGE>
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(3) NET ASSETS AVAILABLE FOR PLAN BENEFITS
The following presents net assets available for Plan benefits for each fund
as of December 31, 1998:
<TABLE>
<CAPTION>
FIDELITY SPARTAN
RETIREMENT FIDELITY FIDELITY U.S.
MONEY PIMCO LOW TEMPLETON FIDELITY GROWTH & LOW-PRICED EQUITY
MARKET DURATION FOREIGN PURITAN INCOME STOCK INDEX LOAN
STOCK FUND FUND INST. FUND FUND FUND FUND FUND FUND FUND TOTAL
---------- --------- --------- ------- --------- --------- --------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments, at fair
value:
Mutual funds .......... $ -- -- 1,150,249 385,035 3,164,321 7,272,949 1,354,297 254,595 -- 13,581,446
Money market funds .... 195,025 4,382,271 -- -- -- -- -- -- -- 4,577,296
Downey Financial Corp.
common stock ........ 3,930,044 -- -- -- -- -- -- -- -- 3,930,044
Participant loans ..... -- -- -- -- -- -- -- -- 920,883 920,883
--------- --------- --------- ------- --------- --------- --------- ------- ------- ----------
4,125,069 4,382,271 1,150,249 385,035 3,164,321 7,272,949 1,354,297 254,595 920,883 23,009,669
--------- --------- --------- ------- --------- --------- --------- ------- ------- ----------
Receivables:
Employer's contribution 276,994 378,747 73,062 70,896 188,031 432,991 162,209 24,534 -- 1,607,464
Investment income ..... 882 -- -- -- -- -- -- -- -- 882
Other ................. 19,323 -- -- -- -- -- -- -- -- 19,323
--------- --------- --------- ------- --------- --------- --------- ------- ------- ----------
Total assets ......... 4,422,268 4,761,018 1,223,311 455,931 3,352,352 7,705,940 1,516,506 279,129 920,883 24,637,338
Liabilities - other ..... -- -- -- -- -- -- -- -- -- --
--------- --------- --------- ------- --------- --------- --------- ------- ------- ----------
Net assets available
for Plan benefits $4,422,268 4,761,018 1,223,311 455,931 3,352,352 7,705,940 1,516,506 279,129 920,883 24,637,338
========= ========= ========= ======= ========= ========= ========= ======= ======= ==========
</TABLE>
(Continued)
7
<PAGE>
The following presents net assets available for Plan benefits for each fund
as of December 31, 1997:
<TABLE>
<CAPTION>
FIDELITY
RETIREMENT FIDELITY FIDELITY
MONEY PIMCO LOW TEMPLETON FIDELITY GROWTH & LOW-PRICED
MARKET DURATION FOREIGN PURITAN INCOME STOCK LOAN
STOCK FUND FUND INST. FUND FUND FUND FUND FUND FUND TOTAL
---------- --------- --------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments, at fair value:
Mutual funds ............ $ -- -- 967,968 252,402 2,871,334 4,994,272 974,563 -- 10,060,539
Money market funds ...... 209,620 3,692,237 -- -- -- -- -- -- 3,901,857
Downey Financial Corp.
common stock .......... 3,587,931 -- -- -- -- -- -- -- 3,587,931
Participant loans ....... -- -- -- -- -- -- -- 586,675 586,675
--------- --------- --------- --------- --------- --------- --------- --------- ----------
3,797,551 3,692,237 967,968 252,402 2,871,334 4,994,272 974,563 586,675 18,137,002
--------- --------- --------- --------- --------- --------- --------- --------- ----------
Receivables:
Employer's contribution . 198,859 237,594 61,348 71,778 180,957 371,618 144,367 -- 1,266,521
Employees' contributions 12,726 11,005 3,402 4,735 8,900 21,200 11,060 -- 73,028
Investment income ....... 930 -- -- -- -- -- -- -- 930
Other ................... 356 329 155 136 207 617 198 -- 1,998
--------- --------- --------- --------- --------- --------- --------- --------- ----------
212,871 248,928 64,905 76,649 190,064 393,435 155,625 -- 1,342,477
--------- --------- --------- --------- --------- --------- --------- --------- ----------
Total assets ........... 4,010,422 3,941,165 1,032,873 329,051 3,061,398 5,387,707 1,130,188 586,675 19,479,479
Liabilities - other ....... (19,958) -- -- -- -- -- -- -- (19,958)
--------- --------- --------- --------- --------- --------- --------- --------- ----------
Net assets available
for Plan benefits ..... $3,990,464 3,941,165 1,032,873 329,051 3,061,398 5,387,707 1,130,188 586,675 19,459,521
========= ========= ========= ========= ========= ========= ========= ========= ==========
</TABLE>
(Continued)
8
<PAGE>
(4) CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
The following presents changes in net assets available for Plan benefits
for each fund for the year ended December 31, 1998:
<TABLE>
<CAPTION>
FIDELITY SPARTAN
RETIREMENT FIDELITY FIDELITY U.S.
MONEY PIMCO LOW TEMPLETON FIDELITY GROWTH & LOW-PRICED EQUITY
MARKET DURATION FOREIGN PURITAN INCOME STOCK INDEX LOAN
STOCK FUND FUND INST. FUND FUND FUND FUND FUND FUND FUND TOTAL
--------- --------- --------- ------- --------- --------- --------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to net
assets attributed
to:
Dividends ....... $ 46,477 -- -- -- -- -- -- -- -- 46,477
Interest and
realized and
unrealized gains
and losses ..... (198,331) 204,875 72,585 (20,506) 456,810 1,585,577 (4,132) 17,112 95,940 2,209,930
--------- --------- --------- ------- --------- --------- --------- ------- ------- ----------
(151,854) 204,875 72,585 (20,506) 456,810 1,585,577 (4,132) 17,112 95,940 2,256,407
Contributions:
Employer ....... 339,003 413,480 85,543 89,363 221,488 525,014 205,764 26,233 -- 1,905,888
Employee ....... 477,479 393,419 107,270 160,212 293,535 770,529 387,019 24,151 -- 2,613,614
--------- --------- --------- ------- --------- --------- --------- ------- ------- ----------
Total additions 664,628 1,011,774 265,398 229,069 971,833 2,881,120 588,651 67,496 95,940 6,775,909
Deductions from net
assets attributed
to:
Benefits paid to
participants .... (202,077) (455,020) (131,917) (27,199) (252,456) (344,688) (106,106) -- (67,087) (1,586,550)
Fees for
participant
loans .......... (486) (4,641) (19) (275) (2,675) (2,606) (840) -- -- (11,542)
Interfund transfers (30,261) 267,740 56,976 (74,715) (425,748) (215,593) (95,387) 211,633 305,355 --
--------- --------- --------- ------- --------- --------- --------- ------- ------- ----------
Net increase .. 431,804 819,853 190,438 126,880 290,954 2,318,233 386,318 279,129 334,208 5,177,817
Net assets
available for Plan
benefits:
Beginning of year 3,990,464 3,941,165 1,032,873 329,051 3,061,398 5,387,707 1,130,188 -- 586,675 19,459,521
--------- --------- --------- ------- --------- --------- --------- ------- ------- ----------
End of year ..... $4,422,268 4,761,018 1,223,311 455,931 3,352,352 7,705,940 1,516,506 279,129 920,883 24,637,338
========= ========= ========= ======= ========= ========= ========= ======= ======= ==========
</TABLE>
(Continued)
9
<PAGE>
The following presents changes in net assets available for Plan benefits
for each fund for the year ended December 31, 1997:
<TABLE>
<CAPTION>
SCHWAB PIMCO LOW NEUBERGER DODGE WASATCH
MONEY DURATION TEMPLETON & BERMAN & COX AGGRESSIVE
STOCK MARKET INST. FOREIGN GUARDIAN BALANCED EQUITY
FUND FUND FUND FUND FUND FUND FUND
--------- --------- --------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Dividends ....................... $ 38,117 -- -- -- -- -- --
Interest and realized
and unrealized gains
and losses .................... 1,188,051 129,604 76,368 394 959,504 524,795 141,917
--------- --------- --------- ------- --------- --------- --------
1,226,168 129,604 76,368 394 959,504 524,795 141,917
Contributions:
Employer ...................... 237,339 43,552 74,441 80,461 47,772 32,433 16,575
Employee ...................... 303,002 297,994 101,892 74,042 382,399 257,434 143,217
--------- --------- --------- ------- --------- --------- --------
Total additions ......... 1,766,509 471,150 252,701 154,897 1,389,675 814,662 301,709
Deductions from net assets
attributed to benefits
paid to participants .............. (141,939) (231,443) (117,141) (9,839) (113,739) (204,035) (32,138)
Interfund transfers ................... 215,833 (3,764,929) (157,238) 67,394 (4,483,772) (3,084,078) (960,297)
--------- --------- --------- ------- --------- --------- --------
Net increase (decrease) . 1,840,403 (3,525,222) (21,678) 212,452 (3,207,836) (2,473,451) (690,726)
Net assets available for Plan benefits:
Beginning of year ............... 2,150,061 3,525,222 1,054,551 116,599 3,207,836 2,473,451 690,726
--------- --------- --------- ------- --------- --------- --------
End of year ..................... $3,990,464 -- 1,032,873 329,051 -- -- --
========= ========= ========= ======= ========= ========= ========
</TABLE>
(Continued)
10
<PAGE>
<TABLE>
<CAPTION>
PIMCO LOW FIDELITY FIDELITY FIDELITY
DURATION RETIREMENT FIDELITY GROWTH LOW-PRICED
ADMIN. MONEY PURITAN & INCOME STOCK LOAN
FUND MARKET FUND FUND FUND FUND FUND TOTAL
--------- --------- --------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Dividends ....................... $ -- -- -- -- -- -- 38,117
Interest and realized
and unrealized gains
and losses .................... 4 56,109 47,741 144,772 749 48,061 3,318,069
--------- --------- --------- --------- --------- ------- ----------
4 56,109 47,741 144,772 749 48,061 3,356,186
Contributed:
Employer ...................... 527 247,419 187,375 387,007 152,249 -- 1,507,150
Employee ...................... 3,735 84,397 57,668 142,028 73,120 -- 1,920,928
--------- --------- --------- --------- --------- ------- ----------
Total additions ......... 4,266 387,925 292,784 673,807 226,118 48,061 6,784,264
Deductions from net assets
attributed to benefits
paid to participants .............. -- (68,058) (5,134) (3,283) (6,031) (49,443) (982,223)
Interfund transfers ................... (4,266) 3,621,298 2,773,748 4,717,183 910,101 149,023 --
--------- --------- --------- --------- --------- ------- ----------
Net increase (decrease) . -- 3,941,165 3,061,398 5,387,707 1,130,188 147,641 5,802,041
Net assets available for Plan benefits:
Beginning of year .................. -- -- -- -- -- 439,034 13,657,480
--------- --------- --------- --------- --------- ------- ----------
End of year ........................ $ -- 3,941,165 3,061,398 5,387,707 1,130,188 586,675 19,459,521
========= ========= ========= ========= ========= ======= ==========
</TABLE>
(Continued)
11
<PAGE>
(5) INVESTMENTS
In accordance with the terms of the Plan's Investment Policies, Guidelines
and Objectives, the Plan will offer a minimum of five investment options.
Plan participants select the options they prefer and allocate their
contributions between options as they deem appropriate.
The fair value of investments that represent 5% or more of the Plan's net
assets at December 31, 1998 and 1997 consisted of:
<TABLE>
<CAPTION>
INVESTMENT DESCRIPTION OF INVESTMENT 1998 1997
------------------------------------- ---------------------------- ---------- ----------
<S> <C> <C>
Downey Financial Corp. Common stock ............... $ 3,930,044 3,587,931
Fidelity Retirement Money Market Fund Open-Ended Money Market Fund 4,577,296 3,901,857
PIMCO Low Duration Inst. Fund Open-Ended Mutual Fund ..... -- 967,968
Fidelity Puritan Fund Open-Ended Mutual Fund ..... 3,164,321 2,871,334
Fidelity Growth & Income Fund Open-Ended Mutual Fund ..... 7,272,949 4,994,272
Fidelity Low-Priced Stock Fund Open-Ended Mutual Fund ..... 1,354,297 974,563
---------- ----------
$20,298,907 17,297,925
========== ==========
</TABLE>
The following table presents the cost and fair value of Plan investments as
of December 31, 1998:
<TABLE>
<CAPTION>
COST FAIR VALUE
---------- ----------
<S> <C> <C>
Mutual funds ...................... $12,381,256 13,581,446
Money Market Funds ................ 4,577,296 4,577,296
Downey Financial Corp. common stock 2,893,517 3,930,044
Participant loans ................. 920,883 920,883
---------- ----------
Total investments ........ $20,772,952 23,009,669
========== ==========
</TABLE>
The following table presents the cost and fair value of Plan investments as
of December 31, 1997:
<TABLE>
<CAPTION>
COST FAIR VALUE
---------- ----------
<S> <C> <C>
Mutual funds ...................... $10,080,335 10,060,539
Money Market Funds ................ 3,901,857 3,901,857
Downey Financial Corp. common stock 2,056,837 3,587,931
Participant loans ................. 586,675 586,675
---------- ----------
Total investments ........ $16,625,704 18,137,002
========== ==========
</TABLE>
(Continued)
12
<PAGE>
(6) PARTICIPATION BY FUND
The total number of Plan participants in each of the investment funds on
December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Stock Fund .......................... 547 529
Fidelity Retirement Money Market Fund 497 531
PIMCO Low Duration Inst. Fund ....... 257 277
Templeton Foreign Fund .............. 232 241
Fidelity Puritan Fund ............... 463 486
Fidelity Growth & Income Fund ....... 669 644
Fidelity Low-Priced Stock Fund ...... 407 411
Spartan U.S. Equity Index Fund ...... 41 --
====== ======
</TABLE>
The schedule reflects the fact that participants may elect to invest in
more than one fund.
(7) FEDERAL INCOME TAXES
Downey received a favorable tax determination letter on May 4, 1998 from
the Internal Revenue Service stating that the Plan, as amended and adopted
on September 29, 1997, is qualified under Section 401 of the Internal
Revenue Code of 1954, and is exempt from Federal income taxes under
provisions of Section 401(a).
The Plan has been subsequently amended since September 29, 1997. The
subsequent amendment of the Plan was adopted on February 1, 1998. In the
opinion of management, the Plan continues to meet the requirements of the
Internal Revenue Code.
(8) RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by Fidelity
Management Research, which is affiliated with Fidelity Management Trust
Company, which is the trustee as defined by the Plan and, therefore, these
transactions qualify as party-in-interest. Fees for the trust management
services are paid by Downey.
13
<PAGE>
SCHEDULE 1
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Line 27a - Schedule of Assets Held for Investment Purposes
December 31, 1998
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY DATE,
IDENTITY OF ISSUE, BORROWER, LESSOR RATE OF INTEREST, COLLATERAL, CURRENT
OR SIMILAR PARTY PAR, OR MATURITY VALUE COST VALUE
--------------------------------------- --------------------------- --------- ---------
<S> <C> <C>
* Fidelity Retirement Money Market Fund Money Market Fund ......... $4,577,296 4,577,296
* Downey Financial Corp. 154,498 shares common stock 2,893,517 3,930,044
PIMCO Low Duration Inst. Fund 113,102 shares mutual fund 1,153,414 1,150,249
Templeton Foreign Fund 45,892 shares mutual fund . 470,294 385,035
* Fidelity Puritan Fund 157,664 shares mutual fund 3,085,377 3,164,321
* Fidelity Growth & Income Fund 158,659 shares mutual fund 6,079,185 7,272,949
* Fidelity Low-Priced Stock Fund 59,269 shares mutual fund . 1,465,002 1,354,297
* Fidelity Spartan U.S. Equity Index Fund 5,792 shares mutual fund . 238,689 254,595
* Participant loans Participant loans ......... -- 920,883
========= =========
</TABLE>
* Denotes a party-in-interest.
See accompanying independent auditors' report.
14
<PAGE>
SCHEDULE 2
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Line 27d - Schedule of Reportable Transactions
Year ended December 31, 1998
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G) (H) (I)
------------------- ------------------------ --------- --------- -------- -------- --------- --------- --------
CURRENT
EXPENSE VALUE
INCURRED OF ASSET ON
IDENTITY OF PARTY DESCRIPTION PURCHASE SELLING LEASE WITH COST OF TRANSACTION NET GAIN
INVOLVED OF ASSETS PRICE PRICE RENTAL TRANSACTION ASSETS DATE OR (LOSS)
------------------- ------------------------ --------- --------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
* Downey Financial Common Stock series
Corp. of 28 purchases ...... $1,057,298 -- -- 489 1,057,298 1,057,298 --
* Downey Financial Common Stock series
Corp. of 15 sales .......... -- 505,104 -- 212 272,657 505,104 232,233
* Fidelity Puritan Mutual fund series
Fund of 152 purchases ..... 1,259,966 -- -- -- 1,259,966 1,259,966 --
* Fidelity Puritan Mutual fund series
Fund of 104 sales ......... -- 1,084,778 -- -- 1,088,560 1,084,778 (3,782)
* Fidelity Growth & Mutual fund series
Income Fund of 185 purchases ..... 2,499,541 -- -- -- 2,499,541 2,499,541 --
* Fidelity Growth & Mutual fund series
Income Fund of 124 sales ......... -- 1,420,087 -- -- 1,324,189 1,420,087 95,898
* Fidelity Low-Priced Mutual fund series
Stock Fund of 152 purchases ..... 891,217 -- -- -- 891,217 891,217 --
* Fidelity Low-Priced Mutual fund series
Stock Fund of 106 sales ......... -- 388,177 -- -- 422,627 388,177 (34,450)
* Fidelity Retirement Money Market Fund series
Money Market of 174 purchases ..... 2,273,678 -- -- -- 2,273,678 2,273,678 --
* Fidelity Retirement Money Market Fund series
Money Market of 137 purchases ..... -- 1,583,644 -- -- 1,583,644 1,583,644 --
========= ========= ======== ======== ========= ========= ========
</TABLE>
* Denotes a party-in-interest.
See accompanying independent auditors' report.
<PAGE>
EXHIBIT 23
CONSENT OF KPMG LLP
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Administrative Committee
Downey Savings and Loan Association, F.A.
Employees' Retirement and Savings Plan:
We consent to incorporation by reference in the Registration Statement (No.
333-30483) on Form S-8 of Downey Financial Corp. of our report dated May 14,
1999 relating to the statements of net assets available for plan benefits of the
Downey Savings and Loan Association, F.A. Employees' Retirement and Savings Plan
as of and for the year ended December 31, 1998, and 1997, the related statements
of changes in net assets available for plan benefits for the years then ended
and supplemental schedules, which report appears in the December 31, 1998 annual
report on Form 11-K of Downey Savings and Loan Association, F.A. Employees'
Retirement and Savings Plan.
/s/ KPMG LLP
Los Angeles, California
June 21, 1999
