<PAGE>


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended: December 31, 1999

                         Commission file number: 1-12639


                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)
-------------------------------------------------------------------------------

              Maryland                                          94-3254883
   (State or other jurisdiction of                          (I.R.S. employer
     incorporation or orgnization)                           Identification no.)
-------------------------------------------------------------------------------
200 Crescent Court, Suite 1350, Dallas, Texas                     75201
 (Address of principal executive offices)                       (Zip code)
-------------------------------------------------------------------------------

       Registrant's telephone number, including area code: (214) 871-5131

           Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
<S>                                                                           <C>
                       Title of each class                                    Name of each exchange on which registered
                       -------------------                                    -----------------------------------------
9-1/8% Noncumulative Exchangeable Preferred Stock, Series A                            New York Stock Exchange
</TABLE>


        Securities registered pursuant to Section 12(g) of the Act: None

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the securities exchange act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant as of the close of business on March 17, 2000: N/A

     Number of shares outstanding of registrant's common stock $0.01 par value
on March 17, 2000: 1,000 shares

                       Documents Incorporated by Reference
                                      None


                                     Page 1

<PAGE>
                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION

                         1999 ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS

                                     PART I

<TABLE>
<CAPTION>
                                                                                                                        Page
<S>            <C>                                                                                                      <C>
ITEM 1.        Business...................................................................................................3
                              General.....................................................................................3
                              Description of Common Stock.................................................................3
                              Description of Series A Preferred Shares....................................................4
                              Dividend Policy............................................................................10
                              The Bank...................................................................................10
                              Residential Mortgage Loans.................................................................11
                              Credit Risk Management Policies............................................................12
                              Delinquencies and Nonperforming Loans......................................................12
                              Geographic Distribution....................................................................13
                              Servicing of Residential Mortgage Loans....................................................13
                              Capital and Leverage Policies..............................................................13
                              Employees..................................................................................14
                              Competition................................................................................14
                              Environmental Matters......................................................................14
                              Tax Status of the Company..................................................................14
ITEM 2.        Properties................................................................................................15
ITEM 3.        Legal Proceedings.........................................................................................15
ITEM 4.        Submission of Matters to a Vote of Security Holders.......................................................15

                                     PART II

ITEM 5.        Market for the Registrant's Common Equity and Related Stockholder Matters.................................16
ITEM 6.        Selected Financial Data...................................................................................17
ITEM 7.        Management's Discussion and Analysis of Financial Condition and Results of Operations.....................18
                              Overview...................................................................................18
                              Results of Operations......................................................................18
                              Residential Mortgage Loans.................................................................20
                              Allowance for Loan Losses..................................................................20
                              Interest Rate Risk.........................................................................20
                              Significant Concentration of Credit Risk...................................................21
                              Liquidity Risk Management..................................................................21
                              Impact of Inflation and Changing Prices....................................................22
                              Other Matters..............................................................................22
                              Year 2000..................................................................................23
ITEM 7A.       Quantitative and Qualitative Disclosures about Market Risk................................................24
ITEM 8.        Financial Statements and Supplementary Data...............................................................25
ITEM 9.        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................25

                                    PART III

ITEM 10.       Directors and Executive Officers of the Registrant........................................................26
ITEM 11.       Executive Compensation....................................................................................27
ITEM 12.       Security Ownership of Certain Beneficial Owners and Management............................................27
ITEM 13.       Certain Relationships and Related Transactions............................................................28

                                                             PART IV

ITEM 14.       Exhibits, Financial Statement Schedules and Reports on Form 8-K...........................................29

Signatures...............................................................................................................30

Audited Financial Statements............................................................................................F-1
</TABLE>


                                       2
<PAGE>

Forward-Looking Statements. The statements contained in this Report on Form 10-K
that are not purely historical are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements regarding the Company's expectations,
intentions, beliefs or strategies regarding the future. Forward-looking
statements include the Company's statements regarding liquidity, provision for
loan losses, capital resources and investment activities in "Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
addition, in those and other portions of this document, the words "anticipate,"
"believe," "estimate," "deem," "expect," "intend," and other similar
expressions, as they relate to the Company or the Company's management, are
intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions. It is important to note that the
Company's actual results could differ materially from those described herein as
anticipated, believed, estimated or expected. Among the factors that could cause
results to differ materially are the risks discussed in the "Risk Factors"
section included in the Company's Registration Statement on Form S- 11(File No.
333-11609), with respect to the Series A Preferred Shares declared effective by
the Securities and Exchange Commission on January 24, 1997. The Company assumes
no obligation to update any such forward-looking statement.

                                     PART I

ITEM 1.            BUSINESS

GENERAL

California Federal Preferred Capital Corporation (the "Company"), is a Maryland
corporation incorporated on November 19, 1996 which was created for the purpose
of acquiring, holding and managing real estate assets. The Company's outstanding
common stock is wholly-owned by California Federal Bank, A Federal Savings Bank
(the "Bank"). The Bank is wholly-owned indirectly by Golden State Bancorp Inc.
("Golden State"). The Company has elected to be treated as a Real Estate
Investment Trust ("REIT") for Federal income tax purposes and intends to comply
with the provisions of the Internal Revenue Code of 1986 (the "IRC"), as
amended. Accordingly, in general, the Company is not subject to Federal income
tax to the extent it distributes its income to shareholders and as long as
certain asset, income and stock ownership tests are met in accordance with the
IRC.

On January 31, 1997, the Company commenced its operations with the consummation
of an initial public offering of 20,000,000 shares of the Company's 91/8%
Noncumulative Exchangeable Preferred Stock, Series A (the "Series A Preferred
Shares"), $0.01 par value, which raised $500 million. The Series A Preferred
Shares are traded on the New York Stock Exchange ("NYSE") under the trading
symbol "CFP." Expenses incurred relative to the offering and the formation of
the Company were borne by the Bank. Concurrent with the issuance of the Series A
Preferred Shares, the Bank contributed additional capital of $500 million to the
Company.

The Company used the proceeds raised from the initial public offering of the
Series A Preferred Shares and the additional capital contributed by the Bank to
purchase from the Bank the Company's initial portfolio of residential mortgage
loans at their estimated fair value of $996.5 million. The residential mortgage
loans were recorded in the accompanying financial statements at the Bank's
carrying value which approximated their estimated fair values. The Company has
entered into a servicing agreement (the "Servicing Agreement") with the Bank's
wholly-owned mortgage banking subsidiary, First Nationwide Mortgage Corporation
("FNMC"), to service the Company's residential mortgage loans.

DESCRIPTION OF COMMON STOCK

         Dividends

Holders of common stock are entitled to receive dividends if, when and as
authorized and declared by the Company's Board of Directors (the "Board") out of
assets legally available therefor, provided that, so long as any shares of
preferred stock are outstanding, no dividends or other distributions (including
redemptions and purchases) may be made with respect to the common stock unless
full dividends on the shares of all series of preferred stock, including
accumulations in the case of any cumulative preferred stock, have been paid. In
order to remain qualified as a REIT, the Company must distribute annually at
least 95% of its annual REIT taxable income to the stockholders. See "-- Tax
Status of the Company."


                                       3
<PAGE>


         Voting Rights

Subject to the rights, if any, of the holders of any class or series of
preferred stock, including the Series A Preferred Shares, all voting rights are
vested in the common stock. The holders of common stock are entitled to one vote
per share. All of the issued and outstanding shares of common stock are
currently held by the Bank.

         Rights Upon Liquidation

In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, after there have been paid or set aside for
the holders of all series of preferred stock the full preferential amounts to
which such holders are entitled, the holders of common stock will be entitled to
share equally and ratably in any assets remaining after the payment of all debts
and liabilities.

DESCRIPTION OF SERIES A PREFERRED SHARES

         General

The Series A Preferred Shares form a series of the preferred stock of the
Company, which preferred stock may be issued from time to time in one or more
series with such designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption as are determined by the
Board.

The holders of the Series A Preferred Shares have no preemptive rights with
respect to any shares of the stock of the Company or any other securities of the
Company convertible into or carrying rights or options to purchase any such
shares. The Series A Preferred Shares are perpetual and will not be convertible
into shares of common stock or any other class or series of stock of the Company
and will not be subject to any sinking fund or other obligation of the Company
for its repurchase or retirement. The Series A Preferred Shares will be
exchanged automatically on a one-for- one basis for Bank Preferred Shares (as
defined herein) upon the occurrence of the Exchange Event (as defined herein).

The transfer agent, registrar and dividend disbursement agent for the Series A
Preferred Shares is American Stock Transfer & Trust Co. The registrar for shares
of Series A Preferred Shares will send notices to stockholders of any meetings
at which holders of the Series A Preferred Shares have the right to elect
directors of the Company or to vote on any other matter.

         Dividends

Holders of Series A Preferred Shares are entitled to receive, if, when and as
authorized and declared by the Board out of assets of the Company legally
available therefor, noncumulative cash dividends at the rate of 91/8% per annum
of the initial liquidation preference of $25.00 per share. Dividends on the
Series A Preferred Shares are payable, if authorized and declared, quarterly in
arrears on the last day of March, June, September and December. Dividends in
each quarterly period accrue from the first day of such period. Each authorized
and declared dividend is payable to holders of record as they appear on the
stock register of the Company on such record dates, not more than 45 calendar
days nor less than 10 calendar days preceding the payment dates thereof, as
shall be fixed by the Board.

The right of holders of Series A Preferred Shares to receive dividends is
noncumulative. Accordingly, if the Board fails to declare a dividend on the
Series A Preferred Shares for a quarterly dividend period, then holders of the
Series A Preferred Shares have no right to receive a dividend for that period,
and the Company has no obligation to pay a dividend for that period, whether or
not dividends are declared and paid for any future period.

If any Series A Preferred Shares are outstanding, no full dividends or other
distributions shall be authorized, declared or paid or set apart for payment on
any common stock or other capital stock of the Company ranking junior to
("Junior Stock") or on a parity with ("Parity Stock") the Series A Preferred
Shares for any quarterly period unless full dividends have been or
contemporaneously are authorized, declared and paid, or authorized and declared
and a sum sufficient for the payment thereof is set apart for such payments on
the Series A Preferred Shares for (i) the immediately preceding quarterly
dividend period, in the case of Parity Stock, and (ii) the then-current
quarterly dividend period, in the case of Junior Stock. When dividends are not
paid in full (or a sum sufficient for such full payment is not so set apart) for
any


                                       4
<PAGE>

quarterly dividend period upon the Series A Preferred Shares and the shares of
Parity Stock, all dividends authorized and declared on the Series A Preferred
Shares and the shares of Parity Stock shall only be authorized and declared pro
rata based upon the respective amounts that would have been paid on the Series A
Preferred Shares and any shares of Parity Stock had dividends been authorized
and declared in full.

In addition to the foregoing restriction, the Company shall not authorize,
declare, pay or set apart funds for any dividends or other distributions (other
than in common stock or other Junior Stock) with respect to any common stock or
other Junior Stock or repurchase, redeem or otherwise acquire, or set apart
funds for repurchase, redemption or other acquisition of, any common stock or
other Junior Stock through a sinking fund or otherwise, unless and until (i)
full dividends on the Series A Preferred Shares for the four most recent
preceding quarterly dividend periods (or such lesser number of quarterly
dividend periods during which shares of Series A Preferred Shares have been
outstanding) are authorized and declared and paid or a sum sufficient for
payment has been paid over to the dividend disbursing agent for payment of such
dividends and (ii) the Company has authorized and declared a cash dividend on
the Series A Preferred Shares at the annual dividend rate for the then-current
quarterly dividend period, and sufficient funds have been paid over to the
dividend disbursing agent for the payment of such cash dividend for such
then-current quarterly dividend period.

         Automatic Exchange

Each Series A Preferred Share will be exchanged automatically for one newly
issued share of Bank preferred stock if the appropriate federal regulatory
agency directs in writing (the "Directive") an exchange of the Series A
Preferred Shares for Bank preferred stock because (i) the Bank becomes
"undercapitalized" under prompt corrective action regulations, (ii) the Bank is
placed into conservatorship or receivership or (iii) the appropriate federal
regulatory agency, in its sole discretion, anticipates the Bank becoming
"undercapitalized" in the near term (the "Exchange Event"). Upon the Exchange
Event, each holder of Series A Preferred Shares shall be unconditionally
obligated to surrender to the Bank all certificates representing the Series A
Preferred Shares of such holder, and the Bank shall be unconditionally obligated
to issue to such holder in exchange for such certificate(s), a certificate or
certificates representing an equal number of shares of Bank preferred stock (the
"Automatic Exchange"). Any Series A Preferred Shares purchased or redeemed by
the Company prior to the Time of Exchange (as defined herein) shall not be
deemed outstanding and shall not be subject to the Automatic Exchange.

The Automatic Exchange shall occur as of 8:00 a.m. Eastern time on the effective
date of such exchange set forth in the Directive, or, if such date is not set
forth in the Directive, as of 8:00 a.m. Eastern time on the first business day
immediately following the date of issuance of the Directive (the "Time of
Exchange"). As of the Time of Exchange, all shares of Series A Preferred Shares
will be canceled without any further action by the Company, all rights of the
holders of Series A Preferred Shares as stockholders of the Company will cease,
and such persons shall thereupon and thereafter be deemed to be and shall be for
all purposes the holders of Bank preferred stock. The Company will mail notice
of the occurrence of the Exchange Event to each holder of Series A Preferred
Shares within 30 days of such event, and the Bank will deliver to each such
holder certificates for Bank preferred stock upon surrender of such holder's
certificates for Series A Preferred Shares. Until such replacement stock
certificates are delivered (or in the event such replacement certificates are
not delivered), certificates previously representing Series A Preferred Shares
shall be deemed for all purposes to represent Bank preferred stock. Once the
Directive is issued, no action will be required to be taken by holders of Series
A Preferred Shares, by the Bank or by the Company in order to effect the
Automatic Exchange as of the Time of Exchange.

Holders of Series A Preferred Shares, by purchasing such shares of Series A
Preferred Shares, are deemed to have agreed to be bound by the unconditional
obligation to exchange such shares of Series A Preferred Shares for Bank
preferred stock upon the occurrence of the Exchange Event. The obligation of the
holders of Series A Preferred Shares to surrender such shares and the obligation
of the Bank to issue Bank preferred stock in exchange for Series A Preferred
Shares shall be enforceable by the Bank and such holders, respectively, against
the other.

Absent the occurrence of the Exchange Event, no shares of Bank preferred stock
will be issued. Upon the occurrence of the Exchange Event, the Bank preferred
stock to be issued as part of the Automatic Exchange would constitute a newly
issued series of preferred stock of the Bank and would have the same dividend
rights, liquidation preference, redemption options and other attributes as to
the Bank as holders of Series A Preferred Shares have as to the Company. Any
accrued and unpaid dividends on the Series A Preferred Shares as of the Time of
Exchange would be deemed to


                                       5
<PAGE>

be accrued and unpaid dividends on the Bank preferred stock. The Bank preferred
stock would rank pari passu in terms of dividend payment and liquidation
preference with any outstanding shares of preferred stock of the Bank. The Bank
has registered the Bank preferred stock with the Office of Thrift Supervision
("OTS"). The Bank preferred stock will not be registered with the Commission and
will be offered pursuant to an exemption from registration under Section 3(a)(5)
of the Securities Act. Absent the occurrence of the Exchange Event, however, the
Bank will not issue any Bank preferred stock, although the Bank will be able to
issue preferred stock in series other than that of the Bank preferred stock
discussed herein. In the event of the issuance of Bank preferred stock,
application will be made to list the Bank preferred stock on the NYSE. However,
there can be no assurance as to the liquidity of the trading markets for the
Bank preferred stock, if issued, or that an active public market for the Bank
preferred stock would develop or be maintained.

Holders of Series A Preferred Shares cannot exchange their Series A Preferred
Shares for Bank preferred stock voluntarily. In addition, absent the occurrence
of the Automatic Exchange, holders of Series A Preferred Shares will have no
dividend, voting, liquidation preference or other rights with respect to any
security of the Bank; such rights as are conferred by the Series A Preferred
Shares exist solely as to the Company.

         Voting Rights

Except as indicated below, the holders of Series A Preferred Shares are not
entitled to vote. In the event the holders of Series A Preferred Shares are
entitled to vote, each Series A Preferred Share will be entitled to one vote.

If full dividends on shares of Series A Preferred Shares shall not have been
paid for six quarterly dividend periods, the maximum authorized number of
directors of the Company shall thereupon be increased by two. Subject to
compliance with any requirement for regulatory approval of (or non-objection to)
persons serving as directors, the holders of Series A Preferred Shares, voting
together as a class with the holders of any Parity Stock upon which the same
voting rights as those of the Series A Preferred Shares have been conferred and
are irrevocable, shall have the exclusive right to elect the two additional
directors at the Company's next annual meeting of shareholders and at each
subsequent annual meeting until full dividends have been authorized, declared
and paid or authorized and declared and a sum sufficient for payment thereof is
set apart for payment on the Series A Preferred Shares for four consecutive
quarterly dividend periods. The term of such directors elected thereby shall
terminate, and the total number of directors shall be decreased by two, upon the
first annual meeting of stockholders after the payment or the authorization or
declaration and setting aside for payment of full dividends on the Series A
Preferred Shares for four consecutive quarterly dividend periods.

So long as any shares of Series A Preferred Shares are outstanding, the Company
shall not, without the consent or vote of the holders of at least two-thirds of
the outstanding shares of Series A Preferred Shares, voting separately as a
class, (a) amend, alter or repeal or otherwise change any provision of the
Charter (including the terms of the Series A Preferred Shares) if such
amendment, alteration, repeal or change would materially and adversely affect
the rights, preferences, powers or privileges of the Series A Preferred Shares,
or (b) authorize, create or increase the authorized amount of or issue any class
or series of any equity securities of the Company, or any warrants, options or
other rights convertible or exchangeable into any class or series of any equity
securities of the Company, ranking prior to the Series A Preferred Shares,
either as to dividend rights or rights on liquidation, dissolution or winding up
of the Company or (c) merge, consolidate, reorganize or effect any other
business combination involving the Company, unless the resulting corporation
will thereafter have no class or series of equity securities either authorized
or outstanding ranking prior to the Series A Preferred Shares as to dividends or
as to the distribution of assets upon liquidation, dissolution or winding up,
except the same number of shares of such equity securities with the same
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions or redemption as the shares of equity securities of the Company that
are authorized and outstanding immediately prior to such transaction, and each
holder of Series A Preferred Shares immediately prior to such transaction shall
receive shares with the same preferences, conversion or other rights, voting
powers, restrictions, limitations as to the dividends or other distributions,
qualifications or terms or conditions or redemption of the resulting corporation
as the Series A Preferred Shares held by such holder immediately prior thereto.



                                       6
<PAGE>

         Redemption

The Series A Preferred Shares are not redeemable prior to January 31, 2002
(except upon the occurrence of a Tax Event or a Change of Control, each as
defined herein). On or after such date, the Series A Preferred Shares are
redeemable by the Company or its successor or any acquiring or resulting entity
with respect to the Company (including by any parent or subsidiary of the
Company, any such successor, or any such acquiring or resulting entity), as
applicable, at its option, in whole or in part, at any time or from time to
time, at the redemption prices set forth below in cash, plus authorized,
declared and unpaid dividends to the date of redemption, without interest:


If Redeemed During the                                Redemption Price
     12-month Period                                  Per Share of the
  Beginning January 31,                           Series A Preferred Shares
  --------------------                            -------------------------
2002............................................           $26.14
2003............................................            25.91
2004............................................            25.68
2005............................................            25.46
2006............................................            25.23
2007 and thereafter.............................            25.00

The Company also has the right at any time, upon the occurrence of a Tax Event,
to redeem the Series A Preferred Shares, in whole (but not in part) at a
redemption price of $25.00 per share, plus all accumulated and unpaid dividends
for the then current quarter to the date of redemption, without interest. "Tax
Event" means the receipt by the Company of an opinion of a nationally recognized
legal counsel to the Company experienced in such matters to the effect that, as
a result of (i) any amendment to, clarification of, or change (including any
announced prospective change) in, the laws, treaties or any regulations
thereunder of the United States or any political subdivision or taxing authority
thereof or therein affecting taxation, (ii) any judicial decision, official
administrative pronouncement, published or private ruling, regulatory procedure,
notice or announcement (including any notice or announcement of intent to adopt
such procedures or regulations) ("Administrative Action") or (iii) any amendment
to, clarification of, or change in the official position or the interpretation
of such Administrative Action or any interpretation or pronouncement that
provides for a position with respect to such Administrative Action that differs
from the theretofore generally accepted position, in each case, by any
legislative body, court, governmental authority or regulatory body, irrespective
of the manner in which such amendment, clarification or change is made known,
which amendment, clarification, or change is effective or such pronouncement or
decision is announced on or after the date of issuance of the Series A Preferred
Shares, there is more than an insubstantial risk that (a) dividends paid or to
be paid by the Company with respect to the stock of the Company are not, or will
not be, fully deductible by the Company for United States federal income tax
purposes or (b) the Company is, or will be, subject to more than a de minimis
amount of other taxes, duties or other governmental charges.

Upon a Change of Control, the Series A Preferred Shares are redeemable on or
prior to January 31, 2002, at the option of the Company or its successor or any
acquiring or resulting entity with respect to the Company (including by any
parent or subsidiary of the Company, any such successor, or any such acquiring
or resulting entity), as applicable, in whole, but not in part, at a redemption
price per share equal to (i) $25.00, plus (ii) an amount equal to all
authorized, declared and unpaid dividends, if any, to the date fixed for
redemption, without interest, and without duplication, an additional amount
equal to the amount of dividends that would be payable on the Series A Preferred
Shares in respect of the period from the first day of the quarterly dividend
period in which the date fixed for redemption occurs to the date fixed for
redemption (assuming all such dividends were to be authorized and declared),
plus (iii) the Applicable Premium (as defined herein), payable in cash.

The Company or any such successor or any acquiring or resulting entity will be
entitled to issue a notice of redemption after the Company or a parent company
has entered into a definitive binding agreement with a third party that will
result in a Change of Control, provided that (i) the date fixed for redemption
is not earlier than the date on which the related Change of Control occurs and
(ii) the obligation to effect such redemption is contingent upon the occurrence
of such Change of Control.

"Applicable Premium" means the greater of (i) $1.14 and (ii) the excess of (A)
the present value of (1) an amount equal to the amount of dividends that would
be payable on the preferred shares in respect of the period from the date fixed
for redemption through January 31, 2002 (assuming all such dividends were to be
authorized and declared) plus (2) $26.14, computed using a discount rate equal
to the Treasury Rate (as defined herein) plus 75 basis points, over (B) $25.00.


                                       7
<PAGE>

"Change of Control" means the occurrence of any of the following events:

         (i) any Person (as defined herein) other than a Permitted Holder (as
         defined herein) shall be the "beneficial owner" (as defined in Rules
         13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a
         majority in the aggregate of the total voting power of the voting stock
         of the Bank, whether as a result of issuance of securities of the Bank,
         any merger, consolidation, liquidation or dissolution of the Bank, any
         direct or indirect transfer of securities by a Permitted Holder (as
         defined herein), or otherwise; or

         (ii) a sale, transfer, conveyance or other disposition, in a single
         transaction or in a series of related transactions (other than to an
         affiliate of the Bank or any of its subsidiaries), in either case
         occurring outside the ordinary course of business, of more than 75% of
         the assets and 75% of the deposit liabilities of the Bank shown on the
         consolidated balance sheet of the Bank as of the end of the most recent
         fiscal quarter ending at least 45 days prior to such transaction (or
         the first in such related series of transactions); or

         (iii) a transaction or series of related transactions as a result of
         which 20% or more of the voting stock or common stock (or capital stock
         convertible or exchangeable into 20% of the voting stock or common
         stock) of the Bank is held by one or more Persons other than Golden
         State Holdings Inc. (successor to First Nationwide Holdings Inc.) or
         its wholly owned subsidiaries.

"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivisions thereof.

 "Permitted Holder" means Ronald O. Perelman (or in the event of his
incompetence or death, his estate, heirs, executor, administrator, committee or
other personal representative (collectively, "heirs")) or any entity controlled,
directly or indirectly, by Ronald O. Perelman or his heirs.

"Treasury Rate" means the yield to maturity at the time of computation of United
States Treasury securities with a constant maturity (as compiled and published
in the most recent Federal Reserve Statistical Release H. 15 (519)) which has
become publicly available at least two business days prior to the date fixed for
redemption (or, if such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to the period of
time to January 31, 2002; provided, however, that if such period is not equal to
the constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that, if such remaining life is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.

If redemption is being effected by the Company, on and as of the date fixed for
redemption, dividends shall cease to accrue on the Series A Preferred Shares
called for redemption, and they shall be deemed to cease to be outstanding,
provided that the redemption price (including any authorized and declared but
unpaid dividends to the date fixed for redemption, without interest) has been
duly paid or provided for. If redemption is being effected by an entity other
than the Company, on and as of the redemption date such entity shall be deemed
to own the Series A Preferred Shares being redeemed for all purposes of the
Company's charter, provided that the redemption price (including the amount of
any authorized and declared but unpaid dividends to the date fixed for
redemption) has been duly paid or provided for.

Notice of any redemption will be mailed at least 30 days, but not more than 60
days, prior to any redemption date to each holder of Series A Preferred Shares
to be redeemed at such holder's registered address.

The Company's ability to redeem any Series A Preferred Shares, whether as a
result of a Change of Control or otherwise, is subject to compliance with
applicable regulatory requirements, including the prior approval of the OTS,
relating to the redemption of capital instruments. Under current policies of the
OTS, such approval would be granted only if the redemption were to be made out
of the proceeds of the issuance of another capital instrument or if the OTS
determines that the condition and circumstances of the Bank warrant the
reduction of a source of permanent capital.


                                       8
<PAGE>

         Rights Upon Liquidation

In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the holders of the Series A Preferred Shares at the time
outstanding are entitled to receive in respect of each share, out of assets of
the Company legally available for distribution to its stockholders under
applicable law, before any distribution of assets is made to holders of any
Junior Stock and subject to the rights of the holders of any class or series of
equity securities having preference with respect to distributions upon
liquidation and the rights of the Company's general creditors, liquidating
distributions in the amount of $25.00 per share, plus authorized, declared and
unpaid dividends thereon, if any, without interest.

After payment of the full amount of the liquidating distributions to which they
are entitled, the holders of Series A Preferred Shares will have no right or
claim to any of the remaining assets of the Company. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidation distributions on all outstanding Series A Preferred Shares and the
corresponding amounts payable on any Parity Stock, then the holders of the
Series A Preferred Shares and any Parity Stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled. For such purposes, the
consolidation or merger of the Company with or into any other entity, or the
sale, lease or conveyance of all or substantially all of the assets of the
Company, shall not be deemed to constitute a liquidation, dissolution or winding
up of the Company.

         Restrictions on Ownership and Transfer

In order for the Company to qualify, and to continue to qualify, as a REIT under
the IRC, not more than 50% of the value of its outstanding shares of stock may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the IRC to include certain entities) during the last half of a taxable year
(other than the first year) (the "Five or Fewer Test"). The Five or Fewer Test
is applied using certain constructive ownership rules. Certain significant
shareholders of Golden State (i.e., Ronald O. Perelman and Gerald J. Ford)
("Significant Shareholders"), through their constructive ownership of a
beneficial interest in the Bank, constitute two individuals for the purposes of
this test and, under the Internal Revenue Service ("IRS") rules for determining
percentages of ownership, are deemed to own constructively approximately 25% of
the value of the outstanding shares of stock in the Company during the last half
of the taxable year. Presently, there are no restrictions which prevent either
(i) any Significant Shareholder from increasing or decreasing its percentage
ownership of the Company, (ii) any Significant Shareholder from increasing or
decreasing its percentage ownership of the Bank (and thus its percentage
ownership in the Company) or (iii) any other person from becoming a significant
constructive shareholder of the Company by acquiring an equity interest in the
Bank. Moreover, any increase or decrease in the value of the common stock as
compared to the value of the preferred stock will increase or decrease the
percentage of ownership held by the Significant Shareholders.

The Company's charter, subject to certain exceptions, provides that no
individual or entity other than a Significant Shareholder may own, or be deemed
to own by virtue of the attribution rules of the IRC, stock of the Company in
amounts in excess of the lesser of 2.5% of the number of issued and outstanding
shares of preferred stock, including the Series A Preferred Shares, or 1.25% of
the value of all classes of issued and outstanding shares of the Company (the
"Ownership Limit"). However, certain entities whose interests are widely held
(generally, an entity in which no Person actually or constructively owns more
than 9.9% of the value) will be permitted to own up to the lesser of 20% of the
number of the issued and outstanding shares of preferred stock, including the
Series A Preferred Shares, or 10% of the value of all of the classes of issued
and outstanding shares of stock of the Company, if they satisfy certain
notification requirements. The Board may (but will not be required to), upon the
receipt of a ruling from the IRS or the advice of counsel satisfactory to it,
waive the Ownership Limit with respect to a holder if such holder's ownership
will not then or in the future jeopardize the Company's status as a REIT.

The constructive ownership rules of the IRC are complex and may cause preferred
stock owned, directly or indirectly, by one individual or entity to be deemed to
be owned by other related individuals or entities. Similarly, under the
constructive ownership rules, an individual or entity that owns stock of the
Bank will be deemed to own a proportionate share of the common stock of the
Company owned by the Bank. As a result, the acquisition by an individual or
entity of stock of the Company in amounts below the Ownership Limit (or the
acquisition of an entity that owns such shares) may cause that individual or
entity (or another individual or entity) to violate the Ownership Limit. In
addition, other events, such as changes in relative values of the common and
preferred stock, could cause an individual or entity to violate the Ownership
Limit.


                                       9
<PAGE>

The Company's charter provides that any shares in excess of the Ownership Limit
("Excess Shares") will automatically be transferred, by operation of law, to a
trustee as a trustee of a trust for the exclusive benefit of a charitable
beneficiary to be named by the Company as of the day prior to the day the
prohibited transfer took place. Any distributions paid prior to the discovery of
the prohibited transfer are to be repaid by the original transferee to the
Company and by the Company to the trustee; subject to applicable law, any vote
of the holder of the shares while the shares were held by the original
transferee prior to the Company's discovery thereof shall be void ab initio and
the original transferee shall be deemed to have given its proxy to the trustee.
Any unpaid distributions with respect to the original transferee will be
rescinded as void ab initio. In liquidation, the original transferee
stockholder's ratable share of the Company's assets would be limited to the
price paid by the original transferee for the Excess Shares or, if no value was
given, the price per share equal to the closing market price on the date of the
purported transfer. The trustee of the trust shall promptly sell the shares to
any person whose ownership is not prohibited, whereupon the interest of the
trust shall terminate. Proceeds of the sale shall be paid to the original
transferee up to its purchase price (or, if the original transferee did not
purchase the shares, the value on its date of acquisition) and any remaining
proceeds shall be paid to a charity to be named by the Company.

All certificates representing shares of preferred stock will bear a legend
referring to the restrictions described above.

The Ownership Limit provisions will not be automatically removed even if the
REIT rules are changed so as to eliminate any ownership concentration limitation
or if the ownership concentration limitation is increased. The foregoing
restrictions on transferability and ownership will not apply, however, if the
Company determines that it is no longer in the best interests of the Company to
attempt to qualify, or continue to qualify, as a REIT.

In addition, the REIT provisions of the IRC require that the stock of the
Company must be beneficially owned by 100 or more persons during at least 335
days of a taxable year (the "One Hundred Persons Test"). The Charter contains
restrictions in order to ensure compliance with the One Hundred Persons Test.
Specifically, such provisions require that if any transfer of shares of stock of
the Company would cause the Company to be beneficially owned by fewer than 100
persons, such transfer shall be null and void and the intended transferee will
acquire no rights to the stock.

The Company's charter requires that any person who beneficially owns 1.0% (or
such lower percentage as may be required by the IRC or the Treasury regulations)
of the outstanding shares of any class or series of preferred stock of the
Company must provide certain information to the Company within 30 days of June
30 and December 31 of each year. In addition, each stockholder shall upon demand
be required to disclose to the Company in writing such information as the
Company may request in order to determine the effect, if any, of such
stockholder's actual and constructive ownership on the Company's status as a
REIT and to ensure compliance with the Five or Fewer and One Hundred Persons
Tests.

DIVIDEND POLICY

In order to remain qualified as a REIT, the Company must distribute annually at
least 95% of its REIT taxable income to its stockholders. The Company currently
expects to distribute dividends annually to satisfy these REIT requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations" for a discussion of dividends declared and
paid to the common stockholder and to the holders of the Series A Preferred
Shares during the years ended December 31, 1999, 1998 and 1997.

Dividends are declared at the discretion of the Board of Directors after
considering the Company's distributable funds, financial requirements, tax
considerations and other factors. The Company's distributable funds consist
primarily of interest payments received in respect of the residential mortgage
loans held by it, and the Company anticipates that most of such assets will bear
interest at adjustable rates. See " Management's Discussion and Analysis of
Financial Condition and Results of Operations - Interest Rate Risk."

THE BANK

The Bank, which is headquartered in San Francisco, California, provides
diversified financial services to consumers and small businesses throughout
California and Nevada. The Bank's principal business consists of operating
retail branches that provide deposit products such as demand, transaction and
savings accounts, and investment products such as mutual funds, annuities and
insurance. In addition, it engages in mortgage banking activities, including
originating


                                       10
<PAGE>

and purchasing 1-4 unit residential loans for sale to various investors in the
secondary market or for retention in its own portfolio, and servicing loans for
itself and others. To a lesser extent, the Bank originates and/or purchases
commercial real estate, commercial and consumer loans for investment.

The Bank is chartered as a federal stock savings bank under the Home Owners'
Loan Act ("HOLA") and regulated by the OTS and the Federal Deposit Insurance
Corporation ("FDIC"), which insures the deposit accounts of the Bank, up to
applicable limits through the Savings Association Insurance Fund ("SAIF"). The
Bank is also a member of the Federal Home Loan Bank System ("FHLBS").

As of December 31, 1999, the Bank had assets totalling $57.0 billion, deposits
totalling $23.1 billion and operated retail branch offices at 349 locations in
two states.

Because the Company is a subsidiary of the Bank, federal regulatory authorities
have the right to examine the Company and its activities. Payment of dividends
on the Series A Preferred Shares could be subject to regulatory limitations if
the Bank became "undercapitalized" for purposes of the OTS prompt corrective
action regulations, which is currently defined as having a total risk-based
capital ratio of less than 8.0%, a tier 1 risk-based capital ratio of less than
4.0% or a core capital (or leverage) ratio of less than 4.0%. At December 31,
1999, the Bank's total risk-based capital ratio was 12.89%, its tier 1
risk-based capital ratio was 11.36% and its core capital (or leverage) ratio was
5.81%.

If the Exchange Event occurs, the Bank would likely be prohibited from paying
dividends on the Bank preferred shares. In all circumstances following the
Exchange Event, the Bank's ability to pay dividends would be subject to various
restrictions under OTS regulations, a resolution of the Bank's board of
directors and certain contractual provisions.

The Bank and its affiliates are involved in virtually every aspect of the
Company's existence. FNMC services the Company's residential mortgage loans in
its role as Servicer under the Servicing Agreement. See "-- Servicing of
Residential Mortgage Loans."

The Bank and its affiliates may have interests which are not identical to those
of the Company. Consequently, conflicts of interest may arise with respect to
transactions, including without limitation, (i) future acquisitions of
residential mortgage loans from, or sales of residential mortgage loans to, the
Bank, FNMC or their affiliates and (ii) the modification of the Servicing
Agreement.

It is the intention of the Company and the Bank that any agreements and
transactions between the Company on the one hand and the Bank or one of its
affiliates on the other hand are fair to all parties and consistent with market
terms for such types of transactions. The requirement in the Company's charter
that certain actions of the Company be approved by a majority of the independent
directors is also intended to promote fair dealings between the Company and the
Bank and its affiliates. However, there can be no assurance that such agreements
or transactions will be on terms as favorable to the Company as would have been
obtained from unaffiliated third parties.

RESIDENTIAL MORTGAGE LOANS

The Company's portfolio of mortgage loans consisted of 1-4 unit residential
mortgage loans totalling $967.3 million and $946.0 million at December 31, 1999
and 1998, respectively, which were primarily adjustable rate mortgages ("ARMs")
which adjust periodically based on changes in various indices including the FHLB
Eleventh District Cost of Funds, the one-year Treasury rate and the six-month
Treasury rate. Certain types of residential mortgage loans contain an option for
the mortgagor to convert the ARM to a fixed rate loan for the remainder of the
term.

The Company currently intends to invest in residential mortgage loans only. The
Company's current policy prohibits the acquisition of any mortgage loan which is
delinquent at the time of the proposed acquisition or which meets certain
criteria for non-performance during the preceding 12 months. The Company
currently expects that substantially all of the residential mortgage loans to be
acquired will be adjustable rate loans; however, the Company may from time to
time acquire fixed interest rate residential mortgage loans. The Company
anticipates it will continue to acquire all of its residential mortgage loans
from the Bank or affiliates of the Bank as whole loans secured by first
mortgages or deeds of trust on single-family (one-to-four-unit) residential real
estate properties, although mortgage loans may be acquired from unaffiliated
third parties. The Company may from time to time acquire fixed rate or variable
rate mortgage-backed securities issued or guaranteed by agencies of the federal
government or government sponsored agencies. The mortgage loans underlying the
mortgage-backed securities will be secured by single-family residential,
multifamily or commercial real estate properties located throughout the United
States.


                                       11
<PAGE>

The Company may choose to dispose of any residential mortgage loan which
subsequent to its acquisition by the Company (i) becomes classified, (ii) falls
into nonaccrual status, (iii) has to be renegotiated due to the financial
deterioration of the borrower or (iv) is more than 30 days past due in the
payment of principal or interest more than once in any 12 month period. The Bank
has indicated to the Company that it does not intend to purchase any residential
mortgage loans of the Company that fall into any of the foregoing categories;
accordingly, the Company currently anticipates that any such residential
mortgage loan may be sold at its then current fair value by the Company only to
a subsidiary of the Bank or an unrelated third party. The Company does not
generally intend to dispose of any residential mortgage loans.

CREDIT RISK MANAGEMENT POLICIES

The Company expects that each residential mortgage loan acquired from the Bank
or one of its affiliates in the future will represent a first lien position and
will be originated by the Bank or such affiliate or by financial institutions
acquired by the Bank by merger in the ordinary course of its or their real
estate lending activities based on the underwriting standards generally applied
(at the time of origination) for the originator's own account.

The Company also intends that all residential mortgage loans held by the Company
will be serviced pursuant to the Servicing Agreement between the Company and
FNMC dated January 31, 1997. See "-- Servicing of Residential Mortgage Loans."

DELINQUENCIES AND NONPERFORMING LOANS

When a borrower fails to make a contractually required payment on a loan, the
loan is characterized as delinquent. In most cases delinquencies are cured
promptly; however, foreclosure proceedings, and in some cases workout
proceedings, are generally commenced if the delinquency is not cured. The
procedures for foreclosure actions vary from state to state, but generally, if a
loan is not reinstated within certain periods specified by statute, the property
securing the loan can be acquired through foreclosure by the lender. While
deficiency judgments against the borrower are available in some of the states in
which the Company originates loans, the value of the underlying collateral
property is usually the principal source of recovery available to satisfy the
loan balance.

The following table reflects residential mortgage loans with past due principal
and interest payments as of December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                     1999                                          1998
                                   ----------------------------------------      -----------------------------------------
                                     Principal Balance        Percent              Principal Balance         Percent
                                      (in thousands)       of Total Loans           (in thousands)       of Total Loans
---------------------------------------------------------------------------      -----------------------------------------
<S>                                  <C>                   <C>                     <C>                   <C>
       30 to 59 days past due            $  950                0.10%                     $2,362               0.25%
       60 to 89 days past due            $1,199                0.12%                     $2,005               0.21%
       90 days or more past due          $1,042                0.11%                     $1,563               0.16%
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

It is the Company's policy to place a loan on nonaccrual status when a borrower
is 90 days or more delinquent. There were no accruing loans contractually past
due 90 days or more at December 31, 1999 and 1998.

For loans on nonaccrual at December 31, 1999 and 1998, the Company recognized
$27,000 and $52,000 of interest income during the years ended December 31, 1999
and 1998, respectively. The Company would have recognized $81,000 and $127,000
of interest income during the years ended December 31, 1999 and 1998,
respectively, on such loans had the borrowers performed under the contractual
terms of the loans.

The allowance for loan losses is a general allowance which is increased by
charges to income and decreased by charge- offs (net of recoveries) and is
comprised of specific allowances for identified problem loans and an unallocated
allowance. Management's periodic evaluation of the adequacy of the allowance is
based on such factors as the Bank's and the Company's past loan loss experience,
known and inherent risks in the residential mortgage loan portfolio, adverse
situations that have occurred but are not yet known that may affect the
borrower's ability to repay, the estimated value of underlying collateral, and
economic conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Allowance for Loan Losses."


                                       12
<PAGE>

GEOGRAPHIC DISTRIBUTION

At December 31, 1999, the Company's total residential mortgage loan portfolio
included $819.7 million of loans secured by residential real estate properties
located in California. These loans may be subject to a greater risk of default
than other comparable residential mortgage loans in the event of natural hazards
or other adverse conditions in California that may affect the ability of
residential property owners in California to make payments of principal and
interest on underlying mortgages. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Significant Concentration of
Credit Risk."

SERVICING OF RESIDENTIAL MORTGAGE LOANS

The Company entered into the Servicing Agreement with FNMC pursuant to which
FNMC, in its capacity as servicer under the Servicing Agreement ("Servicer"),
performs the actual servicing of the residential mortgage loans held by the
Company in accordance with normal industry practice. The Servicing Agreement can
be terminated without cause with at least 30 days written prior notice to the
Servicer and payment to the Servicer of a termination fee equal to 2% of the
outstanding principal balances of the loans. The servicing fee ranges from 0.25%
to 0.50% per year of the outstanding principal balances. The Servicer is also
entitled to a 1% disposition fee on the aggregate proceeds obtained in the sale
of a defaulted residential mortgage loan.

The Servicer collects and remits principal and interest payments, administers
mortgage escrow accounts, submits and pursues insurance claims and initiates and
supervises foreclosure proceedings on the residential mortgage loans it
services. The Servicer also provides accounting and reporting services required
by the Company for such residential mortgage loans. The Servicer is required to
follow such collection procedures as are customary in the industry. The Servicer
may, in its discretion, arrange with a defaulting borrower a schedule for the
liquidation of delinquencies, provided that any primary mortgage insurance
coverage is not adversely affected. The Servicer may from time to time
subcontract all or a portion of its servicing obligations under the Servicing
Agreement to the Bank or other affiliates of the Bank, or to an unrelated third
party subject to approval of the majority of the independent directors of the
Company. FNMC will not be discharged or relieved in any respect from performing
its obligations under the Servicing Agreement in connection with subcontracting
any of the obligations thereunder.

The Servicer is required to pay all expenses related to the performance of its
duties under the Servicing Agreement. The Servicer is required to make advances
of the principal and interest, taxes and required insurance premiums that are
not collected from borrowers with respect to any residential mortgage loan,
unless it determines that such advances are nonrecoverable from the borrower,
insurance proceeds or other sources with respect to such residential mortgage
loan. If such advances are made, the Servicer generally will be reimbursed prior
to the Company out of proceeds related to such residential mortgage loan. The
Servicer is also entitled to reimbursement by the Company for expenses incurred
by it in connection with the liquidation of defaulted residential mortgage loans
and in connection with the restoration of mortgaged property.

As is customary in the mortgage loan servicing industry, the Servicer is
entitled to retain any late payment charges, prepayment fees or penalties,
assumption fees and ARM conversion fees collected in connection with the
residential mortgage loans. The Servicer receives any benefit derived from
interest earned on collected principal and interest payments between the date of
collection and the date of remittance to the Company and, to the extent
permitted under applicable law, from interest earned on tax and insurance
impound funds with respect to residential mortgage loans.

CAPITAL AND LEVERAGE POLICIES

To the extent that the Board of Directors determines that additional funding is
required, the Company may raise such funds through additional equity offerings,
debt financing or retention of cash flow (after consideration of provisions of
the IRC requiring the distribution by a REIT of a certain percentage of taxable
income and taking into account taxes that would be imposed on undistributed
taxable income), or a combination of these methods.

At December 31, 1999 and 1998, the Company had no debt outstanding, and the
Company does not currently intend to incur any indebtedness. However, the
organizational documents of the Company do not contain any limitation on the
amount or percentage of debt, funded or otherwise, the Company might incur,
except that the incurrence by the Company of debt for borrowed money in excess
of 20% of the Company's total stockholders' equity will require the approval of
a majority of the independent directors. Any such debt incurred may include
intercompany advances made by the Bank to the Company.


                                       13
<PAGE>

The Company may also issue additional series of preferred stock. However, the
Company may not issue additional shares of preferred stock senior to the Series
A Preferred Shares without the consent of holders of at least two-thirds of the
outstanding shares of preferred stock at that time, including the Series A
Preferred Shares, and the Company may not issue additional shares of preferred
stock on a parity with the Series A Preferred Shares without the approval of a
majority of the Company's independent directors. In addition, the Company does
not currently intend to issue any additional series of preferred stock unless it
simultaneously receives additional capital contributions from the Bank equal to
the aggregate offering price of such additional preferred stock plus the
Company's expenses (including underwriting discounts or placement fees) in
connection with the issuance of such additional shares of preferred stock.

EMPLOYEES

The Company has four executive officers. See "Directors and Executive Officers
of the Registrant." The Company does not require significantly more employees
because it has retained FNMC to perform certain functions pursuant to the
Servicing Agreement. All of the executive officers of the Company are also
executive officers of the Bank and/or its affiliates. The Company maintains
corporate records and audited financial statements that are separate from those
of the Bank and its affiliates.

COMPETITION

The Company does not engage in the business of originating residential mortgage
loans. The Company does anticipate that it will purchase residential mortgage
loans in addition to those in the current loan portfolio and that substantially
all of these residential mortgage loans will be purchased from the Bank or
affiliates of the Bank. Accordingly, the Company does not compete, and does not
expect to compete, with mortgage conduit programs, investment banking firms,
savings and loan associations, banks, thrift and loan associations, finance
companies, mortgage bankers or insurance companies in the acquisition of its
residential mortgage loans.

ENVIRONMENTAL MATTERS

In the event that the Company is forced to foreclose on a defaulted residential
mortgage loan to recover its investment in such residential mortgage loan, the
Company may be subject to environmental liabilities in connection with the
underlying real property which could exceed the value of the real property.
Although the Company intends to continue to exercise due diligence to discover
potential environmental liabilities prior to the acquisition of any property
through foreclosure, hazardous substances or waste, contaminants, pollutants or
sources thereof (as defined by state and federal laws and regulations) may be
discovered on properties during the Company's ownership or after a sale thereof
to a third party. If such hazardous substances are discovered on a property
which the Company has acquired through foreclosure or otherwise, the Company may
be required to remove those substances and clean up the property. There can be
no assurance that in such a case the Company would not incur full recourse
liability for the entire costs of any removal and clean-up, that the cost of
such removal and clean-up would not exceed the value of the property or that the
Company could recoup any such costs from any third party. The Company may also
be liable to tenants and other users of neighboring properties. In addition, the
Company may find it difficult or impossible to sell the property prior to or
following any such clean-up.

TAX STATUS OF THE COMPANY

The Company has elected to be taxed as a REIT under Sections 856 through 860 of
the IRC, commencing with its taxable year ended December 31, 1997. As a REIT,
the Company generally is not subject to Federal income tax on its net income and
capital gains that it distributes to the holders of its common stock and
preferred stock, including the Series A Preferred Shares. The Company must also
meet certain organizational, stock ownership and operational requirements. If in
any taxable year the Company fails to qualify as a REIT, the Company would not
be allowed a deduction for distributions to stockholders in computing its
taxable income and would be subject to Federal and state income tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. In addition, the Company would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost.



                                       14
<PAGE>

ITEM 2.           PROPERTIES


None.


ITEM 3.           LEGAL PROCEEDINGS


The Company is not the subject of any material litigation. None of the Company,
the Bank or any of its affiliates is currently involved in nor, to the Company's
knowledge, is currently threatened with any material litigation with respect to
the residential mortgage loans included in the portfolio other than routine
litigation arising in the ordinary course of business, most of which is covered
by liability insurance.


ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


None.


                                       15
<PAGE>

                                     PART II


ITEM 5.     MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS


All of the Company's common shares are owned by the Bank. There is no
established public trading market for the Company's common stock.

During 1999, 1998 and 1997, dividends on the Company's common stock totalled
$18.6 million, $30.5 million and $20.4 million, respectively. For a discussion
of the Company's dividend distribution policy and any restrictions on the
payment of dividends with respect to its common stock, see "Business - Dividend
Policy."





                                       16
<PAGE>

ITEM 6.           SELECTED FINANCIAL DATA

The data presented below represents selected financial data relative to the
Company for, and as of the end of, the years ended December 31, 1999, 1998 and
1997 (dollars in thousands).

<TABLE>
<CAPTION>
STATEMENTS OF INCOME:                                                       1999               1998               1997
                                                                            ----               ----               ----
<S>                                                                 <C>               <C>                 <C>
Interest income, net of servicing fee expense                       $        65,403   $        72,268     $         65,912
Net interest income                                                 $        65,403   $        72,179     $         65,912
Net interest income after provision for loan losses                 $        65,403   $        69,869     $         63,602
Net income                                                          $        65,481   $        69,840     $         63,495
Average yield on residential mortgage loans                                   6.49%             7.19%                 7.25%

BALANCE SHEETS:

Residential mortgage loans, net                                      $      967,286    $      945,970     $        969,423
Total assets                                                         $      996,522    $      995,746     $      1,001,495
Total stockholders' equity                                           $      996,181    $      994,910     $      1,001,146
Number of preferred shares outstanding                                   20,000,000        20,000,000           20,000,000
Number of common shares outstanding                                           1,000             1,000                1,000
</TABLE>




                                       17

<PAGE>



ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS

OVERVIEW

The Company's principal business objective is to acquire, hold and manage
residential mortgage loans that will generate net income for distribution to
stockholders. The Company currently intends to invest in residential mortgage
loans only. The Company's current policy prohibits the acquisition of any
mortgage loan which is delinquent at the time of the proposed acquisition or
which meets certain criteria for non-performance during the preceding 12 months.
The Company currently expects that substantially all of the residential mortgage
loans to be acquired will be adjustable rate loans; however, the Company may
from time to time acquire fixed interest rate residential mortgage loans. The
Company anticipates it will continue to acquire all of its residential mortgage
loans from the Bank or affiliates of the Bank as whole loans secured by first
mortgages or deeds of trust on 1-4 unit residential real estate properties,
although mortgage loans may be acquired from unaffiliated third parties. The
Company may from time to time acquire fixed rate or variable rate
mortgage-backed securities issued or guaranteed by agencies of the federal
government or government sponsored agencies. The mortgage loans underlying the
mortgage-backed securities will be secured by single-family residential,
multifamily or commercial real estate properties located throughout the United
States.

On January 31, 1997, the Company commenced its operations upon the initial
public offering of 20,000,000 shares of the Company's Series A Preferred Shares,
which raised $500 million. The Series A Preferred Shares are traded on the NYSE
under the trading symbol "CFP." Concurrent with the sale of the Series A
Preferred Shares, the Bank contributed additional capital of $500 million to the
Company. All common shares are held by the Bank.

The Bank and its affiliates are involved in virtually every aspect of the
Company's existence. FNMC services the Company's residential mortgage loans in
its role as Servicer under the Servicing Agreement.

The Bank and its affiliates may have interests which are not identical to those
of the Company. Consequently, conflicts of interest may arise with respect to
transactions, including without limitation, (i) future acquisitions of
residential mortgage loans from, or sales of residential mortgage loans to, the
Bank, FNMC or their affiliates and (ii) the modification of the Servicing
Agreement.

It is the intention of the Company and the Bank that any agreements and
transactions between the Company on the one hand and the Bank or one of its
affiliates on the other hand are fair to all parties and consistent with market
terms for such types of transactions. The requirement in the Company's charter
that certain actions of the Company be approved by a majority of the independent
directors is also intended to promote fair dealings between the Company and the
Bank and its affiliates. However, there can be no assurance that such agreements
or transactions will be on terms as favorable to the Company as would have been
obtained from unaffiliated third parties.

RESULTS OF OPERATIONS

     Years ended December 31, 1999 versus December 31, 1998

Net Income. The Company reported net income for the year ended December 31, 1999
of $65.5 million compared with net income of $69.8 million for the year ended
December 31, 1998. This decrease in 1999 compared with 1998 is attributable to a
decrease in net interest income, partially offset by a decrease in the provision
for loan losses. During the year ended December 31, 1999, the Company reported
an income tax benefit of $56,000 related to a refund of taxes paid in 1998.
During the year ended December 31, 1998, the Company reported interest expense
of $89,000 related to borrowings from the Bank and income tax expense of
$65,000.

During each of the years ended December 31, 1999 and 1998, the Company declared
and paid dividends of $45.6 million on the outstanding Series A Preferred
Shares. Net income available to the common stockholder for the years ended
December 31, 1999 and 1998 totalled $19.9 million and $24.2 million,
respectively. During the years ended December 31, 1999 and 1998, the Company
declared and paid dividends of $18.6 million and $30.5 million, respectively, to
the Bank as common stockholder.

Net Interest Income. The Company reported interest income, net of servicing fee
expense of $65.4 million for the year ended December 31, 1999, a decrease of
$6.9 million from the $72.3 million reported for the year ended December 31,
1998. This decrease in interest income is attributed to a lower average yield on
the residential mortgage loan portfolio. The lower yield of 6.49% on residential
mortgage loans during the year ended December 31, 1999 as compared to 7.19%


                                       18
<PAGE>

for the same period in 1998 is primarily due to the repricing of variable rate
loans resulting from comparatively lower market interest rates in 1999 versus
1998 and the purchase of new loans at lower current market interest rates. The
average outstanding balance of residential mortgage loans during the year ended
December 31, 1999 was $1.5 million higher than during the same period in 1998.
Interest income, net of servicing fee expense during the year ended December 31,
1999 is comprised of $64.4 million ($68.1 million gross interest less $3.7
million servicing fee expense) from residential mortgage loans and $964,000 from
short-term investments, representing an average yield after servicing fees on
residential mortgage loans of 6.49% and on earning assets of 6.45%, based on
average outstanding asset balances of $993.4 million and $1,013.9 million,
respectively. Interest income, net of servicing fee expense during the year
ended December 31, 1998 is comprised of $71.3 million ($75.0 million gross
interest less $3.7 million servicing fee expense) from residential mortgage
loans and $963,000 from short-term investments, representing an average yield
after servicing fees on residential mortgage loans of 7.19% and on earning
assets of 7.14%, based on average outstanding asset balances of $991.9 million
and $1,012.1 million, respectively. Net interest income after $89,000 of
interest expense and a $2.3 million provision for loan losses was $69.9 million.

The computation of the average yield on residential mortgage loans and on
earning assets is based on daily average outstanding asset balances that include
nonaccruing loans and the amount of principal payments collected by FNMC but not
yet remitted to the Company, which is included in due from affiliates on the
balance sheets.

Provision for loan losses. The Company established provisions for loan losses of
$2.3 million for the year ended December 31, 1998. The Company recorded no
provisions for loan losses for the year ended December 31, 1999. The decrease in
the provision for loan losses from 1998 to 1999 is the result of management's
evaluation of the adequacy of the allowance for loan losses based on, among
other things, the Bank's and the Company's past loan loss experience, known and
inherent risks in the residential mortgage loan portfolio, adverse situations
that have occurred but are not yet known that may affect the borrower's ability
to repay, the estimated value of the underlying collateral, and economic
conditions.

           Years ended December 31, 1998 versus December 31, 1997

Net Income. The Company reported net income for the year ended December 31, 1998
of $69.8 million compared with net income of $63.5 million for the year ended
December 31, 1997. This increase in 1998 compared with 1997 is attributable to
an increase in net interest income and reflects twelve months of operations in
1998 versus eleven months of operations in 1997, as the Company commenced its
operations on January 31, 1997. During the year ended December 31, 1998, the
Company reported interest expense of $89,000 related to borrowings from the Bank
and income tax expense of $65,000.

During the years ended December 31, 1998 and 1997, the Company declared and paid
dividends of $45.6 million and $41.9 million, respectively, on the outstanding
Series A Preferred Shares. Net income available to the common stockholder for
the years ended December 31, 1998 and 1997 totalled $24.2 million and $21.5
million, respectively. During the years ended December 31, 1998 and 1997, the
Company declared and paid dividends of $30.5 million and $20.4 million,
respectively, to the Bank as common stockholder.

Net Interest Income. The Company reported interest income, net of servicing fee
expense of $72.3 million for the year ended December 31, 1998, an increase of
$6.4 million over the $65.9 million interest income, net of servicing fee
expense reported for the year ended December 31, 1997. Of this increase in
interest income, $6.6 million is attributed to residential mortgage loans,
offset in part by a $201,000 decrease in interest income on short-term
investments. The increase in residential mortgage loan interest income is
attributed primarily to an increase in the average outstanding balance of the
portfolio, accounting for $7.1 million of the increase, offset by $526,000
relating to a lower average yield on the portfolio. The average outstanding
balance of residential mortgage loans during the year ended December 31, 1998
was $99.4 million higher than during the same period in 1997, principally due to
one less month of operations in 1997 than in 1998. Interest income, net of
servicing fee expense during the year ended December 31, 1998 is comprised of
$71.3 million ($75.0 million gross interest less $3.7 million servicing fee
expense) from residential mortgage loans and $1.0 million from short-term
investments, representing an average yield after servicing fees on residential
mortgage loans of 7.19% and on earning assets of 7.14%, based on average
outstanding asset balances of $991.9 million and $1,012.1 million, respectively.
Net interest income after $89,000 of interest expense and a $2.3 million
provision for loan losses was $69.9 million. Interest income, net of servicing
fee expense during the year ended December 31, 1997 was comprised of $64.7
million ($68.1 million gross interest income less $3.4 million servicing fee
expense) from residential mortgage loans and $1.2 million from short-term
investments, representing an average yield after servicing fees on residential
mortgage loans of 7.25% and on earning assets of 7.20%, based on average
outstanding asset


                                       19
<PAGE>

balances of $892.5 million and $915.5 million, respectively. Net interest income
after a $2.3 million provision for loan losses was $63.6 million.

The computation of the average yield on residential mortgage loans and on
earning assets is based on daily average outstanding asset balances that include
nonaccruing loans and the amount of principal payments collected by FNMC but not
yet remitted to the Company, which is included in due from affiliates on the
balance sheets.

RESIDENTIAL MORTGAGE LOANS

The Company used the proceeds from its offering of Series A Preferred Shares,
coupled with a capital contribution from the Bank, to purchase the Company's
initial portfolio of residential mortgage loans with estimated fair values
totalling approximately $996.5 million. The Company reinvests principal
collections in additional residential mortgage loans purchased from either the
Bank or its affiliates on a periodic basis.

It is the Company's policy to place a loan on nonaccrual status when a borrower
is 90 days or more delinquent. There were no accruing loans contractually past
due 90 days or more at December 31, 1999 and 1998. See "Business - Delinquencies
and Nonperforming Loans."

ALLOWANCE FOR LOAN LOSSES

As of December 31, 1999, the Company has allocated $198,000 of allowance for
loan losses against specific problem loans, with the remaining $7.7 million
available to absorb potential loan losses from the entire residential mortgage
loan portfolio. The Company deems its allowance for loan losses as of December
31, 1999 to be adequate. Although the Company considers that it has sufficient
allowances to absorb losses that currently may exist in the portfolio, the
precise loss is subject to continuing review based on quality indicators,
industry and geographic concentrations, changes in business conditions, and
other external factors such as competition, legal and regulatory requirements.
The Company will continue to reassess the adequacy of the allowance for loan
losses.

The following table reflects the activity in the Company's allowance for loan
losses for the years ended December 31, 1999, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
                                                                            1999              1998               1997
                                                                            ----              ----               ----
<S>                                                                    <C>                <C>               <C>
     Balance - beginning of year                                       $     8,413        $     7,310       $          --
     Allowance attributable to loans purchased from the Bank                    --                 --               5,000
     Provision for loan losses                                                  --              2,310               2,310
     Charge-offs                                                              (530)            (1,207)                 --
                                                                        ----------       ------------       -------------
     Balance - end of year                                             $     7,883        $     8,413          $    7,310
                                                                       ===========        ===========          ==========
</TABLE>

The Company's allowance coverage ratio (allowance for loan losses to loans) at
December 31, 1999, 1998 and 1997 was 0.81%, 0.88% and 0.75%, respectively, while
the Company's ratio of allowance for loan losses to non-performing loans at
December 31, 1999, 1998 and 1997 was 757%, 538% and 204%, respectively.

INTEREST RATE RISK

The Company's income consists primarily of interest payments on residential
mortgage loans. The Company anticipates that most of its residential mortgage
loans will bear interest at adjustable rates. If there is a decline in interest
rates (as measured by the indices upon which the interest rates of the
residential mortgage loans are based), then the Company will experience a
decrease in income available to be distributed to its stockholders. In such an
interest rate environment the Company may experience an increase in prepayments
on its residential mortgage loans and may find it more difficult to purchase
additional residential mortgage loans bearing rates sufficient to support
payment of the dividends on the Series A Preferred Shares. In addition, certain
residential mortgage loan products which the Company holds will allow borrowers
in such an interest rate environment to convert an adjustable rate mortgage to a
fixed rate mortgage, thus "locking in" a lower fixed interest rate. Because the
dividend rate on the Series A Preferred Shares is fixed, there can be no
assurance that an interest rate environment in which there is a significant
decline in interest rates would not adversely affect the Company's ability to
pay such dividends.

Residential mortgage loans which have interest rates that adjust monthly based
upon the FHLB Eleventh District Cost of Funds limit payment changes to no more
than 7.5% of the payment amount per year. This may lead to monthly payments
which are less than the amount necessary to amortize the loan to maturity at the
interest rate in effect for any


                                       20
<PAGE>

particular month. In the event that the monthly payment is not sufficient to pay
interest accruing on the loan during the month, this deficiency is added to the
loan's principal balance (i.e., negative amortization). The total outstanding
principal balance for a particular loan is generally not allowed to exceed 125%
of the original loan amount as a result of negative amortization. Every five
years and at any time the loan reaches its maximum amount, the loan payment is
recalculated to the payment sufficient to repay the unpaid principal balance in
full at the maturity date. At December 31, 1999 and 1998, residential mortgage
loans included approximately $208.6 million and $291.0 million, respectively, of
principal balance that had the potential to negatively amortize. At December 31,
1999 and 1998, approximately $31.9 million and $58.8 million, respectively, of
residential mortgage loans had negatively amortized such that the current
principal balance of the loan exceeds the original principal balance. The
current principal balance exceeded the original principal balance by
approximately $1.0 million and $1.6 million, as of December 31, 1999 and 1998,
respectively. If there is an increase in interest rates on such residential
mortgage loans (as measured by the indices upon which the interest rates of the
residential mortgage loans are based), the Company may experience a decrease in
cash available to be distributed to its common stockholder where such increase
in the interest rate does not coincide with a corresponding adjustment of the
borrowers' monthly payments.

SIGNIFICANT CONCENTRATION OF CREDIT RISK

Certain geographic regions of the United States from time to time may experience
natural disasters or weaker regional economic conditions and housing markets
and, consequently, may experience higher rates of loss and delinquency on
residential mortgage loans generally. Any concentration of the residential
mortgage loans in such a region may present risks in addition to those generally
present with respect to residential mortgage loans.

The Company's exposure to geographic concentrations directly affects the credit
risk of the residential mortgage loans within the portfolio. The following table
shows the residential mortgage loan portfolio by geographical area as of
December 31, 1999:

<TABLE>
<CAPTION>
                                                                                      Book Value
                                                                                     (in thousands)     Percent
<S>                                                                                   <C>                  <C>
California                                                                            $     819,732        84.1%
Florida                                                                                      32,369         3.3
New York                                                                                     20,343         2.1
Other states (37 states and Washington, D.C.; no state has more than 2%)                    102,725        10.5
                                                                                      -------------      ------
                                                                                      $     975,169      100.0%
                                                                                      =============      ======
</TABLE>

The 84.1% of the Company's total residential mortgage loan portfolio comprised
of loans secured by residential real estate properties located in California may
be subject to a greater risk of default than other comparable residential
mortgage loans in the event of natural hazards or other adverse conditions in
California that may affect the ability of residential property owners in
California to make payments of principal and interest on underlying mortgages.

LIQUIDITY RISK MANAGEMENT

The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of the Company's financial commitments and to
capitalize on opportunities for the Company's business expansion. In managing
liquidity, the Company takes into account various legal limitations placed on a
REIT. See " -- Other Matters."

The Company's principal liquidity needs are to maintain the current portfolio
size through the acquisition of additional residential mortgage loans and to pay
dividends on the Series A Preferred Shares. The acquisition of additional
residential mortgage loans is funded with the proceeds obtained from repayment
of principal balances by individual mortgagees. The payment of dividends on the
Series A Preferred Shares will be made from legally available funds, principally
arising from the operating activities of the Company. The Company's cash flows
from operating activities principally consist of the collection of interest on
the residential mortgage loans. The Company does not have and does not
anticipate having any material capital expenditures.

In order to remain qualified as a REIT, the Company must distribute annually at
least 95% of its adjusted REIT taxable income, as provided for under the IRC, to
its common and preferred stockholders. The Company currently expects to
distribute dividends annually to satisfy these REIT requirements.


                                       21
<PAGE>

The Company anticipates that cash and cash equivalents on hand and the cash flow
from the residential mortgage loans will provide adequate liquidity for its
operating, investing and financing needs.

Net cash provided by operating activities for the year ended December 31, 1999,
totalled $67.1 million, a decrease of $5.8 million from net cash provided by
operating activities for the year ended December 31, 1998. The decrease was
principally due to the decrease in interest income on residential mortgage
loans.

Net cash provided by operating activities for the year ended December 31, 1998,
totalled $72.9 million, an increase of $7.2 million from net cash provided by
operating activities for the year ended December 31, 1997. The increase was
principally due to the increase in interest income on residential mortgage
loans.

Net cash provided by investing activities for the year ended December 31, 1999,
totalled $68,000, compared to net cash used of $677,000 for the year ended
December 31, 1998. Cash flows used in investing activities in 1999 included
purchases of mortgage loans and accrued interest receivable of $311.8 million
and $1.2 million, respectively. Cash flows provided by investing activities in
1999 included mortgage loan principal repayments of $311.5 million and proceeds
from sales of foreclosed real estate of $1.7 million.

Net cash used in investing activities for the year ended December 31, 1998,
totalled $677,000, a decrease of $996.2 million from net cash used in investing
activities for the year ended December 31, 1997. The decrease is principally due
to the purchase of the Company's initial portfolio of residential mortgage loans
during the year ended December 31, 1997. Cash flows used in investing activities
in 1998 included purchases of mortgage loans and accrued interest receivable of
$352.1 million and $1.6 million, respectively. Cash flows provided by investing
activities in 1998 included mortgage loan principal repayments of $350.6 million
and proceeds from sales of foreclosed real estate of $2.4 million.

Net cash used in financing activities for the year ended December 31, 1999,
totalled $64.2 million, a decrease of $11.9 million from net cash used in
financing activities for the year ended December 31, 1998. The decrease was due
to the decrease in common stock dividends paid in 1999 compared to 1998.

Net cash used in financing activities for the year ended December 31, 1998,
totalled $76.1 million, compared to net cash provided of $937.7 million for the
year ended December 31, 1997. The change was principally due to the issuance of
preferred stock and capital contributed by the Bank in 1997. Repayment of note
payable to Bank totalled $11.4 million and preferred and common stock dividends
paid totalled $76.1 million. Cash flows provided by financing activities
included $11.4 million in proceeds from a note payable to the Bank.

IMPACT OF INFLATION AND CHANGING PRICES

Prevailing interest rates have a more significant impact on the Company's
performance than does the general level of inflation. While interest rates may
bear some relationship to the general level of inflation (particularly in the
long run), over short periods of time interest rates may not necessarily move in
the same direction or change in the same magnitude as the general level of
inflation. As a result, the business of the Company is generally not affected by
inflation in the short run, but may be affected by inflation in the long run.

OTHER MATTERS

As of December 31, 1999, the Company was in full compliance with the REIT tax
rules and believes that it will continue to qualify as a REIT under the
provisions of the IRC. The Company calculates:

a.       its Qualified REIT Assets, as defined in the Code, to be 99% of its
         total assets, as compared to the Federal tax requirements that at least
         75% of its total assets must be Qualified REIT assets;

b.       that 99% of its revenue qualifies for the 75% source of income test and
         100% of its revenue qualifies for the 95% source of income test under
         the REIT rules; and

The Company also met all REIT requirements regarding the ownership of its stock
and anticipates meeting the annual distribution requirements.



                                       22
<PAGE>

YEAR 2000

The Bank is responsible for addressing issues related to required changes in
computer systems for the year 2000 ("Year 2000") for the Bank and its
affiliates, including the Company. The Bank completed all major milestones in
executing its comprehensive plan to make its computer systems, applications and
facilities Year 2000 ready. The Year 2000 remediation process for existing
mission-critical systems was completed in the first quarter of 1999, as well as
the testing and certification of these systems and applications. In addition,
during February and March of 1999, the Bank participated in industry-wide Year
2000 integration testing sponsored by the Mortgage Bankers Association. The Bank
and the Company also assessed risks related to the potential failure of material
third parties to be ready for the year 2000.

The contingency plan for the critical supply vendors was completed in
mid-February 1999 and contingency plans were completed for all other material
service providers by June 30, 1999. The Year 2000 weekend (January 1 and 2,
2000) support plan for applications maintained in-house was completed by
September 30, 1999. In addition, contingency plans for critical business areas
to address liquidity, customer communications, operations issues and potential
failures surrounding the Year 2000 event were completed by September 30, 1999.

Final testing in the fourth quarter of 1999, and completion of the Year 2000
event management plans resulted in a smooth transition during the rollover to
the Year 2000. No significant Year 2000-related events were reported, and it was
not necessary to activate any of the Company's contingency plans. Special
attention will now be provided to possible Year 2000-related exceptions
throughout January and February 2000. The Company is currently not aware of any
asserted or unasserted claims of breach of contract or warranty related to Year
2000. The Company does not anticipate any assertion of such claims in the future
that will have a material effect on the Company.

All costs related to Year 2000 have been and will continue to be expensed on the
books of the Bank.










                                       23
<PAGE>

ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary market risk exposure is interest rate risk. As of December
31, 1999 the Company's residential loan portfolio totalled $967.3 million, had a
fair value of $956.4 million and a weighted average interest rate, net of the
service fee rate, of 6.86%. The portfolio consisted primarily of ARM loans.
Certain types of residential mortgage loans contain an option for the mortgagor
to convert the ARM loan to a fixed rate loan for the remainder of the term. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Interest Rate Risk."















                                       24
<PAGE>

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


The following financial statements of the Company at December 31, 1999 and 1998
and for the years ended December 31, 1999, 1998 and 1997 are included in this
report at the pages indicated.


                                        Page
Independent Auditors' Report            F-1
Balance Sheets                          F-2
Statements of Income                    F-3
Statements of Stockholders' Equity      F-4
Statements of Cash Flows                F-5
Notes to Financial Statements           F-6


ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURES


None.




                                       25
<PAGE>

                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company's Board of Directors is currently composed of seven members, two of
whom are not current officers or employees of the Company or current directors,
officers or employees of the Bank or any affiliate or the Bank (the "Independent
Directors"). The Company's charter provides that the Independent Directors will
consider the interests of the holders of both the Company's common stock and
preferred stock, including the Series A Preferred Shares, in determining whether
any proposed action requiring their approval is in the best interests of the
Company. The Company currently has four executive officers.

The following persons are directors and/or executive officers of the Company
(ages as of March 1, 2000):


<TABLE>
<CAPTION>
                   NAME                    AGE       POSITION AND OFFICES HELD
                   ----                    ---       -------------------------
<S>                                        <C>       <C>
Gerald J. Ford                             55        Chairman, Chief Executive Officer and Director
Carl B. Webb                               50        President, Chief Operating Officer and Director
Christie S. Flanagan                       61        Executive Vice President, General Counsel and Director
P.  Richard Frieder                        65        Director
Robert Nichols                             55        Director
James R. Staff                             52        Director
Richard H. Terzian                         63        Executive Vice President, Chief Financial Officer
                                                          and Director
</TABLE>

Each of the executive officers has held his position with the Company since its
inception in November, 1996. The following is a summary of the experience of the
executive officers and directors of the Company:

Mr. Ford has been Chairman of the Board, Chief Executive Officer and a Director
of the Bank and its predecessors since 1988 and Chairman of the Board and Chief
Executive Officer of Golden State Bancorp Inc. ("Golden State") since September
1998. Mr. Ford has also been Chairman of the Board and Chief Executive Officer
of Golden State Holdings Inc. since its formation in 1998. Mr. Ford is Chairman
of the Board of FNMC. Mr. Ford is also Chairman of the Board and Chief Executive
Officer of Liberte Investors Inc. Mr. Ford is also a Director of Auto One
Acceptance Corporation ("Auto One"), Freeport-McMoRan Copper & Gold Co. and
McMoRan Exploration Co.

Mr. Webb has served as President and Chief Operating Officer of the Bank and its
predecessors since 1988, and as the President and Chief Operating Officer of
Golden State since September 1998. Mr. Webb has also been President and Chief
Operating Officer of Golden State Holdings Inc. since 1998. Mr. Webb also serves
as a Director of Golden State, the Bank, FNMC and Auto One.

Mr. Flanagan has been Executive Vice President and General Counsel of the Bank
since 1994 and Executive Vice President and General Counsel of Golden State
since September 1998. He also serves as Director of FNMC and Auto One. Mr.
Flanagan was previously managing partner of the law firm of Jenkins & Gilchrist,
P.C. and is currently of counsel to the firm.

Mr. Frieder has been a Director of the Company since January, 1997. He has been
President and Chief Executive Officer of KSD Industries, Inc., a company engaged
in the manufacturing and sale of household hardware, for the past twenty-six
years. Mr. Frieder also is an attorney admitted to practice in the State of
Pennsylvania.

Mr. Nichols has been a Director of the Company since January, 1997. He has been
Chairman of the Board of Conley, Lott, Nichols Machinery Company, a Dallas based
company engaged in machinery sales, since 1978.

Mr. Staff has been an Executive Vice President and the Chief Financial Advisor
of the Bank since 1994 and an Executive Vice President and the Chief Financial
Advisor of Golden State since September 1998. He also serves as a Director of
FNMC and Auto One. Prior to joining the Bank, Mr. Staff was associated with the
public accounting firm of KPMG Peat Marwick LLP, most recently as a partner
specializing in financial services.

Mr. Terzian has been Executive Vice President and Chief Financial Officer of the
Bank since April 1995 and of Golden State since September 1998. Mr. Terzian is
also a Director of the Federal Home Loan Bank of San Francisco. Prior to joining
the Bank, Mr. Terzian served as Chief Financial Officer of Dime Bancorp, Inc and
its subsidiary, The Dime Savings Bank of New York, FSB.


                                       26
<PAGE>


ITEM 11.          EXECUTIVE COMPENSATION

The Company pays the Independent Directors of the Company for their services as
directors annual compensation of $15,000 plus a fee of $2,000 for attendance (in
person or by telephone) at each meeting of the Board of Directors. Independent
Directors who are members of the audit committee receive a fee of $1,000 for
attendance (in person or by telephone) at each meeting of the audit committee.

The Company does not pay any compensation to its officers or employees or to
directors who are not Independent Directors.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Common Stock of the Company

All of the common stock of the Company is held by the Bank.

Preferred Stock of the Company

The following table sets forth information as of February 29, 2000, concerning
the shares of Series A Preferred Shares beneficially owned by each director
and/or executive officer named in Item 10 and by all directors and/or executive
officers of the Company as a group.

<TABLE>
<CAPTION>
                                                                                      AMOUNT AND NATURE       PERCENT
      TITLE OF                                                                                OF                OF
        CLASS                             NAME OF BENEFICIAL OWNER                   BENEFICIAL OWNERSHIP      CLASS
        -----                             ------------------------                   --------------------      -----
<S>                     <C>                                                          <C>                       <C>
Series A Preferred      Christie S. Flanagan                                                  4,440              *
Series A Preferred      Gerald  J. Ford                                                       8,000(1)           *
Series A Preferred      P. Richard Frieder                                                        0              *
Series A Preferred      Robert Nichols                                                            0              *
Series A Preferred      James R. Staff                                                        8,000(1)           *
Series A Preferred      Richard H. Terzian                                                        0              *
Series A Preferred      Carl B. Webb                                                         12,000              *
Series A Preferred      All directors and executive officers as a group (7 persons)          32,440              *
</TABLE>
-------
* Less than one percent of the outstanding shares in each case.

(1) Shares are held in an IRA over which the director and/or executive officer
    has sole investment control.

Common Stock of Golden State

The Company is an indirect subsidiary of Golden State. The following table sets
forth information as of February 29, 2000, concerning the shares of Golden State
common stock beneficially owned by each director and/or executive officer named
in Item 10 and by all directors and/or executive officers of the Company as a
group.


<TABLE>
<CAPTION>
   TITLE OF                                                                        AMOUNT AND NATURE      PERCENT
 GOLDEN STATE                                                                              OF               OF
     CLASS                         NAME OF BENEFICIAL OWNER                       BENEFICIAL OWNERSHIP     CLASS
     -----                         ------------------------                       --------------------     -----
<S>            <C>                                                                <C>                     <C>
    Common     Christie S. Flanagan                                                       16,381(1)          *
    Common     Gerald  J. Ford                                                        17,708,902(2)       14.36%
    Common     P. Richard Frieder                                                         12,000(3)          *
    Common     Robert Nichols                                                                  0             *
    Common     James R. Staff                                                              9,381(1)          *
    Common     Richard H. Terzian                                                          9,026(4)          *
    Common     Carl B. Webb                                                               72,974(5)          *
    Common     All directors and executive officers as a group (7 persons)            17,828,664(6)       14.41%
</TABLE>
--------
* Less than one percent of the outstanding shares in each case.



                                       27
<PAGE>

(1)      Includes 9,381 restricted shares of common stock.

(2)      Includes 42,120 restricted shares of common stock owned by Mr. Ford.
         Also includes 16,763,782 shares of common stock and 903,000 warrants,
         each immediately exercisable for one share of common stock and one
         Litigation Tracking Warrant(TM), all owned by Hunter's Glen/Ford, Ltd.
         Mr. Ford and a corporate entity controlled by Mr. Ford are the general
         partners of Hunter's Glen/Ford, Ltd. Accordingly, Mr. Ford may be
         deemed to be the beneficial owner of all of the shares of common stock
         owned by Hunter's Glen/Ford, Ltd.

(3)      Mr. Nichols' shares are jointly held with his spouse.

(4)      Includes 5,026 shares of restricted stock and 4,000 shares held jointly
         with Mr. Terzian's spouse.

(5)      Includes 22,974 restricted shares of common stock.

(6)      Includes 88,882 restricted shares granted to executive officers
         pursuant to the Golden State Bancorp Inc. Omnibus Stock Plan. Also
         includes 16,000 shares as to which voting and investment power are
         shared.

Litigation Tracking Warrants(TM) of Golden State

The following table sets forth information as of February 29, 2000 concerning
the number of Litigation Tracking WarrantsTM of Golden State (sometimes referred
to as "LTWs") beneficially owned by each director and/or executive officer named
in Item 10 and by all directors and/or executive officers of the Company as a
group.


<TABLE>
<CAPTION>
   TITLE OF                                                                        AMOUNT AND NATURE      PERCENT
 GOLDEN STATE                                                                              OF               OF
     CLASS                         NAME OF BENEFICIAL OWNER                       BENEFICIAL OWNERSHIP     CLASS
     -----                         ------------------------                       --------------------     -----
<S>            <C>                                                                <C>                      <C>
    Common     Christie S. Flanagan                                                        7,000             *
    Common     Gerald  J. Ford                                                         1,903,000(1)        2.6%
    Common     P. Richard Frieder                                                              0             *
    Common     Robert Nichols                                                                  0             *
    Common     James R. Staff                                                                  0             *
    Common     Richard H. Terzian                                                              0             *
    Common     Carl B. Webb                                                                    0             *
    Common     All directors and executive officers as a group (7 persons)             1,910,000           2.6%
</TABLE>
--------
* Less than one percent of the outstanding warrants in each case.

(1)      Includes 1,000,000 LTWs purchased and held of (1) Includes 1,000,000
         LTWs purchased and held of record by Turtle Creek Revocable Trust, a
         revocable trust organized under the laws of the State of Texas of which
         Gerald J. Ford is the sole grantor and trustee. Accordingly, Mr. Ford
         may be deemed to be the beneficial owner of all of the LTWs owned by
         Turtle Creek Revocable Trust. Also includes 903,000 warrants purchased
         and held of record by Hunter's Glen/Ford, Ltd., each immediately
         exercisable for one share of common stock and one LTW. Mr. Ford and a
         corporate entity controlled by Mr. Ford are the general partners of
         Hunter's Glen/Ford, Ltd. Accordingly, Mr. Ford may be deemed to be the
         beneficial owner of all of the LTWs owned by Hunter's Glen/Ford, Ltd.

Change in Control of Golden State

As of February 29, 2000, GSB Investments Corp. owned 37.15% of the outstanding
common stock of Golden State. The shares of common stock of Golden State owned
by GSB Investments Corp. are or may be from time to time pledged to secure
obligations of GSB Investments Corp. or its affiliates.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

FNMC services the residential mortgage loans included in the Company's portfolio
and is entitled to receive fees in connection with the related servicing
agreement. Loan servicing fees paid to FNMC for the years ended December 31,
1999, 1998 and 1997 totalled $3.7 million, $3.7 million and $3.4 million,
respectively. See "Business - Servicing of Residential Mortgage Loans."



                                       28
<PAGE>

ITEM 14       EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) 1.        FINANCIAL STATEMENT SCHEDULES

Schedules are omitted because of the absence of conditions under which they are
required or because the required information is provided in the financial
statements or notes thereto.


      3.1      Amended and Restated Charter of the Registrant (Incorporated by
               reference to Exhibit 3.1 to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended March 31, 1997 (the "March 1997
               Form 10-Q")).
      3.2      By-laws of the Registrant, as amended (Incorporated by reference
               to Exhibit 3(b) to Amendment No. 2 to the Registrant's
               Registration Statement on Form S-11 (File No. 333-11609)).
     10.1      Mortgage Loan Purchase and Warranties Agreement, dated as of
               January 24, 1997, by and between California Federal Preferred
               Capital Corporation and California Federal Bank, A Federal
               Savings Bank. (Incorporated by reference to Exhibit 10.1 to the
               March 1997 Form 10-Q).
     10.2      Servicing Agreement, entered into as of January 31, 1997, by and
               between First Nationwide Mortgage Corporation and California
               Federal Preferred Capital Corporation. (Incorporated by reference
               to Exhibit 10.2 to the March 1997 Form 10-Q).
     10.3      Promissory Note, entered into as of September 29, 1998, between
               California Federal Bank, A Federal Savings Bank, lender, and
               California Federal Preferred Capital Corporation, borrower
               (Incorporated by reference to the Registrant's Quarterly Report
               on Form 10-Q for the quarter ended September 30, 1998).
     24.1      Power of Attorney executed by P. Richard Frieder.
     24.2      Power of Attorney executed by Robert Nichols.
     27.1      Financial Data Schedule

(B)           REPORTS ON FORM 8-K

None.



                                       29
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated: March 20, 2000


                               CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION

                               By: /s/ Gerald J. Ford
                                  ------------------------------
                                  Gerald J. Ford
                                  Chairman of the Board
                                  and Chief Executive Officer


Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.


<TABLE>
<CAPTION>
              NAME                                         TITLE                                        DATE
<S>                                                <C>                                          <C>
      /s/ Gerald J. Ford                           Chairman of the Board, Chief                 March 20, 2000
---------------------------------                  Executive Officer and Director
          Gerald J. Ford

      /s/ Carl B. Webb                             President, Chief Operating                   March 20, 2000
---------------------------------                  Officer and Director
          Carl B. Webb

      /s/ Christie S. Flanagan                     Executive Vice President,                    March 20, 2000
---------------------------------                  General Counsel and Director
          Christie S. Flanagan

      /s/ Richard H. Terzian                       Executive Vice President, Chief              March 20, 2000
---------------------------------                  Financial Officer and Director
          Richard H. Terzian                       (Principal Financial Officer)


               *                                   Director                                     March 20, 2000
---------------------------------
          P. Richard Frieder

               *                                   Director                                     March 20, 2000
---------------------------------
          Robert Nichols

      /s/ James R. Staff                           Director                                     March 20, 2000
---------------------------------
          James R. Staff
</TABLE>






* By:      /s/ Eric K. Kawamura
        -----------------------------
        Eric K. Kawamura, Their Attorney-in-Fact


                                       30
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
California Federal Preferred Capital Corporation:


We have audited the accompanying balance sheets of California Federal Preferred
Capital Corporation (the "Company") as of December 31, 1999 and 1998 and the
related statements of income, stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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 financial position of California Federal Preferred
Capital Corporation as of December 31, 1999 and 1998 , and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.



                                                                        KPMG LLP

San Francisco, California
January 18, 2000



<PAGE>


                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION

                                 BALANCE SHEETS
                           December 31, 1999 and 1998
                  (dollars in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                                           1999               1998
                                                                                           ----               ----
ASSETS
<S>                                                                                    <C>                <C>
Residential mortgage loans, net                                                        $    967,286       $    945,970
Cash and cash equivalents                                                                     5,485              2,505
Due from affiliates                                                                          18,065             41,444
Accrued interest receivable                                                                   4,649              5,044
Foreclosed real estate, net                                                                   1,037                783
                                                                                       ------------       ------------

     TOTAL ASSETS                                                                      $    996,522       $    995,746
                                                                                       ============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Due to affiliates                                                                      $         96       $        712
Accounts payable and accrued liabilities                                                        245                124
                                                                                       ------------       ------------

     Total Liabilities                                                                          341                836
                                                                                       ------------       ------------

Commitments and contingencies                                                                    --                 --

Stockholders' Equity:

Preferred stock, par value $0.01 per share, liquidation preference $500,000,
     30,000,000 shares authorized, 20,000,000 shares issued and outstanding                 500,000            500,000
Common stock, par value $0.01 per share, 30,000,000 shares authorized,
     1,000 shares issued and outstanding                                                         --                 --
Additional paid-in capital                                                                  500,000            500,000
Accumulated deficit                                                                          (3,819)            (5,090)
                                                                                       ------------       ------------

     Total Stockholders' Equity                                                             996,181            994,910
                                                                                       ------------       ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                        $    996,522       $    995,746
                                                                                       ============       ============
</TABLE>



See accompanying notes to financial statements.


                                       F-2

<PAGE>


                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION

                              STATEMENTS OF INCOME
                  Years Ended December 31, 1999, 1998 and 1997
                                 (in thousands)



<TABLE>
<CAPTION>
                                                                                 1999              1998             1997
                                                                                 ----              ----             ----
INTEREST INCOME
<S>                                                                          <C>               <C>              <C>
Residential mortgage loans                                                   $     68,121      $     74,984     $    68,098
     Less: servicing fee expense                                                   (3,682)           (3,679)         (3,350)
                                                                            -------------     -------------    ------------
                                                                                   64,439            71,305          64,748
Short-term investments                                                                964               963           1,164
                                                                            -------------     -------------    ------------
     Interest income, net of servicing fee expense                                 65,403            72,268          65,912

INTEREST EXPENSE

Borrowing from Bank                                                                    --                89              --
                                                                            -------------     -------------    ------------
     Net interest income                                                           65,403            72,179          65,912

Provision for loan losses                                                              --             2,310           2,310
                                                                            -------------     -------------    ------------

     Net interest income after provision for loan losses                           65,403            69,869          63,602
                                                                            -------------     -------------    ------------

NONINTEREST EXPENSE

Directors fees                                                                         52                52              44
Professional fees                                                                      87                65              51
Foreclosed real estate operations, net                                               (190)             (206)            (26)
Other                                                                                  29                53              38
                                                                            -------------     -------------    ------------

     Total noninterest expense                                                        (22)              (36)            107
                                                                            -------------     -------------    ------------

Income before income taxes                                                         65,425            69,905          63,495
Income tax (benefit) expense                                                          (56)               65             --
                                                                            -------------     -------------    ------------

NET INCOME                                                                         65,481            69,840          63,495

Preferred stock dividends                                                          45,625            45,625          41,949
                                                                            -------------     -------------    ------------

NET INCOME AVAILABLE TO COMMON
     STOCKHOLDER                                                              $    19,856       $    24,215      $   21,546
                                                                            =============     =============    ============
</TABLE>



See accompanying notes to financial statements.


                                       F-3

<PAGE>


                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                  Years Ended December 31, 1999, 1998 and 1997
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                                 Retained
                                                                                Additional        Earnings                Total
                                                   Preferred       Common        Paid-in        (Accumulated          Stockholders'
                                                     Stock          Stock        Capital          Deficit)               Equity
                                                     -----          -----        -------          --------               ------

<S>                                             <C>               <C>              <C>                <C>              <C>
BALANCE AT DECEMBER 31, 1996 (NOTE (1))         $       --        $     --       $     --         $       --       $        --

Initial public offering of 9-1/8%
     noncumulative exchangeable
     preferred stock, series A
     on January 31, 1997                           500,000              --             --                 --           500,000

Capital contribution from common stockholder            --              --        500,000                 --           500,000

Net income                                              --              --             --             63,495            63,495

Dividends paid on 9-1/8% Noncumulative
     exchangeable preferred stock,
     series A                                           --              --             --            (41,949)          (41,949)

Dividends paid on common stock                          --              --             --            (20,400)          (20,400)
                                                ---------- -    ---------- -    ---------        -----------        ----------

BALANCE AT DECEMBER  31, 1997                      500,000              --        500,000              1,146         1,001,146

Net income                                              --              --             --             69,840            69,840

Dividends paid on 9-1/8% Noncumulative
     exchangeable preferred stock,
     series A                                           --              --             --            (45,625)          (45,625)

Dividends paid on common stock                          --              --             --            (30,451)          (30,451)
                                                ---------- -    ---------- -    ---------        -----------       -----------

BALANCE AT DECEMBER  31, 1998                      500,000              --        500,000             (5,090)          994,910


Net income                                              --               --            --              65,481           65,481

Dividends paid on 9-1/8% Noncumulative
     exchangeable preferred stock,
     series A                                           --               --            --             (45,625)         (45,625)

Dividends paid on common stock                          --               --            --             (18,585)         (18,585)
                                                ----------      -----------    ----------         -----------      -----------

BALANCE AT DECEMBER  31, 1999                     $500,000       $       --      $500,000         $    (3,819)      $  996,181
                                                  ========       ==========      ========         ===========       ==========
</TABLE>


See accompanying notes to financial statements.


                                       F-4

<PAGE>


                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

                            STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 1999, 1998 and 1997
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                           1999            1998             1997
                                                                                           ----            ----             ----
OPERATING ACTIVITIES:
<S>                                                                                    <C>             <C>             <C>
Net income                                                                             $     65,481    $     69,840    $     63,495
Adjustments to reconcile net income to net cash provided by operating activities:
     Amortization of  purchase discounts and premiums, net                                    1,119             350              75
     Provision for loan losses                                                                   --           2,310           2,310
     Provision for losses on foreclosed real estate                                              15              18              --
     Interest capitalized on negatively amortizing loans                                       (224)         (1,032)         (1,832)
     Gain on sales of foreclosed real estate, net                                              (205)           (224)            (26)
     Increase in due from affiliates                                                           (207)           (795)           (217)
     Decrease in accrued interest receivable                                                  1,638           1,932           1,497
     Increase/(decrease) in accounts payable and accrued liabilities                            121            (225)            349
     (Decrease)/increase in due to affiliates                                                  (616)             712              --
                                                                                    --------------- ---------------- ---------------

Net cash provided by operating activities                                                    67,122          72,886          65,651
                                                                                    --------------- ---------------- ---------------

INVESTING ACTIVITIES:

Purchase of mortgage loans                                                                 (311,757)       (352,109)     (1,189,541)
Mortgage loan principal repayments                                                          311,462         350,632         199,229
Purchase of accrued interest receivable                                                      (1,243)         (1,577)         (6,896)
Proceeds from sales of foreclosed real estate                                                 1,665           2,443             288
Foreclosed real estate advances funded                                                          (59)            (76)             --
                                                                                    --------------- ---------------- ---------------

Net cash provided by (used in) investing activities                                              68            (687)       (996,920)
                                                                                    --------------- ---------------- ---------------

FINANCING ACTIVITIES:

Proceeds from note payable to Bank                                                               --          11,406              --
Repayment of note payable to Bank                                                                --         (11,406)             --
Proceeds from capital contributed by Bank                                                        --              --         500,000
Proceeds from preferred stock issued                                                             --              --         500,000
Common stock dividends paid                                                                 (18,585)        (30,451)        (20,400)
Preferred stock dividends paid                                                              (45,625)        (45,625)        (41,949)
                                                                                    --------------- ---------------- ---------------

Net cash (used in) provided by financing activities                                         (64,210)        (76,076)        937,651
                                                                                    --------------- ---------------- ---------------

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                                          2,980          (3,877)          6,382

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                                2,505           6,382              --
                                                                                    --------------- ---------------- ---------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                              $       5,485   $       2,505   $       6,382
                                                                                    =============== ===============  ==============

Supplemental disclosures of cash flow information:
     Cash paid for interest                                                           $          --   $          89   $          --
     Cash (received)/paid for income taxes, net                                                 (56)             65              --
     Non-cash investing activities:
          Mortgage loan principal reductions due to foreclosure                               1,670           2,452             733
          Mortgage loan principal increase (decrease) for timing difference between
               principal repayments received by servicer and related cash received by
               Company during the period                                                     23,586         (20,849)        (19,583)
</TABLE>





See accompanying notes to financial statements.






                                      F-5
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS


(1)      Organizational and Basis of Presentation

California Federal Preferred Capital Corporation, formerly First Nationwide
Preferred Capital Corporation (the "Company"), is a Maryland corporation
incorporated on November 19, 1996 which was created for the purpose of
acquiring, holding and managing real estate assets. The Company's outstanding
common stock was issued on November 19, 1996 and is wholly- owned by California
Federal Bank, A Federal Savings Bank (the "Bank").

On January 31, 1997, the Company commenced its operations with the consummation
of an initial public offering of 20,000,000 shares of the Company's 91/8%
Noncumulative Exchangeable Preferred Stock, Series A (the "Series A Preferred
Shares"), $0.01 par value, which raised $500 million. The Series A Preferred
Shares are traded on the New York Stock Exchange under the trading symbol "CFP."
Expenses incurred relative to the offering and the formation of the Company were
borne by the Bank. Concurrent with the issuance of the Series A Preferred
Shares, the Bank contributed additional capital of $500 million to the Company.

The Company used the proceeds raised from the initial public offering of the
Series A Preferred Shares and the additional capital contributed by the Bank to
purchase from the Bank the Company's initial portfolio of residential mortgage
loans at their estimated fair value of $996.5 million. The residential mortgage
loans were recorded in the accompanying financial statements at the Bank's
carrying value which approximated their estimated fair values. Pursuant to a
servicing agreement (the "Servicing Agreement") with the Bank's wholly-owned
mortgage banking subsidiary, First Nationwide Mortgage Corporation ("FNMC")
services the Company's mortgage assets.

(2)      Summary of Significant Accounting Policies

The accounting and reporting policies of the Company conform to generally
accepted accounting principles. The following summarizes the more significant of
these polices:

         (a)      Residential Mortgage Loans

         Residential mortgage loans are carried at the principal amount
         outstanding, net of unamortized purchase discounts and premiums.
         Discounts or premiums are accreted or amortized to income using the
         interest method over the contractual term of the loans. Unaccreted or
         unamortized discounts or premiums on loans sold or paid in full are
         recognized in income at the time of sale or payoff. It is the Company's
         policy to place a loan on nonaccrual status when a borrower is 90 days
         or more delinquent. When a loan is placed on nonaccrual status, the
         accrued and unpaid interest receivable is reversed. Amortization or
         accretion of premiums or discounts associated with loans that are on
         nonaccrual status is discontinued. Income is subsequently recognized
         only to the extent that cash payments are received. When, in
         management's judgment, the borrower's ability to make periodic interest
         and principal payments resumes, the loan is returned to accrual status.

         The Company considers a loan to be impaired when it is "probable" that
         a creditor will be unable to collect all amounts due (i.e., both
         principal and interest) according to the contractual terms of the loan
         agreement. The measurement of impairment may be based on (i) the
         present value of the expected future cash flows of the impaired loan
         discounted at the loan's original effective interest rate, (ii) the
         observable market price of the impaired loan, or (iii) the fair value
         of the collateral of a collateral-dependent loan. Large groups of
         smaller balance homogeneous loans are collectively evaluated for
         impairment. The Company collectively reviews its portfolio of
         residential mortgage loans for impairment due to its homogeneous
         composition.


                                      F-6
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


         Residential mortgage loans consist primarily of adjustable rate
         mortgages ("ARMs") which adjust periodically based on changes in
         various indices including the FHLB Eleventh District Cost of Funds, the
         one-year Treasury rate and the six-month Treasury rate. Certain types
         of residential mortgage loans contain an option for the mortgagor to
         convert the ARM to a fixed rate loan for the remainder of the term.

         (b)      Allowance for Loan Losses

         The allowance for loan losses is increased by charges to income and
         decreased by charge-offs (net of recoveries) and is comprised of
         specific allowances for identified problem loans and an unallocated
         allowance. Management's periodic evaluation of the adequacy of the
         allowance is based on such factors as the Bank's and the Company's past
         loan loss experience, known and inherent risks in the portfolio,
         adverse situations that have occurred but are not yet known that may
         affect the borrower's ability to repay, the estimated value of
         underlying collateral, and economic conditions.

         Although management believes that its present allowance for loan losses
         is adequate, it will continue to review its loan portfolio to determine
         the extent to which any changes in loss experience may require
         additional provisions in the future.

         (c)      Cash and Cash Equivalents

         For purposes of the statement of cash flows, cash and cash equivalents
         include cash and amounts due from banks, and other short-term
         investments with original maturities of three months or less.

         (d)      Foreclosed Real Estate

         Real estate acquired through, or in lieu of, loan foreclosure consists
         of 1-4 unit residential real estate and is initially recorded at fair
         value less estimated disposal costs at the time of foreclosure.
         Subsequent to foreclosure, the Company charges current earnings with a
         provision for estimated losses when the carrying value of the
         collateral property exceeds its fair value. Gains or losses on the sale
         of real estate are recognized upon disposition of the property.

         (e)      Income Taxes

         The Company has elected to be treated as a Real Estate Investment Trust
         ("REIT") for Federal income tax purposes. Accordingly, in general, the
         Company is not subject to Federal income tax to the extent it
         distributes its income to stockholders and as long as certain asset,
         income and stock ownership tests are met in accordance with the
         Internal Revenue Code of 1986 (the "IRC"), as amended. The Company is
         subject to Federal income tax on net gains on the sale of foreclosed
         real estate. The Company recorded $56,000 of income tax benefit during
         1999 related to a refund of taxes paid in 1998. The refund resulted
         from an overpayment of estimated taxes related to foreclosure sale
         gains.

         Pursuant to IRC Section 857(a), the Company is required to distribute
         95% of its taxable income. Taxable income may vary from book earnings
         as a result of temporary differences. For the years ended December 31,
         1999, taxable income before dividend distributions was estimated to be
         $66.3 million and, for the years ended December 31, 1998 and 1997,
         taxable income before dividend distributions was $74.2 million and
         $66.8 million, respectively. Temporary differences consisted primarily
         of differences in the book basis and tax basis of residential mortgage
         loans and provisions for loan losses in excess of charge-offs.


                                      F-7
<PAGE>


                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


         (f)      Management's Use of Estimates

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect (i) the reported amounts of assets and
         liabilities, (ii) disclosure of contingent assets and liabilities at
         the date of the financial statements and (iii) the reported amounts of
         revenues and expenses during the reporting period. Actual results could
         differ from those estimates.

         (g)      Earnings per share

         As all the Company's common stock is owned by the Bank, earnings per
         share data is not presented.

         (h)      Newly Issued Accounting Pronouncements

         In June 1998, the FASB issued Statement of Financial Accounting
         Standards No. 133, Accounting for Derivative Instruments and Hedging
         Activities ("SFAS No. 133"). SFAS No. 133 establishes standards for
         derivative instruments and for hedging activities, and requires that an
         entity recognize all derivatives as either assets or liabilities in the
         balance sheet and measure those instruments at fair value. Under SFAS
         No. 133, an entity that elects to apply hedge accounting is required to
         establish at the inception of the hedge the method it will use for
         assessing the effectiveness of the hedging derivative and the
         measurement approach for determining the ineffective aspect of the
         hedge.

         SFAS No. 133 applies to all entities and amends SFAS No. 107,
         Disclosures About Fair Values of Financial Instruments, to include in
         SFAS No. 107 the disclosure provisions about concentrations of credit
         risk from SFAS No. 105. SFAS No. 133 supersedes SFAS No. 80, Accounting
         for Futures Contracts, SFAS No. 105, Disclosure of Information about
         Financial Instruments with Off-Balance Sheet Risk and Financial
         Instruments with Concentrations of Credit Risk, and SFAS No. 119,
         Disclosure about Derivative Financial Instruments and Fair Value of
         Financial Instruments. SFAS No. 133 also nullifies or modifies the
         consensuses reached in a number of issues addressed by the Emerging
         Issues Task Force.

         SFAS No. 133 as amended by SFAS No. 137, Accounting for Derivative
         Instruments and Hedging Activities - Deferral of the Effective Date of
         FASB Statement No. 133 - an amendment of FASB Statement No. 133, is
         effective for all fiscal quarters of fiscal years beginning after June
         15, 2000. Initial application of this statement should be as of the
         beginning of an entity's fiscal quarter. On that date, hedging
         relationships must be designated anew and documented pursuant to the
         provisions of this statement. Earlier application of all of the
         provisions of SFAS No. 133 is encouraged, but is permitted only as of
         the beginning of any fiscal quarter that begins after issuance of this
         statement. SFAS No. 133 should not be applied retroactively to
         financial statements of prior periods. The Company owns no derivative
         instruments and was involved in no hedging activities at December 31,
         1999; accordingly, SFAS No. 133 is expected to have no impact on the
         Company's financial statements.



                                      F-8
<PAGE>


                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


(3)      Residential Mortgage Loans, Net

At December 31, 1999 and 1998, residential mortgage loans, net consisted of the
following (in thousands):


<TABLE>
<CAPTION>
                                                                         At December 31
                                                                  ------------------------------
                                                                      1999              1998
                                                                     ------            -----
<S>                                                               <C>                <C>
1-4 unit residential mortgage loans                               $     968,725      $   951,454
Purchase discounts and premiums, net                                      6,444            2,929
Allowance for loan losses                                                (7,883)          (8,413)
                                                                  -------------   --------------

Total residential mortgage loans, net                             $     967,286     $    945,970
                                                                  =============     ============
</TABLE>

At December 31, 1999 and 1998, residential mortgage loans on nonaccrual totalled
$1.0 million and $1.6 million, respectively.

For loans on nonaccrual at December 31, 1999 and 1998, the Company recognized
$27,000 and $52,000 of interest income during the years ended December 31, 1999
and 1998, respectively. The Company would have recognized $81,000 and $127,000
of interest income during the years ended December 31, 1999 and 1998,
respectively, on such loans had the borrowers performed under the contractual
terms of the loans.

At December 31, 1999, the Company's total residential mortgage loan portfolio
includes $819.7 million of loans secured by residential real estate properties
located in California. These loans may be subject to a greater risk of default
than other comparable residential mortgage loans in the event of natural hazards
or other adverse conditions in California that may affect the ability of
residential property owners in California to make payments of principal and
interest on underlying mortgages.

Activity in the allowance for loan losses for the years ended December 31, 1999,
1998 and 1997 is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                   1999            1998              1997
                                                                  ------          ------            -----
<S>                                                            <C>              <C>              <C>
Balance - beginning of year                                    $        8,413   $       7,310    $            --
Allowance attributable to loans purchased from the Bank                    --              --              5,000
Provision for loan losses                                                  --           2,310              2,310
Charge-offs                                                              (530)         (1,207)                --
                                                              ---------------   -------------   ----------------

Balance - end of year                                          $        7,883  $        8,413       $      7,310
                                                               ==============  ==============       ============
</TABLE>

(4)      Preferred Stock

The liquidation value of each Series A Preferred Share is $25 plus any
authorized, declared and unpaid dividends. Except upon the occurrence of certain
events, the Series A Preferred Shares are not redeemable until January 31, 2002,
and are redeemable thereafter at the option of the Company. If, due to the
occurrence of certain events, the Series A Preferred Shares are redeemed prior
to January 31, 2002, the per share redemption price will be $25.00 plus any
authorized, declared and unpaid dividends. If redeemed during the twelve-month
period beginning January 31, 2002, the per share redemption price will be $26.14
plus any authorized, declared and unpaid dividends. This per share redemption
price incrementally declines annually after January 31, 2002 down to $25.00 plus
any authorized declared and unpaid dividends on January 31, 2007. Except under
certain limited circumstances, the holders of the Series A Preferred Shares have
no voting rights. The Series A Preferred Shares are automatically exchangeable
for a new series of preferred stock of the Bank upon the occurrence of certain
limited events.



                                      F-9
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

(5)      Dividends

Holders of Series A Preferred Shares are entitled to receive, if, when and as
authorized and declared by the Board of Directors of the Company out of funds
legally available, noncumulative dividends at a rate of 91/8% per annum of the
initial liquidation preference ($25.00 per share). Dividends on the Series A
Preferred Shares, if authorized and declared, are payable quarterly in arrears
on the last day of March, June, September and December. Dividends paid during
the years ended December 31, 1999, 1998 and 1997 to the holders of the Series A
Preferred Shares totalled $45.6 million, $45.6 million and $41.9 million,
respectively.

Dividends on common stock are paid if, when and as authorized and declared by
the Board of Directors out of funds legally available after all preferred
dividends have been paid. Common stock dividends paid during the years ended
December 31, 1999, 1998 and 1997 totalled $18.6 million, $30.5 million and $20.4
million, respectively.

(6)      Related Party Transactions

The Company entered into the Servicing Agreement with FNMC pursuant to which
FNMC performs the actual servicing of the residential mortgage loans held by the
Company in accordance with normal industry practice. The Servicing Agreement can
be terminated without cause with at least 30 days written prior notice to FNMC
and payment to FNMC of a termination fee equal to 2% of the outstanding
principal balances of the loans. The servicing fee ranges from 0.25% to 0.50%
per year of the outstanding principal balances. Servicing fee expense totalled
$3.7 million, $3.7 million and $3.4 million for the years ended December 31,
1999, 1998 and 1997, respectively. FNMC is also entitled to a 1% disposition fee
on the aggregate proceeds obtained in the sale of a foreclosed residential
mortgage loan. The Company recorded such disposition fees totalling $24,000 and
$27,000 during the years ended December 31, 1999 and 1998. No disposition fees
were recorded during the year ended December 31, 1997.

In its capacity as servicer, FNMC holds mortgage loan payments received on
behalf of the Company in a custodial account at the Bank. The balance of this
account totalled approximately $18.1 million and $41.4 million at December 31,
1999 and 1998, respectively, and is included in due from affiliates.
Substantially all of such payments were passed through to the Company in January
2000 and 1999, respectively, as provided in the Servicing Agreement. At December
31, 1999 and 1998, trust funds of approximately $1.5 million representing
escrows received from borrowers, are on deposit in a trust account at the Bank
and are not included in the accompanying financial statements.

As of December 31, 1999 and 1998 the Company owed the Bank approximately $96,000
and $712,000, respectively, in connection with the settlement of loans purchased
from the Bank, advances related to foreclosed real estate and expenses incurred
by the Company to be reimbursed to the Bank. These amounts were paid to the Bank
during January 2000 and 1999, respectively.

On September 29, 1998, the Company borrowed $11.4 million from the Bank for the
purpose of disbursing a portion of the common stock dividends paid during
September 1998. The note bore interest at 5% per annum, compounded annually. The
outstanding balance of this note was repaid in November 1998. Interest expense
totalling $89,000 was recorded by the Company with respect to this note during
the year ended December 31, 1998.


                                      F-10
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


(7)      Commitments and Contingencies

ARMs whose interest rates adjust monthly based upon the FHLB Eleventh District
Cost of Funds limit payment changes to no more than 7.5% of the payment amount
per year. This may lead to monthly payments which are less than the amount
necessary to amortize the loan to maturity at the interest rate in effect for
any particular month. In the event that the monthly payment is not sufficient to
pay interest accruing on the loan during the month, this deficiency is added to
the loan's principal balance (i.e., negative amortization). The total
outstanding principal balance for a particular loan is generally not allowed to
exceed 125% of the original loan amount as a result of negative amortization. If
the loan reaches its maximum amount, the loan payment is recalculated to the
payment sufficient to repay the unpaid principal balance in full at the maturity
date. At December 31, 1999 and 1998, residential mortgage loans included
approximately $208.6 million and $291.0 million, respectively, of principal
balance that had the potential to negatively amortize. At December 31, 1999 and
1998, approximately $31.9 million and $58.8 million, respectively, of
residential mortgage loans had negatively amortized such that the current
principal balance of the loan exceeds the original principal balance. The
current principal balance exceeded the original principal balance by
approximately $1.0 million and $1.6 million, as of December 31, 1999 and 1998,
respectively.

(8)      Fair Value of Financial Instruments

The following table represents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                            1999                          1998
                                                  ------------------------      -------------------------
                                                  Carrying         Fair         Carrying          Fair
                                                    Value          Value          Value           Value
                                                  --------        --------       --------        --------
<S>                                                <C>            <C>            <C>             <C>
Residential mortgage loans, net                    $967,286       $956,369       $945,970        $962,494
Short-term investments                                5,485          5,485          2,505           2,505
</TABLE>

The carrying amounts in the table are included in the accompanying balance sheet
under the indicated captions.

The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of the Company's financial
instruments. Much of the information used to determine fair value is highly
subjective. When applicable, readily available market information has been
utilized. However, considerable judgment is required in estimating fair value
for certain items. The subjective factors include, among other things, the
estimated timing and amount of cash flows, risk characteristics, and interest
rates, all of which are subject to change.

Residential mortgage loans, net: Fair values are estimated for residential
mortgage loans in groups with similar financial and risk characteristics.
Residential mortgage loans are segregated into fixed and variable interest rate
terms and by performing and non-performing categories in order to estimate fair
values. For performing residential mortgage loans, fair value is estimated by
discounting contractual cash flows adjusted for prepayment estimates using
discount rates based on secondary market sources. Fair value for nonperforming
residential mortgage loans is based on discounting estimated cash flows using a
rate commensurate with the risk associated with the estimated cash flows, or
underlying collateral values, where appropriate. Because the Company owns the
servicing rights associated with its portfolio of residential mortgage loans,
fair value of residential mortgage loans has not been reduced by the value of
the Servicing Agreement.

Short-term investments: The carrying value of short-term investments reflects
fair value.



                                      F-11
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

(9)      Selected Quarterly Financial Data

The following table represents selected quarterly financial data for the years
ended December 31, 1999 and 1998 (in thousands) (unaudited):

<TABLE>
<CAPTION>
                                                                 Quarter Ended
                                            --------------------------------------------------------------
                                          December 31,       September 30,       June 30,        March 31,
                                             1999                1999             1999            1999          Total 1999
                                             ----                ----             ----            ----          ----------
<S>             <C>                          <C>                <C>             <C>              <C>               <C>
Interest income (1)                          $   16,514         $   15,937      $  16,048        $  16,904         $ 65,403
Provision for loan losses                            --                 --             --               --               --
                                             ----------         ----------      ---------        ---------         --------
     Net interest income after
          provision for loan losses              16,514             15,937         16,048           16,904           65,403
Total noninterest expense                          (142)                 9             25               86              (22)
                                             ----------         ----------      ---------        ---------         --------
Income before income taxes                       16,656             15,928         16,023           16,818           65,425
Income taxes                                        (96)                --             40               --              (56)
                                             ----------         ----------      ---------        ---------         --------
Net income                                    $  16,752         $   15,928      $  15,983        $  16,818         $ 65,481
                                              =========         ==========      =========        =========         ========



                                                                 Quarter Ended
                                            --------------------------------------------------------------
                                           December 31,      September 30,       June 30,         March 31,
                                              1998               1998             1998             1998          Total 1998
                                              ----               ----             ----             ----          ----------

Interest income (1)                           $  17,335         $   18,046       $  18,072        $  18,815        $ 72,268
Interest expense                                     89                --              --               --               89
                                             ----------         ----------      ---------        ---------         --------
     Net interest income                         17,246             18,046          18,072           18,815          72,179
Provision for loan losses                          (630)              (630)           (630)            (420)         (2,310)
                                             ----------         ----------      ---------        ---------         --------
     Net interest income after
          provision for loan losses              16,616             17,416          17,442           18,395          69,869
Total noninterest expense                           (80)               (65)             67               42             (36)
                                             ----------         ----------      ---------        ---------         --------
Income before income taxes                       16,696             17,481          17,375           18,353          69,905
Income taxes                                         21                 44             --               --               65
                                             ----------         ----------      ---------        ---------         --------
Net income                                    $  16,675         $   17,437       $  17,375        $  18,353        $ 69,840
                                              =========         ==========       =========        =========        ========
</TABLE>
----------------------------
(1)      Gross interest income less servicing fee expense






                                      F-12