##### Table of Contents









United States


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-K



---

|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                 
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended September 30,
    2002                                                
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to

Commission file number 1-16177

SUMMIT SECURITIES, INC.

(Exact name of registrant as specified in its
charter)


|                                                                                                                          |  |                                                                                  
|------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------
|Idaho
    (State of incorporation)
    601 West First Avenue
    Spokane, WA
    (Address of Principal executive offices) |  | 82-0438135
    (I.R.S. Employer Identification No.)
    99201-5015
    (Zip Code)

Registrants telephone number, including
area code: (509) 838-3111

Securities Registered Pursuant to
Section 12(b) of the Act:

|                                                                                  |  |                                                  
|--------------------------------------------------------------------------------- |  | -------------------------------------------------
|                                                                                  |  | Name of each exchange                            
|Title of Each Class                                                               |  | on which registered                              
|                                                                                  |  |                                                  
|9.50% Notes due 2005
    Variable Rate Cumulative Preferred Stock,
    Series S-3 |  | Pacific Exchange
    American Stock Exchange, LLC

Securities Registered Pursuant to
Section 12(g) of the Act:

Variable Rate Cumulative Preferred Stock,
Series S-1

Variable Rate Cumulative Preferred Stock,
Series S-2


Variable Rate Cumulative Preferred Stock,
Series S-RP




---

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 þ         No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K (229.405 of this Chapter) 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.    þ

Neither the voting nor non-voting common stock of
the registrant is traded on any exchange, therefore there is no
established market value. The aggregate market value of the
stock cannot be computed by reference to the price at which the
stock was sold, or the average bid and ask price of such common
stock, as of any date within 60 days prior to the date of
filing because there have been no sales of the common stock
within sixty days prior to the date of filing.

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act.)    Yes o         No þ

The number of shares outstanding of the
Registrants common stock, as of December 15, 2002,
was 10,000.

Documents incorporated by reference:
None



---






---

TABLE OF CONTENTS



|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Business                                                                             
|RECEIVABLE INVESTMENTS                            
|                                                   | Item 2. Properties                                                                           
|                                                   | Item 3. Legal Proceedings                                                                    
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                           
|                                                   | Item 5. Market For The Registrants Common Equity and Related Stockholder Matters            
|                                                   | Item 6. Selected Financial Data                                                              
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 7.A. Quantitative And Qualitative Disclosures About Market Risk                         
|                                                   | Item 8. Financial Statements and Supplementary Data                                          
|                                                   | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
|PART III                                          
|                                                   | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                   | Item 11. Executive Compensation                                                              
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                   | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                           
|                                                   | Item 14. Controls and Procedures                                                             
|                                                   | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES                                        
|EX-12.01 Statement Regarding Computation of Ratios



---



##### Table of Contents






PART I




Item 1. Business

ORGANIZATIONAL CHARTS

(as of September 30, 2002)


The chart below lists Summit Securities,
Inc.s (Summit) principal operating
subsidiaries and their ownership. Summit, together with its
principal subsidiaries, is referred to in this report as the
Consolidated Group.

(ORG. CHART)

National Summit
Corp.: Parent company, inactive except
as owner of Summit. C. Paul Sandifur, Jr., President of
Metropolitan Mortgage & Securities Co, Inc.
(Metropolitan) is the controlling shareholder of
National Summit Corp.

Summit Securities,
Inc.: Invests in Receivables (as
defined herein) principally funded by proceeds from Receivable
investments, other investments and securities offerings.

Metropolitan Investment Securities, Inc.(MIS): Broker/ dealer in
the business of marketing securities offered by Summit,
Metropolitan and Western United Holding Company, a subsidiary of
Metropolitan, mutual funds, and general securities.

Summit Property Development,
Inc.: Provides real estate development
services to others, principally to Metropolitan and its
subsidiaries.

Summit Group Holding
Company:Inactive except as owner of
Old Standard Life Insurance Company.

1



---



##### Table of Contents



Old Standard Life Insurance Company(Old Standard): Invests in
Receivables and other investments principally funded by proceeds
from Receivable investments and from annuity sales. Old Standard
is licensed to sell insurance products in eight states, but its
sales are primarily concentrated in the states of Idaho and
Oregon.

Old West Annuity & Life Insurance Company(Old West): Invests in
Receivables and other investments principally funded by proceeds
from Receivable investments and from annuity sales. Old West is
licensed to sell insurance products in seven states, but its
sales are primarily concentrated in the states of Arizona,
California, Idaho, Utah and Texas.

The chart below lists Metropolitans
principal operating subsidiaries and their ownership.
Metropolitan is one of the Consolidated Groups affiliates.

(ORG. CHART)

Metropolitan Mortgage & Securities Co.,
Inc.: Parent organization, invests in
Receivables (as defined herein) and other investments, including
real estate development, which are principally funded by
proceeds from Receivable investments, other investments and
securities offerings.

Consumers Group Holding Co.,
Inc.: A holding company, its sole
business activity currently being that of a shareholder of
Consumers Insurance Company.

Consumers Insurance
Company:Inactive property and
casualty insurer.

Western United Holding Company(Western Holding): A
holding company, its sole business activity currently being that
of a shareholder of Western United Life Assurance Company.

Western United Life Assurance Company(Western Life):
Metropolitans largest active subsidiary and the largest
active company within the Metropolitan Consolidated Group, is
engaged primarily in the sale of annuity contracts and investing
in Receivables and other investments. Western Life is licensed
to sell insurance in 16 states, but its sales are primarily
concentrated in the western half of the United States.

Metwest Mortgage Services, Inc.(Metwest): Primarily
performs collection and servicing functions for the Consolidated
Group and others. It is a Federal Housing Administration and
U.S. Department of Housing and Urban Development licensed
servicer and lender and is licensed as a Federal National
Mortgage Association seller/servicer.

2



---



##### Table of Contents



BUSINESS OVERVIEW

General

Through growth and acquisitions the Consolidated
Group has developed into a diversified institution with assets
exceeding $600 million. The Consolidated Group consists of
Summit and several subsidiaries, including two insurance
companies, Old Standard and Old West, a securities broker/
dealer, MIS, and a property development services company, Summit
Property Development, Inc. The Consolidated Group employed a
total of 113 employees at September 30, 2002.

The Consolidated Groups principal business
activity is investing in (1) cash flowing assets,
consisting of obligations collateralized by real estate,
structured settlements, annuities, lottery prizes and other
investments (Receivables) and (2) securities,
which consist primarily of U.S. Treasury and government agency
obligations and investment grade bonds (Securities
Investments).

The following depicts the distribution of the
Consolidated Groups assets as a percentage of total assets
as of September 30, 2002:

DISTRIBUTION OF ASSETS AS A PERCENTAGE OF
TOTAL ASSETS

(PIE CHART)

Currently, the Consolidated Group is focusing its
real estate Receivable investing activities on loans
collateralized by commercial real estate (Commercial
Loans). Summit may also engage in other businesses or
activities without restriction in accordance with the provisions
of its Articles of Incorporation. Summit is affiliated, due to
the common control by C. Paul Sandifur, Jr., with
Metropolitan, which has as its principal subsidiaries Metwest
and Western Life. These affiliates provide services to the
Consolidated Group for a fee and engage in various business
transactions with the Consolidated Group.

The Consolidated Group is affiliated with
Metropolitan and its subsidiaries through the common control by
C. Paul Sandifur, Jr. The Consolidated group both provides
services to and receives services from the Metropolitan group of
companies, and engages in business transactions with those
companies. As a result of these relationships, conflicts of
interests may arise between the Consolidated Group and the
Metropolitan group, including conflicts relating to the
allocation of investments and other business opportunities among
the affiliated companies. When allocating investment
opportunities among the Consolidated Group and its affiliates,
Metropolitan considers several factors including each
companys availability of cash, regulatory constraints
related to the particular investment, the size of the investment
relative to each companys asset size and other
diversification and asset/ liability management issues. Although
Metropolitan attempts to maximize the profitability of each
company, the actual allocation of investments may at times be
subject to Metropolitans discretion and the actual
allocation may not prove to be in the best interests of the
Consolidated Group.

In addition to the Consolidated Groups
Receivable investments, Old Standard, Old West and to a lesser
extent Summit, invest funds in securities which predominantly
consist of corporate bonds, U.S. Treasury and government
agency obligations, mortgage-backed securities and other
securities.

3



---



##### Table of Contents



The Consolidated Group has developed several
funding sources. The primary sources include the issuance of
annuity products, the issuance of debt and equity securities and
collateralized line of credit.

Old Standard and Old West have each been assigned
an A.M. Best Co. (Best) rating of
B- (Fair), which is the 8th highest rating. Best
publishes both a financial strength rating and a financial
performance rating on more than 6,000 health, property and
casualty insurance companies. Bests financial strength
ratings range from A++ (Superior) to F (In Liquidation) and
include 15 separate ratings (not including the
S rating for Suspended). Best bases its rating
on a number of complex financial ratios, the length of time a
company has been in business, the nature and quality of
investments in its portfolio, depth and experience of management
and various other factors. Bests ratings are supplied
primarily for the benefit of the policyholders and insurance
agents.

A.M. Best defines both the ratings of B and
B- as fair.B (Fair) and B-(Fair) are
assigned to companies that have, on balance, fair balance sheet
strength, operating performance and market profile when compared
to the standards established by the A.M. Best Company. In
A.M. Bests opinion, these companies have an ability
to meet their current obligations to policyholders, but their
financial strength is vulnerable to adverse changes in
underwriting and economic conditions.

On November 14, 2002, A.M. Best
informed Old Standard and Old West of its decision to assign a
2002 rating of B- (Fair) with a stable outlook, revised from the
2001 rating of B (Fair). According to A.M. Best, the rating
action reflected Old Standard and Old Wests significant
investment in mortgages, mortgage backed bonds and real estate
relative to capital and surplus, increased mortgage delinquency
in the first half of 2002 and the associated potential adverse
impact on liquidity. A.M. Best also considered the
increased debt levels and operating performance of the parent
organization. Partially offsetting these items were Old Standard
and Old Wests historic profitability, growth in its core
annuity business and strong financial support from its parent
organization, Summit.

As of September 30, 2002, the Consolidated
Group had a total of 113 full-time employees. None of the
employees are covered by a collective bargaining agreement, and
management believes that relations with the employees are good.
In addition to its own employees, the Consolidated Group also
uses the services of some of the employees of Metropolitan and
reimburses Metropolitan for the costs of those services under an
inter-company cost sharing agreement.

Factors Affecting Future Operating
Results

The Private Securities Litigation Reform Act of
1995 (the Act) provides a safe harbor
for companies which make forward-looking statements providing
prospective information. The safe harbor under the
Act relates to protection for companies with respect to
litigation filed on the basis of such forward-looking statements.

Summit wishes to take advantage of the safe
harbor provisions of the Act and is therefore including
this section in its Annual Report on Form 10-K. The
statements contained in this Annual Report, if not historical,
are forward-looking statements and involve risks and
uncertainties which are described below and elsewhere herein
that could cause actual results to differ materially from the
results, financial or otherwise, or other expectations described
in such forward-looking statements. These statements are
identified with the words such as may,
will, expect, intend,
anticipate, believe,
continue, seeks, plans,
variations of those terms or the negative of those terms, or
words of similar meaning. Therefore, forward-looking statements
should not be relied upon as a prediction of actual future
results or occurrences.

Summits future results may be affected by
certain risks and uncertainties including the following:

Summit may be unable to meet its financial
obligations as they become due.

Summit generates cash flow primarily from
earnings and payments received on Receivables, other investments
and the sale of debt and equity securities. Cash flows from the
existing assets and sales of debt and equity securities has been
adequate during the past five years to satisfy the obligation
for payment of

4



---



##### Table of Contents



maturing investment certificates and to pay
preferred stock dividends. If Summit is unable to successfully
sell additional investment certificates and preferred stock, it
may not be able to meet its obligations when due.


If insurance subsidiary earnings are not
available for dividends and fees, Summit may not be able to meet
its obligations when due.

At September 30, 2002, approximately 88% of
the Consolidated Groups assets were held by its insurance
subsidiaries, Old Standard and Old West. Regulations in the
States of Idaho and Arizona define the ability of Old Standard
and Old West, respectively, to pay dividends. These regulations
restrict the payments of cash dividends to the insurance
companys portion of available surplus funds derived from
any realized net profits as computed in accordance with
statutory accounting principles. Furthermore, the payment of
extraordinary dividends, as statutorily defined, is subject to
prior notice to, and a review and approval by, the Idaho and
Arizona State Insurance Commissioners. Old Standards
amount of surplus funds available for dividends at
September 30, 2002 was approximately $1.4 million. At
September 30, 2002, Old West is restricted from paying
dividends due to lack of surplus funds. These restrictions could
have an adverse effect on Summits ability to meet its
obligations when due.

Insufficient Risk-Based Capital of
Summits subsidiary insurance companies may adversely
affect the Consolidated Groups operations.

The states of Idaho and Arizonas Risk-Based
Capital Model law requires an insurance company to maintain
specified amounts of capital and surplus based on complex
calculations of risk factors that encompass the invested assets
and business activities of the insurance company. If our
insurance company subsidiaries are unable to maintain adequate
capital, they may be prevented from making further investments
in higher risk-adjusted assets such as Commercial Loans, real
estate and equity investments. Compliance with the Risk-Based
Capital Model Law requirements is tested annually at calendar
year-end. At the last annual review at its statutory reporting
period ended December 31, 2001, the Consolidated
Groups insurance subsidiaries capital and surplus
levels exceeded the calculated specified requirements. To the
extent that Summit does not maintain adequate levels of
liquidity permitting it to make additional capital investments
in the Consolidated Groups insurance subsidiaries, the
Consolidated Groups insurance subsidiaries ability
to maintain specified amounts of capital could be adversely
affected.

The current focus of the Consolidated
Groups resources being allocated to originating Commercial
Loans could lead to losses.

The Consolidated Group focuses its loan
originations on Commercial Loans. Commercial Loans accounted for
approximately $134 million, or 89%, and $84.1 million,
or 86%, of the real estate Receivables purchased or originated
by the Consolidated Group in the fiscal years ended
September 30, 2002 and 2001, respectively. The Consolidated
Group expects the percentage of its Receivables that are
Commercial Loans to increase in the near future, but cannot
predict whether it will have the ability or the desire to
originate Commercial Loans in the future, whether such loans
will achieve desirable yields or whether it will be able to
accurately predict Commercial Loan default rates. This potential
decrease in the diversification of the Groups Receivables
could lead to losses if the Consolidated Groups Commercial
Loan business in not profitable.

If existing underwriting standards
insufficiently evaluate the risk of losses on Receivables, it
could lead to higher than anticipated losses.

Many of the Receivables purchased by the
Consolidated Group were originated by sellers and other
non-institutional lenders. Therefore, the underwriting standards
used to originate these loans may have been less strict than the
standards typically used by conventional institutional lenders.
Metropolitan uses a variety of procedures to evaluate
Receivables depending on the type of investment. While
Metropolitan tries to minimize the risk of default and the risk
of losses if there is a default, Metropolitans
underwriting procedures may not be effective. If the
underwriting standards incorrectly assess the risk of an
investment, actual losses could be higher than anticipated.

5



---



##### Table of Contents



Real estate used as collateral on
Receivables may be inadequate to recover all amounts owed in the
event of default, which could lead to losses for the
Consolidated Group.

Most of the Receivables purchased or originated
by the Consolidated Group are collateralized by real estate to
provide security if a borrower defaults on the borrowers
mortgage. Several factors influence whether the value of the
real estate will be sufficient to cover the value of the
Receivables, including changes in economic conditions, property
values, zoning, land use, environmental laws and other legal
restrictions, including changes in and restrictions on the
timing and methods of foreclosure. If the market value of the
real estate used as collateral is insufficient to cover any
deficiency owed on a Receivable, the Consolidated Groups
business could be harmed.

Falling interest rates could negatively
affect the profitability of the Consolidated Group

In the next 12 months, the Consolidated
Groups gap analysis indicates a positive gap, meaning that
its interest-sensitive assets are expected to reprice before its
interest sensitive liabilities. In a falling interest rate
environment, the net interest income of the Consolidated Group
will tend to decrease which could have a negative impact on the
profitability of the Consolidated Group.

Foreclosure on mortgages could delay or
reduce payments on Receivables, adversely affecting the
liquidity and profitability of the Consolidated
Group.

Foreclosure and other similar proceedings used to
enforce payment of mortgage loans are generally subject to
principles of equity, which are designed to relieve the indebted
party from the legal effect of such partys default.
Statutes may limit the right of the Consolidated Group to obtain
a deficiency judgment against the defaulting party after a
foreclosure or sale. The application of any such principal may
lead to a loss or delay in the payment on loans held by the
Consolidated Group.

If Metropolitan Investment Securities, Inc.
is unable to continue selling our preferred stock and investment
certificates, our business would be harmed.

The Consolidated Group relies entirely on the
efforts of Metropolitan Investment Securities, Inc., a
broker-dealer subsidiary of the Consolidated Group, to sell the
Consolidated Groups preferred stock and investment
certificates. The Consolidated Group does not maintain any other
relationships for the sale of its preferred stock and investment
certificates other than the relationships it has through MIS. If
MIS is unable to sell, or is prevented from selling, the
Consolidated Groups preferred stock and investment
certificates, the Consolidated Group may not be able to find a
suitable replacement broker-dealer to sell its investment
securities. If the Consolidated Group is unable to continue
selling its preferred stock and investment certificates, its
business would be harmed.

Higher than anticipated annuity termination
rates may decrease earnings.

Higher than anticipated termination rate of
annuity contracts would tend to decrease the earnings of Old
Standard and Old West because the insurance subsidiaries would
have to immediately expense the unamortized deferred policy
acquisition costs on those surrendered policies instead of
continuing to amortize those costs over time. The rate at which
annuity contracts terminate is affected by several factors,
including changes in interest rates, competition and changes in
tax and other regulations.

Real estate held for development may not be
able to be sold profitably.

The Consolidated Group is engaged in the
development of various real estate properties, including
substantially undeveloped properties. It is possible that one or
more of these properties will not be able to be sold at a price
exceeding the carrying value of the property. Factors such as
local and national trends in commercial property values as well
as local, state and national economic and regulatory trends may
impact the potential sales price for these properties.

The Consolidated Group may be negatively
impacted by some of its equity investments.

The Consolidated Group invests in venture
capital, joint ventures and other related equity investments.
The market price and valuations of these investments may
fluctuate due to market conditions and other

6



---



##### Table of Contents



conditions over which the Consolidated Group has
no control. If these equity investments decline in value, the
earnings of the Consolidated Group could be negatively affected.
Additionally, these investments may not have an active trading
market and, as a result, the Consolidated Group may not be able
to easily sell these investments and, if sold, they may not be
sold at favorable prices.


The Consolidated Group purchases some
Receivables that are not secured by tangible assets, which could
lead to losses if borrowers default on those
Receivables.

The Consolidated Group purchases some Receivables
that are not secured by tangible assets, such as annuities,
lottery prizes, structured settlements or other investments. In
these cases, the Consolidated Group does not have a security
interest in a specific asset. It relies instead on a promise to
pay from an insurance company, a state government or other
entity. If the payor does not keep its promise to pay and
defaults, the Consolidated Group will not have the benefit of a
lien on any specific asset on which to foreclose to collect the
Receivable, which could lead to losses.

Environmental conditions and regulation of
property acquired by the Consolidated Group may lead to
losses.

The Consolidated Group acquires properties in the
course of its business, some of which may contain hazardous
waste or other toxic materials. Various federal, state and local
environmental laws, ordinances and regulations hold the owner,
operator or the previous owner of the property liable for the
costs of removal or remediation of hazardous or toxic substances
on, under, in or near the effected property. Historically, the
Consolidated Group has tried to avoid acquiring properties or
Receivables collateralized by properties of the types of
properties likely to be contaminated. As a result of its current
business, the Consolidated Group could sustain significant
losses due to environmental liability.

In addition, the government can place a lien on
environmentally contaminated property to guarantee that the
clean up costs for that property are paid. In many states, these
liens have priority over the existing mortgage on the property.
The Consolidated Group may be subject to these liens directly,
or indirectly, if it owns real property subject to these liens,
or a loan held by the Consolidated Group is securing the
property, or it has a role in the day-to-day management of the
facility or property. Environmental assessments to determine
whether certain properties are contaminated are performed by the
Consolidated Group when deemed necessary. Even where they are
performed, they may not insulate the Consolidated Group from
liability for an environmental condition. The failure of the
Consolidated Group to obtain environmental assessments could
increase the chance that it will acquire or make a loan on a
property containing hazardous materials. If the Consolidated
Group is held liable for environmental clean-up costs, its
business could be harmed.

The Consolidated Group may be adversely
affected by competition and conflicts of interests with its
affiliates.

Several companies are affiliated with the
Consolidated Group through common control by C. Paul
Sandifur, Jr. Various officers and directors of the
Consolidated Group are also employees of these affiliated
companies. In addition, the Consolidated Group provides services
to affiliated companies, buys and sells Receivables to and from
affiliated companies and makes loans to or borrows money from
affiliated companies. These factors may lead to conflicts of
interest such as how Receivables are distributed among or
between separate companies, how fees for services are
established and charged, how intercompany sales and purchases of
Receivables are priced and the terms of any intercompany loans.
Old Standard and Old West may compete with the affiliated
companies for the sale of annuities. Also, the Consolidated
Group may compete with Metropolitan for the sale of securities.
If these conflicts are not resolved favorably to the
Consolidated Group, the performance of the Consolidated Group
could be adversely affected.

7



---



##### Table of Contents






RECEIVABLE INVESTMENTS

Real Estate Receivables

Commercial Loan Originations

The Consolidated Group originates Commercial
Loans secured by various types of commercial properties
including income producing properties, fully developed lots and
land held primarily for residential development. These
Commercial Loans are generally small to mid-sized loans that are
originated for less than $15 million and generally have
short-term balloon payments (approximately two years to five
years). The Consolidated Group typically lends at 50-75%
loan-to-value ratios, and may require multiple pieces of
collateral and personal guarantees to secure a particular loan.

The Consolidated Group obtains leads for loans
through independent mortgage brokers. While these independent
mortgage brokers may be involved with the negotiation of terms
on behalf of the borrower, all applications, commitments and
documentation are drafted by the Consolidated Groups
counsel and executed directly with the borrower and guarantor.

Commercial loans originated by the Consolidated
Group are evaluated, underwritten and closed by Old Standard in
accordance with the Consolidated Groups predefined
standards. The Commercial Loans are underwritten by applying
criteria that generally include the following:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | evaluating the borrowers and
    guarantors financial statements/ information and credit;                                                               
|
| |  | obtaining a current, satisfactory appraisal of
    the collateral;                                                                                        
|
| |  | making a physical inspection of the property;                                                                                                             
|
| |  | obtaining title insurance;                                                                                                                                
|
| |  | reviewing other factors that affect collateral
    valuation such as environmental reports, structural inspections,
    zoning and entitlement status; and
|
| |  | an analysis of demographic factors.                                                                                                                       

The sum of the underwriting evaluation and the
borrowers alternative financing options affect the
interest rate and loan-to-value ratio that the Consolidated
Group will require. In a circumstance where the borrower has
limited financing options due primarily to time constraints, the
Consolidated Group has the opportunity to charge higher rates at
lower loan-to-values than the risk might otherwise require. The
Consolidated Groups ability to be more responsive than the
competition to time-sensitive opportunities has been key to its
ability to capitalize on these circumstances that provides
higher returns for lower risk on some loans.

During fiscal years 2002 and 2001, Commercial
Loans accounted for approximately 89% and 86%, respectively, of
new real estate Receivable acquisitions. The focus on Commercial
Loans was in part due to managements perception that this
market may be inadequately served by current lenders, who
management believes are not flexible in their underwriting and
pricing policies and who are not able to quickly underwrite and
close such loans, particularly in the temporary, bridge and
development Commercial Loan markets. The Consolidated Group also
underwrites and originates Commercial Loans that are held by
affiliated companies.

Non-Commercial Real Estate Receivable
Acquisition

All other Receivable acquisitions of the
Consolidated Group are acquired through and underwritten by
Metropolitan. Metropolitan has developed marketing techniques,
sources and underwriting practices for each of the different
types of Receivables. In general, the real estate Receivables
acquired by Metropolitan for the Consolidated Group consist of
non-conventional, A-, B and C credit grade loans. These types of
Receivables possess characteristics that differ from Receivables
originated in the conventional lending market in that either the
borrower or the property would not qualify for A
credit grade lending or the seller or borrower chose to use
non-conventional financing. For non-conventional loans, the
lender (often the seller of the property)

8



---



##### Table of Contents



generally focuses more on the quality of the
collateral as the ultimate recourse in the event of the
borrowers default and depends less on the ability of a
borrower to repay the loan.


Metropolitan has established underwriting
criteria for the acquisition of real estate Receivables. The
underwriting guidelines are based on Metropolitans past
experience and are intended to reflect some aspects of
conventional underwriting standards while still allowing for
flexibility to fit the specific characteristics of each
individual transaction. As part of the underwriting process,
Metropolitan considers the borrowers credit profile, the
market value of the collateral, demographic reports and property
profiles. Metropolitans underwriting involves a thorough
understanding of the different types of risk factors and how
those factors relate to the various strengths and weaknesses in
a transaction. There is no predetermined methodology to arrive
at a decision; each transaction stands on its own merits.

Other Receivables

Metropolitan also negotiates the purchase of
Receivables that are not collateralized by real estate,
including structured settlements, annuities and lottery prizes.
The lottery prizes generally arise out of state operated lottery
games that are typically paid in annual installments to the
prize winner. The structured settlements generally arise out of
the settlement of legal disputes where the prevailing party is
awarded a sum of money, payable over a period of time, generally
through the creation of an annuity. Other annuities generally
consist of investments that cannot be immediately converted to
cash directly with the issuing insurance company.
Metropolitans source for these investments is generally
private brokers who specialize in these types of Receivables.

Non-Real Estate Receivable
Underwriting

In the case of annuity purchases,
Metropolitans underwriting guidelines generally include a
review of the annuity policy and review of the sellers
credit report. Upon submission of the file, the most current
credit rating of the annuity issuer will be obtained.
Metropolitan will also conduct a Uniform Commercial Code search
on the annuitant in each state or county, as applicable, where
the annuitant resided over the last five years and where the
annuity issuer is located in order to ensure that no prior liens
exist on the structured settlement payments.

In the case of lottery prizes, the underwriting
guidelines generally include a review of the documents providing
proof of the prize and a review of the credit rating of the
insurance company or other entity making the lottery prize
payments. Where the lottery prize is from a state run lottery,
the underwriting guidelines generally include a confirmation
with the respective lottery commission of the prize
winners right to sell the prize and acknowledgment from
the lottery commission of their receipt of notice of the sale.
In many states, the sale of a state lottery prize requires that
the winner obtain a court order permitting the sale. In those
states, Metropolitan requires a certified copy of the court
order.

Yield and Discount Considerations

Summit, Old Standard and Old West each establish
their own yield requirements for Receivable acquisitions and
originations. Often, it results in a purchase price less than
the Receivables unpaid balance. The difference between the
unpaid balance and the purchase price is the
discount. The amount of the discount will vary in
any given transaction depending on the Consolidated Groups
yield requirements and the existing note rate of the Receivable
at the time of the purchase. Yield requirements are established
in light of capital costs, market conditions, the
characteristics of particular classes or types of Receivables
and the risk of default by the Receivable payor.

A greater effective yield can also be achieved
through negotiating amendments to Receivable agreements. These
amendments may involve adjusting the interest rate and/or
monthly payments, extension of financing in lieu of a required
balloon payment or other adjustments. As a result of these
amendments, the cash flow may be extended, maintained or
accelerated. Acceleration increases the yield realized on a
Receivable purchased at a discount from its face value through
accelerating recognition of the discount.

9



---



##### Table of Contents



For commercial development loans, the
Consolidated Group occasionally negotiates exit fee agreements
with the borrower. To the extent the exit fees do not result in
an overall yield to the Consolidated Group that is greater than
prevailing market rates after adjusting for the risk, the
transaction is accounted for as a loan. If the transaction
results in a yield that is greater than the prevailing market
rates after adjusting for the risk, the transaction is treated
as a loan if the exit fee is less than 50% of the expected
residual profits from the development and if the borrower has an
equity investment, substantial to the project, that is not
funded by the Consolidated Group. If the transaction meets the
requirements to be accounted for as a loan, the exit fee is
amortized into income over the estimated life of the loan using
the level yield method.

ANNUITY OPERATIONS

Introduction

The Consolidated Group raises significant funds
through its insurance subsidiaries, Old Standard and Old West.
Old Standard was incorporated in Idaho in 1988, and was acquired
by the Consolidated Group from Metropolitan on May 31,
1995. Old Standard had total assets of approximately
$383.1 million at September 30, 2002 before
elimination of assets for consolidation purposes.

Old Standard markets its annuity products through
over 400 independent sales representatives in six states,
primarily in the western half of the United States. These
representatives may also sell insurance products for other
companies. Old Standard is licensed as an insurer in Idaho,
Iowa, Montana, North Dakota, Oregon, South Dakota, Utah and
Washington, but currently does not have sales representatives in
South Dakota or Washington.

The Consolidated Group acquired Arizona Life
Insurance Company (Arizona Life) on
December 28, 1995. Arizona Life subsequently changed its
name to Old West. As of September 30, 2002, Old West had
total assets of approximately $203.5 million before
elimination of assets for consolidation purposes.

Old West markets its annuity products through
over 300 independent sales representatives in six states,
primarily in the western half of the United States. These
representatives may also sell insurance products for other
companies. Old West is licensed in Arizona, California,
Delaware, Idaho, New Mexico, Texas and Utah, but currently does
not have sales representatives in Delaware.

Management intends to expand the Consolidated
Groups insurance operations into other states as
opportunities arise, which may include the acquisition of other
insurance companies. The Consolidated Group has entered into an
agreement to acquire a life insurance company organized under
the laws of the State of Ohio. There are conditions to the
acquisition and the acquisition may not ultimately take place.

Annuities

During the last three fiscal years, Old Standard
and Old West have derived 100% of their premiums from annuity
sales including both annuities reinsured from Western Life and
their own direct annuity sales. A deferred annuity is a contract
that allows an investor to accumulate payments to the issuing
company and have them grow with interest on a tax-deferred
basis. That accumulation is then used to provide periodic
payments at some future date. In a single premium deferred
annuity, the annuity contract is purchased with the payment of
one lump sum when the contract is issued. A flexible premium
deferred annuity allows the owner to make continual payments
into the contract. Under both types of contracts, interest on
each payment is accumulated from the date the payment is
received.

Annuity benefits primarily consist of interest
that is credited on outstanding policies at the rates of return
specified in the policy. Upon the issuance of an annuity policy,
these rates of return are guaranteed for a limited number of
years. Thereafter, subject to any guaranteed rate of return
specified in the annuity policy, these rates of return may be
adjusted in the discretion of the issuing company.

Annuity lapse rates are calculated by dividing
cash outflows related to partial and full surrenders, periodic
payments and death benefits by average annuity reserves. For the
years ended September 30, 2002, 2001 and

10



---



##### Table of Contents



2000, annualized lapse rates were approximately
16.0%, 13.2% and 23.8%, respectively. The change in lapse rates
from fiscal 2000 to fiscal 2001 was primarily attributable to
maturities of one-year products issued in 1999.


During the year ended September 30, 2002,
Old West & Old Standard introduced Discover Max
Pioneer, a single premium deferred annuity with a bail-out
provision. Interest rates are guaranteed for the first policy
year, with rates after that declared annually and guaranteed for
one policy year. The first year interest rate includes a 1%
bonus. Step-down surrender charges ranging from 6% to 4% are in
effect for the first six years of the policy. However,
policyholders may withdraw up to 15% of the policy account value
in each calendar year without incurring a surrender penalty. In
addition, the policy contains a bail-out feature that allows the
policyholder to withdraw funds for 60 days without
incurring a surrender penalty if the crediting interest rate
falls below the bailout interest rate determined at issuance.
The minimum premium per annuity policy is $5,000.

The following products individually accounted for
10% or more of Old Standard and Old Wests direct annuity
premiums in the fiscal years ended September 30, 2002, 2001
and 2000:

TD-Max Series
single premium deferred annuities with varying lengths of cliff
(i.e. fixed) surrender fee periods. The initial interest rate is
guaranteed over the term of the surrender fee period and then
re-determined annually thereafter, subject to a contractual
minimum. Policyholders may withdraw a portion of their account
values annually without surrender fees. These products accounted
for approximately 51.1%, 56.6% and 57.5% of direct annuity
premiums in the fiscal years ended September 30, 2002, 2001
and 2000, respectively.

TD-Max Bailout
Series single premium deferred
annuities with varying lengths of surrender fee periods. The
initial interest rate is guaranteed for one year and then
re-determined annually thereafter, subject to a contractual
minimum. Policyholders may withdraw funds without surrender
penalty for 60 days if the crediting interest rate falls
below the bailout interest rate determined at issuance.
Policyholders may also withdraw a portion of their account
values annually without surrender fees. These products accounted
for approximately 12.0%, 29.9% and 27.5% of direct annuity
premiums in the fiscal years ended September 30, 2002, 2001
and 2000, respectively.

SPA single
premium deferred annuity with declining surrender fees over a
five year period. The initial interest rate is guaranteed for
one year and then re-determined annually thereafter, subject to
a contractual minimum. Policyholders may withdraw a portion of
their account values annually without surrender fees. These
products accounted for approximately 12.1%, 0.6% and 5.3% of
direct annuity premiums in the fiscal years ended
September 30, 2002, 2001 and 2000, respectively.

Liquid Flexible Premium
Annuities deferred annuities
with no surrender fees. Premium deposits may be made at any time
in amounts as low as $100. Interest rates are guaranteed at
issuance and then re-determined annually subject to a 3% minimum
guarantee. These products accounted for approximately 16.5%,
8.5% and 4.1% of direct annuity premiums the fiscal years ended
September 30, 2002, 2001 and 2000, respectively.

Reinsurance

Reinsurance is the practice where an insurance
company enters into agreements called treaties with
other insurance companies in order to assign or assume some of
the insured risk, for which a premium is paid, while retaining
the remaining risk. Although reinsurance treaties provide a
contractual basis for shifting a portion of the insured risk to
other insurers, the primary liability for payment of claims
remains with the original insurer. Life insurers commonly obtain
reinsurance on a portion of their risks in the ordinary course
of business. The amount of risk that a company is willing to
retain is based primarily on considerations of the amount of
insurance, the level of its capital and surplus and upon its
ability to sustain mortality fluctuations.

Old Standard entered into an annuity reinsurance
agreement with Western Life, an affiliate, which became
effective July 1, 1998. This agreement has allowed Old
Standard to acquire annuities at greater speeds and at lower
crediting rates than management believes would have been
available through direct sales. Under

11



---



##### Table of Contents



its contractual terms, the agreement is an
ongoing arrangement with no stated expiration or termination
date, although either party may stop and restart at their
discretion upon providing a 30-day advance written notice.


Under this agreement, Western Life may reinsure
with Old Standard 75% of the risk on 15 different annuity
products. The premiums ceded to Old Standard during the fiscal
year ended September 30, 2002, 2001 and 2000 were
approximately $56.5 million, $0.6 million and
$27.4 million, respectively. Old Standard paid Western Life
ceding allowances equal to actual commission plus 1.5% of the
premium, which was approximately $3.3 million,
$0.1 million and $1.5 million during the fiscal years
ended September 30, 2002, 2001 and 2000, respectively.
These ceding allowances are paid by Old Standard to compensate
Western Life for its annuity issuance costs. Old Standard also
pays a fee to Western Life for servicing the reinsured policies
of approximately 0.40% annually on the cash value of the
reinsured policies.

Reserves

Reserves for annuities are actuarially determined
and prescribed by Old Standard and Old Wests states of
domicile and other states in which those companies do business
through laws that are designed to protect annuity holders. An
actuary reviews the amount of these reserves required for
compliance with state law. These reserves are amounts, which at
assumed rates, are calculated to be sufficient to meet Old
Standard and Old Wests future obligations under annuity
contracts currently in force. Reserves are recalculated each
year to reflect amounts of insurance in force, issue ages of new
policyholders, duration of policies and variations in policy
terms. Since these reserves are based on actuarial assumptions,
Old Standard and Old Wests ultimate liability could exceed
these reserves.

BROKER/ DEALER ACTIVITIES

MIS is a securities broker/ dealer and member of
the National Association of Securities Dealers, Inc. It markets
the securities products of Summit, Metropolitan and Western
Holding. In addition, MIS currently markets several families of
mutual funds and general securities. MIS is licensed as a
broker/ dealer in all 50 states and the District of
Columbia. MIS had net income of approximately $0.2 million,
$0.3 million and $0.2 million during the fiscal years
ended September 30, 2002, 2001 and 2000, respectively.
Management is considering staffing, management systems and
budget changes that are designed to expand the market and
improve the profitability of MIS. There can be no assurance that
these efforts will be successful.

PROPERTY DEVELOPMENT SERVICES

Summit Property Development, Inc. provides real
estate development services, for a fee. Currently, its principal
clients are Metropolitan and Western Life. These services
include sales, marketing, market analysis, architectural
services, design services, subdividing properties and
coordination with regulatory groups to obtain the approvals
which are necessary to develop a particular property. Summit
Property Development, Inc. does not own any real estate itself.
Summit Property Development, Inc. produced operating losses for
the Consolidated Group of approximately $0.2 million,
$0.1 million and $0.5 million during the fiscal years
ended September 30, 2002, 2001 and 2000, respectively.
Management is considering staffing changes, exploring new
marketing methods and exploring strategic alliances with other
companies to expand the activities and improve the profitability
of Summit Property Development, Inc. There can be no assurance
that these efforts will be successful.

COMPETITION

Competition for Receivable
Acquisition

The Consolidated Groups ability to compete
for Receivable investments (except for Commercial Loans) is
currently dependent on Metropolitans Receivable
acquisition network. Metropolitan competes with financial
institutions, many of which are larger, have access to more
resources and have greater name recognition than the
Consolidated Group. Management believes its primary competitive
factors are the

12



---



##### Table of Contents



amounts offered and paid to Receivable sellers
and the speed with which the processing and funding of the
transaction can be completed. Competitive advantages enjoyed by
the Consolidated Group include:




| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | its access to markets throughout the United
    States;               
|
| |  | its flexibility in structuring Receivable
    acquisitions;           
|
| |  | its long history in the business; and                                 
|
| |  | its in-house capabilities for processing and
    funding transactions.

The Consolidated Group competes with many other
lending institutions in its Commercial Loan origination program.
The commercial lending market is a multi-billion dollar market
including competitors with greater resources, economies of scale
and name recognition than the Consolidated Group. The
Consolidated Group believes that its flexible underwriting,
pricing guidelines and closing speed enhance its ability to
compete in this market. To the extent other competing Receivable
investors may develop faster closing procedures, more flexible
investment policies, or other attributes that are more desirable
to Receivable sellers, they may experience a competitive
advantage over the Consolidated Group.

The Consolidated Group competes with other
investors in its lottery prize, structured settlement and
annuity acquisitions.

Competition for Funding Sources

The annuity business is highly competitive. Old
Standard and Old West compete with other financial institutions
including ones with greater resources and greater name
recognition. Annuity yields and commissions to agents are
particularly sensitive to competitive forces. Additionally,
management believes that the primary competitive factors among
life insurance companies for investment-oriented insurance
products, like annuities, include product flexibility, net
return after fees, innovation in product design, the
claims-paying ability rating and the name recognition of the
issuing company, the availability of distribution channels and
service rendered to the customer before and after a policy is
issued. Other factors affecting the annuity business include the
benefits, including before-tax and after tax investment returns,
and guarantees provided to the customer and the commissions paid
to the agent.

The securities capital markets are also highly
competitive. Summits preferred stock and debt securities
products face competition for investors from other securities
issuers, many of which are larger, have greater name recognition
and offer alternative investments not available from Summit.
Effective yields on security investments and commissions to
investment representatives are particularly sensitive to
competitive forces. Summit believes that its competitive pricing
and commission structure, along with a customer service
orientation, provide it with the ability to successfully
continue to issue its investment certificates and preferred
stock.

REGULATION

Old Standard and Old West are subject to the
Insurance Holding Company Act as administered by the Office of
the State Insurance Commissioner of the States of Idaho and
Arizona, respectively. Old West is also considered to be
commercially domiciled in the State of Texas due to the percent
of its sales to residents of Texas. As such, Old West is subject
to holding company and related regulations in the State of
Texas. Each act regulates specified transactions between
insurance companies and their affiliates. It requires that the
insurance companies provide prior notification to the respective
Insurance Commissioners of certain transactions between an
insurance company and Summit or any other affiliate. In certain
instances, approval from the respective Insurance Commissioner
is required prior to engaging in an affiliated transaction.

Old Standard and Old West are also subject to
extensive regulation and supervision by the Offices of the State
Insurance Commissioner of Idaho and Arizona, respectively. To a
lesser extent, they are also subject to regulation by each of
the other states in which they operate. These regulations are
directed toward supervision of such things as granting and
revoking licenses to transact business on both the insurance
company and agent

13



---



##### Table of Contents



levels, approving policy forms, prescribing the
nature and amount of permitted investments, establishing
solvency standards and conducting extensive periodic
examinations of insurance company records. These regulations are
primarily intended to protect annuity contract and policy owners.


All states in which the insurance subsidiaries
operate have laws requiring solvent life insurance companies to
pay assessments to protect the interests of policyholders of
insolvent life insurance companies. Assessments are levied on
all member insurers in each state based on a proportionate share
of premiums written by member insurers in the lines of business
in which the insolvent insurer engaged. A portion of these
assessments can be offset against the payment of future premium
taxes. However, future changes in state laws could decrease the
amount available for offset.

Old Standard and Old West are subject to
regulatory restrictions on their ability to pay dividends. These
restrictions affect Summits and Old Standards
ability to receive dividends. The unassigned statutory surplus
(deficit) of Old Standard and Old West totaled approximately
$1.4 million and $(2.7) million, respectively, as of
September 30, 2002. Old West is currently restricted from
paying dividends.

The States of Idaho and Arizonas Risk Based
Capital Model Law require an insurance company to maintain
specified amounts of capital and surplus based on complex
calculations of risk factors that encompass the invested assets
and business activities of the insurance company. Compliance
with the Risk-Based Capital Model Law requirements is tested
annually at calendar year-end. At the annual last review at
their statutory reporting period ended December 31, 2001,
the Consolidated Groups insurance subsidiaries
capital and surplus levels exceeded the calculated minimum
requirements.

MIS is subject to extensive regulation and
supervision by the National Association of Securities Dealers,
Inc., the Securities and Exchange Commission and various state
regulatory authorities. These regulations include licensing
requirements, record keeping requirements, net capital
requirements, supervision requirements and sales practice
standards.




Item 2. Properties

The principal offices of Summit and its
subsidiaries are located in an office building owned by
Metropolitan located at 601 West First Avenue, Spokane,
Washington 99201-5015. The Consolidated Group is charged for the
use of this space as a part of general expense allocations made
by Metropolitan.




Item 3. Legal Proceedings

Other than ordinary routine litigation incidental
to its business, there are no material legal proceedings or
actions pending or threatened against the Consolidated Group, or
to which its property is subject.




Item 4. Submission of Matters to a
Vote of Security Holders

No matters were submitted to a vote of
Summits security holders during the fourth quarter ended
September 30, 2002.




PART II




Item 5. Market For The
Registrants Common Equity and Related Stockholder
Matters

1. (a) Market Information. There
is no market for Summits common stock.

(b) Holders. At
September 30, 2002, there was one common stockholder of
Summit, National Summit Corp.

(c) Dividends. Summit paid
dividends per share of $164, $105 and $100 during fiscal 2002,
2001 and 2000, respectively.

2. Recent Sales of Unregistered
Securities. None.

14



---



##### Table of Contents






Item 6. Selected Financial
Data

SUMMIT SECURITIES, INC.

SELECTED CONSOLIDATED FINANCIAL DATA


The selected financial data shown below
summarizes certain consolidated financial information of the
Consolidated Group for the five years in the period ended
September 30, 2002. The consolidated financial data shown
below as of September 30, 2002 and 2001 and for the years
ended September 30, 2002, 2001 and 2000 (other than the
ratios of earnings to fixed charges and preferred stock
dividends) have been derived from, and should be read in
conjunction with, Summits consolidated financial
statements, related notes, and Managements Discussion and
Analysis of Financial Condition and Results of Operations
appearing elsewhere herein. The consolidated financial data
shown as of September 30, 2000, 1999 and 1998 and for the
years ended September 30, 1999 and 1998 (other than the
ratios of earnings to fixed charges and preferred stock
dividends) have been derived from audited consolidated financial
statements not included herein.

|                                                                     |  |                          |             |      |  |      |             |      |  |      |             |   |  |   |             |   |  |   |             |  
|-------------------------------------------------------------------- |  | ------------------------ | ----------- | ---- |  | ---- | ----------- | ---- |  | ---- | ----------- | - |  | - | ----------- | - |  | - | ----------- | -
|                                                                     |  |                         
|                                                                     |  | Year Ended September 30,
|                                                                     |  |                         
|                                                                     |  | 2002                     |             | 2001 |  | 2000 |             | 1999 |  | 1998
|                                                                     |  |                          |             |      |  |      |             |      |  |     
|CONSOLIDATED STATEMENTS OF INCOME DATA:                              |  |                          |             |      |  |      |             |      |  |      |             |   |  |   |             |   |  |   |             |  
|Revenues                                                             |  | $                        | 72,805,810  |      |  | $    | 48,208,501  |      |  | $    | 49,577,780  |   |  | $ | 36,368,936  |   |  | $ | 29,965,547  |  
|                                                                     |  |                          |             |      |  |      |             |      |  |      |             |   |  |   |             |   |  |   |             |  
|Net income (loss)                                                    |  | $                        | 4,397,287   |      |  | $    | (2,490,714  | )    |  | $    | 4,082,239   |   |  | $ | 2,814,828   |   |  | $ | 2,524,027   |  
|Preferred stock dividends                                            |  |                          | (2,687,418  | )    |  |      | (2,549,849  | )    |  |      | (2,025,155  | ) |  |   | (838,356    | ) |  |   | (498,533    | )
|                                                                     |  |                          |             |      |  |      |             |      |  |      |             |   |  |   |             |   |  |   |             |  
|Income (loss) applicable to common stockholders                      |  | $                        | 1,709,869   |      |  | $    | (5,040,563  | )    |  | $    | 2,057,084   |   |  | $ | 1,976,472   |   |  | $ | 2,025,494   |  
|                                                                     |  |                          |             |      |  |      |             |      |  |      |             |   |  |   |             |   |  |   |             |  
|Ratio of earnings to fixed charges and preferred
    stock dividends |  |                          | 1.07        |      |  |      | (1          | )    |  |      | 1.13        |   |  |   | 1.13        |   |  |   | 1.20        |  
|PER COMMON SHARE DATA:                                               |  |                          |             |      |  |      |             |      |  |      |             |   |  |   |             |   |  |   |             |  
|Cash dividends per common share                                      |  | $                        | 164         |      |  | $    | 105         |      |  | $    | 100         |   |  | $ | 0           |   |  | $ | 100         |  
|                                                                     |  |                          |             |      |  |      |             |      |  |      |             |   |  |   |             |   |  |   |             |  
|CONSOLIDATED BALANCE SHEETS DATA:                                    |  |                          |             |      |  |      |             |      |  |      |             |   |  |   |             |   |  |   |             |  
|Due from/(to) affiliated companies, net                              |  | $                        | (8,487,140  | )    |  | $    | (3,309,996  | )    |  | $    | 366,940     |   |  | $ | (151,077    | ) |  | $ | 10,985,805  |  
|Total assets                                                         |  | $                        | 622,439,766 |      |  | $    | 436,208,853 |      |  | $    | 359,325,586 |   |  | $ | 295,115,959 |   |  | $ | 206,594,234 |  
|Debt securities and other debt payable                               |  | $                        | 154,566,216 |      |  | $    | 104,163,412 |      |  | $    | 88,641,357  |   |  | $ | 72,086,696  |   |  | $ | 56,078,514  |  
|Stock holders equity                                                |  | $                        | 35,516,409  |      |  | $    | 31,687,362  |      |  | $    | 29,829,414  |   |  | $ | 19,104,955  |   |  | $ | 10,684,064  |  



---



|    |                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Earnings were insufficient to meet fixed charges
    and preferred stock dividends by approximately $7.6 million
    for the year ended September 30, 2001.

15



---



##### Table of Contents






Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations

The following discussion should be read in
conjunction with the attached audited consolidated financial
statements and notes thereto for the three year period ended
September 30, 2002.

MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


Critical Accounting Policies

The accounting policies described below are those
that the Consolidated Group considers critical in preparing its
financial statements. These policies include significant
estimates the Consolidated Group makes using information
available at the time the estimates are made. However, the
estimates could change materially if different information or
assumptions are used. The descriptions below are summarized and
have been simplified for clarity. A more detailed description of
the significant accounting policies used by the Consolidated
Group in preparing its financial statements is included in the
Consolidated Groups audited financial statements for the
year ended September 30, 2002.

Investments

Available-for-Sale Securities.Available-for-sale securities,
consisting primarily of mortgage- and asset-backed securities,
government-backed bonds, corporate bonds and equity securities,
are carried at quoted and estimated fair values. Unrealized
gains and losses on available-for-sale securities are excluded
from earnings and presented as accumulated other comprehensive
income or loss, net of related deferred income taxes. The
Consolidated Group continually monitors its investment portfolio
for other than temporary impairment of securities. When an other
than a temporary decline in the value below cost or amortized
cost is identified, the investment is reduced to its fair value,
which becomes the new cost basis of the investment. The amount
of the reduction is reported as a realized loss in the statement
of income. Any recovery of value in excess of the
investments new cost basis is recognized as a realized
gain only on sale, maturity or other disposition of the
investment. Factors that the Consolidated Group evaluates in
determining the existence of an other than temporary decline in
value include (1) the length of time and extent to which
the fair value has been less than cost or carrying value,
(2) the circumstances contributing to the decline in fair
value (including a change in interest rates or spreads to
benchmarks), (3) recent performance of the security,
(4) the financial strength of the issuer, and (5) the
intent and ability of the Consolidated Group to retain the
investment for a period of time sufficient to allow for
anticipated recovery. Additionally, for asset-backed securities,
the Consolidated Group considers the security rating and the
amount of credit support available for the security.

Deferred Policy Acquisition Costs

Deferred policy acquisition costs, consisting of
commissions and other insurance underwriting and annuity policy
costs, are deferred and amortized over the lives of the
contracts in proportion to the present value of estimated future
gross profits. To the extent actual experience differs from
assumptions, and to the extent estimates of future gross profits
require revision, the unamortized balance of deferred policy
acquisition costs is adjusted accordingly; these adjustments
would be included in current operations.

Allowances for Losses

Allowance for Losses on Receivables.Commercial Loans are individually
monitored for impairment. A loan is impaired when, based on
current information and events, it is probable that a creditor
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Probable is defined as

16



---



##### Table of Contents



future events are likely to occur.
When a loan has been identified as impaired, the Consolidated
Group determines the allowance for loss based on the estimated
fair market value, less estimated liquidation expenses, of the
collateral compared to the carrying value of the Receivable. The
estimated fair market value is based on the most recent
appraisal of the collateral. If the most recent appraisal is
more than one year old, a new appraisal is ordered. In the
interim, estimated fair market value is established through a
review of the most recent appraisal in addition to a review of
other relevant market information. When reviewing the most
recent appraisal, the Consolidated Group considers the type of
property, changes in the economic factors of the region and the
underlying appraisal assumptions. If the estimated fair market
value of the collateral is less than the carrying value, an
allowance for loss is recognized.


The remaining real estate contracts and mortgage
notes receivable portfolio is made up of a large group of
smaller-balance homogenous loans that are collectively evaluated
for impairment. The Consolidated Group establishes an allowance
for inherent losses on the Receivables based primarily on
current delinquencies and historical foreclosure and loss
experience. To the extent actual experience differs from
assumptions, such adjustments would be included in the statement
of operations.

Allowances for losses on real estate contracts
and mortgage notes receivable are based on the carrying value of
the Receivable, including accrued interest. Accordingly, the
Consolidated Group accrues interest on delinquent Receivables
until foreclosure.

Allowance for Losses on Real Estate Held for
Sale and Development.The allowance
for losses on real estate held for sale and development includes
amounts for estimated losses as a result of impairment in value.
The Consolidated Group reviews its real estate properties for
impairment in value whenever events or circumstances indicate
that the carrying value of the asset may exceed its fair market
value. The carrying value of a repossessed property is
determined as of the date of repossession of the property and is
based on the lower of fair market value less selling costs or
carrying value at the time the property was repossessed. For
non-commercial properties, an appraisal is obtained on the
foreclosed property to determine its fair market value at time
of repossession. For commercial properties, an appraisal is
obtained on the foreclosed property to determine the fair market
value only if the most recent appraisal is more than one year
old, otherwise the existing appraisal is used. Periodically, the
Consolidated Group may not order an updated appraisal in
accordance with its established policies if current negotiations
with a potential purchaser establishes an indication of value.

Subsequent to repossession (or acquisition in the
case of development properties), if the value of the property
declines such that the fair market value, less selling costs,
from the disposition of the asset is less than its carrying
value, an impairment is recognized in the statement of
operations.

Annuity Reserves

Premiums for annuities are reported as annuity
reserves under the deposit method. Reserves for annuities are
equal to the sum of the account balances, including credited
interest and deferred service charges. Based on past experience,
consideration is given in actuarial calculations to the number
of policyholder and annuitant deaths that might be expected,
policy lapses, surrenders and terminations. As a result of
changes in the factors considered in the actuarial calculations,
it is reasonably possible that the reserves for annuities could
change in the near future.

17



---



##### Table of Contents



Results of Operations

The following table presents the components of
the results of operations for the years ended September 30,
2002, 2001 and 2000:

|                                                                   |                                                                   |      |             |            |  |      |             |            |  |   |            |           | 
|------------------------------------------------------------------ | ----------------------------------------------------------------- | ---- | ----------- | ---------- |  | ---- | ----------- | ---------- |  | - | ---------- | --------- | 
|                                                                   |                                                                   | 2002 |             | 2001       |  | 2000
|                                                                   |                                                                   |      |             |            |  |     
|Net interest income                                                |                                                                   | $    | 25,230,751  |            |  | $    | 15,851,219  |            |  | $ | 11,681,136 |          
|Provision for losses on Receivables                                |                                                                   |      | (939,905    | )          |  |      | (687,218    | )          |  |   | (3,936,086 | )        
|                                                                   |                                                                   |      |             |            |  |      |             |            |  |   |            |          
|                                                                   | Net interest spread after provision for losses on
    Receivables |      |             | 24,290,846 |  |      |             | 15,164,001 |  |   |            | 7,745,050 | 
|Net non-interest expense                                           |                                                                   |      | (17,780,131 | )          |  |      | (14,584,902 | )          |  |   | (8,012,460 | )        
|Capitalized deferred costs, net of amortization                    |                                                                   |      | 3,571,527   |            |  |      | 1,398,312   |            |  |   | 1,523,485  |          
|                                                                   |                                                                   |      |             |            |  |      |             |            |  |   |            |          
|                                                                   | Income (loss) before gains (losses) on assets                     |      |             | 10,082,242 |  |      |             | 1,977,411  |  |   |            | 1,256,075 | 
|Net gains (losses) on investments and receivables                  |                                                                   |      | (2,350,823  | )          |  |      | (4,687,171  | )          |  |   | 3,902,261  |          
|Provision (recoveries) for losses on real estate
    held for sale |                                                                   |      | (1,364,100  | )          |  |      | (2,398,619  | )          |  |   | 429,930    |          
|Gains (losses) on sales of real estate                             |                                                                   |      | 43,491      |            |  |      | 12,213      |            |  |   | (43,755    | )        
|                                                                   |                                                                   |      |             |            |  |      |             |            |  |   |            |          
|Income (loss) before income taxes                                  |                                                                   |      | 6,410,810   |            |  |      | (5,096,166  | )          |  |   | 5,544,511  |          
|Income tax benefit (provision)                                     |                                                                   |      | (2,013,523  | )          |  |      | 2,605,452   |            |  |   | (1,462,272 | )        
|                                                                   |                                                                   |      |             |            |  |      |             |            |  |   |            |          
|Net income (loss)                                                  |                                                                   |      | 4,397,287   |            |  |      | (2,490,714  | )          |  |   | 4,082,239  |          
|Preferred stock dividends                                          |                                                                   |      | (2,687,418  | )          |  |      | (2,549,849  | )          |  |   | (2,025,155 | )        
|                                                                   |                                                                   |      |             |            |  |      |             |            |  |   |            |          
|Income (loss) applicable to common stockholders                    |                                                                   | $    | 1,709,869   |            |  | $    | (5,040,563  | )          |  | $ | 2,057,084  |          
|                                                                   |                                                                   |      |             |            |  |      |             |            |  |   |            |          

Net Interest Income

The following table presents the components of
net interest income during the years ended September 30,
2002, 2001 and 2000:

|                    |                                                |                        |            |            |            |      |            |            |            |   |            |            |            | 
|------------------- | ---------------------------------------------- | ---------------------- | ---------- | ---------- | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                    |                                                | 2002                   |            | 2001       |            | 2000
|                    |                                                |                        |            |            |            |     
|Interest income:    |                                                |                        |            |            |            |      |            |            |            |   |            |           
|                    | Interest on receivables                        |                        | $          | 32,041,929 |            |      | $          | 25,336,947 |            |   | $          | 16,920,593 |           
|                    | Earned discount on receivables and investments |                        |            | 13,668,824 |            |      |            | 7,461,573  |            |   |            | 4,302,232  |           
|                    | Other investment income                        |                        |            | 9,712,399  |            |      |            | 9,076,953  |            |   |            | 9,252,518  |           
|                    |                                                |                        |            |            |            |      |            |            |            |   |            |           
|                    |                                                | Total interest income  |            |            | 55,423,152 |      |            |            | 41,875,473 |   |            |            | 30,475,343 | 
|                    |                                                |                        |            |            |            |      |            |            |            |   |            |           
|Interest expense:   |                                                |                        |            |            |            |      |            |            |            |   |            |           
|                    | Annuity benefits                               |                        |            | 19,629,077 |            |      |            | 16,737,395 |            |   |            | 11,907,780 |           
|                    | Interest, net                                  |                        |            | 10,563,324 |            |      |            | 9,286,859  |            |   |            | 6,886,427  |           
|                    |                                                |                        |            |            |            |      |            |            |            |   |            |           
|                    |                                                | Total interest expense |            |            | 30,192,401 |      |            |            | 26,024,254 |   |            |            | 18,794,207 | 
|                    |                                                |                        |            |            |            |      |            |            |            |   |            |           
|Net interest income |                                                | $                      | 25,230,751 |            |            | $    | 15,851,219 |            |            | $ | 11,681,136 |           
|                    |                                                |                        |            |            |            |      |            |            |            |   |            |           

18



---



##### Table of Contents



The following table summarizes the rate/volume
change in total interest income between the fiscal years ended
September 30, 2002, 2001 and 2000 by interest sensitive
asset class.

|                                                        |  |                     |           |               |  |                     |            |        |  |      |            |              |  |   |           |  |  |   |           |   |  |   |            | 
|------------------------------------------------------- |  | ------------------- | --------- | ------------- |  | ------------------- | ---------- | ------ |  | ---- | ---------- | ------------ |  | - | --------- |  |  | - | --------- | - |  | - | ---------- | 
|                                                        |  |                     |           |              
|                                                        |  | 2002 vs. 2001       |           | 2001 vs. 2000
|                                                        |  |                     |           |              
|                                                        |  |                     |           |               |  |                     |            |       
|                                                        |  | Increase (Decrease) |           |               |  | Increase (Decrease) |            |       
|                                                        |  | Due to              |           |               |  | Due to              |            |       
|                                                        |  |                     |           |               |  |                     |            |       
|                                                        |  | Volume              |           | Rate          |  | Total Change        |            | Volume |  | Rate |            | Total Change
|                                                        |  |                     |           |               |  |                     |            |        |  |      |            |             
|Interest sensitive assets:                              |  |                     |           |               |  |                     |            |        |  |      |            |              |  |   |           |  |  |   |           |   |  |   |            | 
|Investments (including cash)                            |  | $                   | 865,481   |               |  | $                   | (1,353,565 | )      |  | $    | (488,084   | )            |  | $ | 1,377,084 |  |  | $ | (833,089  | ) |  | $ | 543,995    | 
|Real estate contracts and mortgage notes
    receivable |  |                     | 6,139,648 |               |  |                     | 7,034,462  |        |  |      | 13,174,110 |              |  |   | 7,469,218 |  |  |   | 2,741,066 |   |  |   | 10,210,284 | 
|Other receivable investments                            |  |                     | 1,212,037 |               |  |                     | (350,384   | )      |  |      | 861,653    |              |  |   | 954,205   |  |  |   | (308,354  | ) |  |   | 645,851    | 
|                                                        |  |                     |           |               |  |                     |            |        |  |      |            |              |  |   |           |  |  |   |           |   |  |   |            | 
|                                                        |  | $                   | 8,217,166 |               |  | $                   | 5,330,513  |        |  | $    | 13,547,679 |              |  | $ | 9,800,507 |  |  | $ | 1,599,623 |   |  | $ | 11,400,130 | 
|                                                        |  |                     |           |               |  |                     |            |        |  |      |            |              |  |   |           |  |  |   |           |   |  |   |            | 

The following table presents the average net
yields realized by the Consolidated Group on interest sensitive
assets and liabilities during the three years ended
September 30, 2002, 2001 and 2000 based on the average
monthly ending asset/ liability balances:

|                                                        |       |         |             |         |   |         |             |       |   |   |             |       |  
|------------------------------------------------------- | ----- | ------- | ----------- | ------- | - | ------- | ----------- | ----- | - | - | ----------- | ----- | -
|                                                        |       | 2002    |             | 2001    |   | 2000   
|                                                        |       | Average |             | Average |   | Average
|                                                        |       |         |             |         |   |        
|Interest sensitive assets:                              |       |         |             |         |   |         |             |       |   |   |             |      
|Investments (including cash)                            |       | $       | 149,193,424 |         |   | $       | 137,086,760 |       |   | $ | 119,332,846 |      
|                                                        | Yield |         |             | 6.24    | % |         |             | 7.16  | % |   |             | 7.75  | %
|Real estate contracts and mortgage notes
    receivable |       | $       | 240,084,040 |         |   | $       | 198,627,944 |       |   | $ | 143,012,023 |      
|                                                        | Yield |         |             | 17.74   | % |         |             | 14.81 | % |   |             | 13.43 | %
|Other receivable investments                            |       | $       | 54,747,551  |         |   | $       | 37,604,170  |       |   | $ | 25,510,311  |      
|                                                        | Yield |         |             | 6.43    | % |         |             | 7.07  | % |   |             | 7.89  | %
|Interest sensitive liabilities:                         |       |         |             |         |   |         |             |       |   |   |             |      
|Annuity reserves                                        |       | $       | 334,017,117 |         |   | $       | 266,718,248 |       |   | $ | 203,012,595 |      
|                                                        | Yield |         |             | 5.88    | % |         |             | 6.28  | % |   |             | 5.87  | %
|Investment certificates                                 |       | $       | 100,514,506 |         |   | $       | 87,285,895  |       |   | $ | 72,567,188  |      
|                                                        | Yield |         |             | 9.31    | % |         |             | 9.34  | % |   |             | 9.03  | %
|Debt payable                                            |       | $       | 21,538,046  |         |   | $       | 11,833,234  |       |   | $ | 4,974,982   |      
|                                                        | Yield |         |             | 5.09    | % |         |             | 10.00 | % |   |             | 8.82  | %

The increase in net interest income from 2000 to
2002 was primarily due to an increase in the commercial lending
activities of the Consolidated Group. Commercial Loans, which
have higher stated yields than the Consolidated Groups
residential portfolio, accounted for 87.7% of the outstanding
principal balance of real estate contracts and mortgage notes
receivable at September 30, 2002, compared to 81.5% at
September 30, 2000. Additionally, for commercial
development loans, the Consolidated Group occasionally
negotiates exit fee agreements with the borrower. If the
transaction meets the requirements to be accounted for as a
loan, the exit fee is amortized into income over the estimated
life of the loan using the level yield method. The amortization
of exit fees accounted for 2.48% of the increase in yield on
real estate contracts and mortgage notes receivable in 2002.

The increase in yields on the real estate
contracts and mortgage notes receivable portfolio were partially
offset by lower yields on the investment portfolio as the 5-year
constant maturity Treasury rate, which is similar to the average
maturity of the Consolidated Groups fixed income
portfolio, decreased from 5.95% on September 30, 2000 to
2.65% on September 30, 2002. During the fiscal year ended
September 30, 2002, the Consolidated Group sold
approximately $72.3 million in available-for-sale
investments for gains of approximately $1.1 million. As
proceeds from the sales and maturities were reinvested back into
a lower interest rate market, the overall portfolio yield was
reduced.

19



---



##### Table of Contents



The reduction in the interest rate environment,
particularly during the fiscal year ended September 30,
2002, has allowed the Consolidated Group to borrow funds on its
secured line of credit with the Federal Home Loan Bank of
Seattle at lower interest rates. This borrowing facility has led
to a reduction in the current year debt payable cost of funds.

While a weaker economy may have contributed to
the declining Treasury rate, credit sensitive securities may
experience an increase in yields during the same time period.
This was true for the Consolidated Group as the yields offered
on its debt securities sold to the public increased since 2000.

Net Non-Interest Expense

The following table presents the components of
net non-interest expense during the years ended
September 30, 2002, 2001 and 2000:

|                      |                                             |                            |   |            |            |      |   |            |            |  |   |            |            | 
|--------------------- | ------------------------------------------- | -------------------------- | - | ---------- | ---------- | ---- | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                      |                                             | 2002                       |   | 2001       |            | 2000
|                      |                                             |                            |   |            |            |     
|Non-interest income:  |                                             |                            |   |            |            |      |   |            |            |  |   |           
|                      | Fees, commissions, service and other income |                            | $ | 14,226,149 |            |      | $ | 8,555,396  |            |  | $ | 8,680,395  |           
|                      |                                             |                            |   |            |            |      |   |            |            |  |   |           
|                      |                                             | Total non-interest income  |   |            | 14,226,149 |      |   |            | 8,555,396  |  |   |            | 8,680,395  | 
|                      |                                             |                            |   |            |            |      |   |            |            |  |   |           
|Non-interest expense: |                                             |                            |   |            |            |      |   |            |            |  |   |           
|                      | Salaries and employee benefits              |                            | $ | 5,225,298  |            |      | $ | 3,409,387  |            |  | $ | 2,914,733  |           
|                      | Commissions to agents                       |                            |   | 22,567,294 |            |      |   | 11,679,399 |            |  |   | 11,203,916 |           
|                      | Other operating and underwriting expenses   |                            |   | 4,213,688  |            |      |   | 8,051,512  |            |  |   | 2,574,206  |           
|                      |                                             |                            |   |            |            |      |   |            |            |  |   |           
|                      |                                             | Total non-interest expense |   |            | 32,006,280 |      |   |            | 23,140,298 |  |   |            | 16,692,855 | 
|                      |                                             |                            |   |            |            |      |   |            |            |  |   |           
|                      |                                             | Net non-interest expense   |   | $          | 17,780,131 |      |   | $          | 14,584,902 |  |   | $          | 8,012,460  | 
|                      |                                             |                            |   |            |            |      |   |            |            |  |   |           

Fees, commissions, service and other income
consist primarily of commission earned by the Consolidated
Groups broker/dealer subsidiary, MIS, and service fees
earned by Summits property development subsidiary, Summit
Property Development, Inc. MIS and Summit Property Development,
Inc. earned approximately $10.9 million, $7.8 million
and $8.1 million in commissions (after eliminating
commissions received by MIS from Summit), during the fiscal
years ended September 30, 2002, 2001 and 2000,
respectively. The $3.1 million increase during 2002
resulted primarily from a $2.4 million increase in
commissions earned by MIS as a result of an increase in the
sales of the securities of Metropolitan and a $2.4 million
increase in property development consulting fees charged to
Metropolitan. These increases were partially offset by a
$1.6 million reduction in other MIS sales activity.
Additionally, non-interest income increased in 2002 as a result
of a $1.8 million increase in late charge fees related to
commercial lending activity.

Metropolitan provides servicing, accounting, data
processing and other administrative services to the Consolidated
Group. During the year ended September 30, 2001, the
Consolidated Group entered into an agreement with Metropolitan
to change the calculation of the service fee and administrative
charges to a cost sharing arrangement from a fixed and
calculated fee arrangement. Expenses allocated to the
Consolidated Group were approximately $7.1 million,
$5.8 million and $0.9 million during the fiscal years
ended September 30, 2002, 2001 and 2000, respectively.
Management believes that the fixed and calculated fee
arrangement that the Consolidated Group had been operating under
prior to the fiscal year ended September 30, 2001 did not
result in a reimbursement to Metropolitan of all significant
direct expenses incurred on the Consolidated Groups behalf.

The $6.4 million increase in non-interest
expense during the fiscal year ended September 30, 2001,
was primarily due to the $4.9 million increase in expense
allocation from Metropolitan. Additionally, MIS commission
expenses increased by approximately $0.8 million due to an
increase in its sales activity.

20



---



##### Table of Contents



The $8.9 million increase in non-interest
expense during the fiscal year ended September 30, 2002,
was primarily due to a $4.1 million increase in commissions
paid on new annuity production, net of ceding allowances paid to
Western Life, a $2.4 million increase in commissions paid
on Summit Property Development consulting fees, a
$1.3 million increase in expense allocation from
Metropolitan, a $0.7 million increase in loan servicing
fees, and a $0.4 million increase in MIS commission expenses due
to an increase in its sales activity.

Amortization of Deferred Costs, Net of Costs
Capitalized (DPAC)

Amortization of deferred costs, net of costs
capitalized, is comprised of the capitalization of expenses
incurred to sell and underwrite annuity policies, offset by the
amortization of previously capitalized expenses. The following
table reflects the components of the net expense reported by the
Consolidated Group for the last three fiscal years.

|                                     |  |      |            |      |  |      |            |   |  |   |            |  
|------------------------------------ |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                     |  | 2002 |            | 2001 |  | 2000
|                                     |  |      |            |      |  |     
|Current year costs capitalized       |  | $    | 7,771,527  |      |  | $    | 3,520,312  |   |  | $ | 4,393,485  |  
|Amortization of capitalized expenses |  |      | (4,200,000 | )    |  |      | (2,122,000 | ) |  |   | (2,870,000 | )
|                                     |  |      |            |      |  |      |            |   |  |   |            |  
|Net expense                          |  | $    | 3,571,527  |      |  | $    | 1,398,312  |   |  | $ | 1,523,485  |  
|                                     |  |      |            |      |  |      |            |   |  |   |            |  

While the capitalization of current year costs is
dependent upon actual expenses (commissions and other) incurred,
the amortization of capitalized costs is dependent upon the net
investment yields (after default costs and related investment
expenses) obtained by Old Standard and Old West, policy
crediting rates, and the policy termination experience, which is
actuarially determined. DPAC is also impacted by the assumptions
for these variables expected in future years. During the fiscal
year ended September 30, 2001, the Consolidated Group
revised its amortization assumptions of the DPAC to reflect the
higher yields that Old Standard and Old West realized on their
commercial real estate loan portfolio. This revision resulted in
a DPAC amortization unlocking of approximately $1.6 million.

Net Gains (Losses) on Investments and
Receivables

The following table presents the components of
net gains (losses) on investments and Receivables during
the years ended September 30, 2002, 2001 and 2000:

|                                                      |                        |      |            |            |   |      |            |            |   |   |           |          |  
|----------------------------------------------------- | ---------------------- | ---- | ---------- | ---------- | - | ---- | ---------- | ---------- | - | - | --------- | -------- | -
|                                                      |                        | 2002 |            | 2001       |   | 2000
|                                                      |                        |      |            |            |   |     
|Other than temporary declines in value:               |                        |      |            |            |   |      |            |            |   |   |           |         
|                                                      | Equity securities      |      | $          | (2,961,078 | ) |      | $          | (650,426   | ) |   | $         |         |  
|                                                      | Other securities       |      |            | (1,313,875 | ) |      |            | (2,578,492 | ) |   |           |         |  
|Realized gains (losses):                              |                        |      |            |            |   |      |            |            |   |   |           |         
|                                                      | Securities investments |      |            | 1,088,702  |   |      |            | (1,458,169 | ) |   |           | (530,806 | )
|                                                      | Receivables            |      |            | 271,588    |   |      |            | 58,232     |   |   |           | 395,134  |  
|Realized gains (losses) on trading securities         |                        |      | 563,840    |            |   |      | (58,316    | )          |   |   | 4,037,933 |         
|                                                      |                        |      |            |            |   |      |            |            |   |   |           |         
|Net gains (losses) on investments and
    receivables |                        | $    | (2,350,823 | )          |   | $    | (4,687,171 | )          |   | $ | 3,902,261 |         
|                                                      |                        |      |            |            |   |      |            |            |   |   |           |         

During the fiscal years ended September 30,
2002 and 2001, changes in the Consolidated Groups
investment strategy affected the classification of trading
securities as they no longer qualified as investments held
principally for the purpose of selling them in the near term.
Accordingly, the Consolidated Group reclassified approximately
$16.6 million and $4.7 million from trading to
available-for-sale during the fiscal years ended
September 30, 2002 and 2001, respectively. At
September 30, 2002, the Consolidated Group did not have an
active trading portfolio.

21



---



##### Table of Contents



The mark to market gains on the trading
securities during the fiscal year ended September 30, 2000,
were primarily from investments that the Consolidated Group had
made in certain limited partnership interests. The limited
partnerships generally invest in both publicly and privately
traded small and micro capitalization equity securities. During
the fiscal year ended September 30, 2000, the value of the
equity securities increased, thereby increasing the value of the
Consolidated Groups investment. Since 2000, the equity
securities have decreased in value. As a result of the transfer
from trading to available-for-sale, the reduction in value is
reported as other than temporary impairments in the value of
equity securities. The decline in value has primarily been the
result of an overall decline in the value of stocks traded on
the NASDAQ. At September 30, 2002, the Consolidated Group
had an equity investment portfolio (including venture capital
investments) of approximately $12.7 million.

During the fiscal year ended September 30,
2002 and 2001, the Consolidated Group reported approximately
$1.3 million and $2.6 million respectively, in other
than temporary impairments on its fixed income portfolio. The
impairments were primarily due to a deterioration in the
underlying collateral of some asset-backed securities.
Additionally, during the fiscal years ended September 30,
2001 and 2000, the Consolidated Group sold some asset-backed
securities at a loss due to the deterioration of the underlying
collateral.

Financial Condition

The following depicts the distribution of the
Consolidated Groups assets as a percentage of total assets
as of September 30, 2002:

Distribution of Assets as a Percentage of
Total Assets

(PIE CHART)

Receivables Collateralized by Real
Estate

Current Mix of Receivable Investment
Holdings

The Consolidated Groups investments in
Receivables include Receivables collateralized by first or
junior real estate liens, primarily on commercial and
single-family residential properties. The stated yields on
Commercial Loans are higher than the yields on Receivables
collateralized by single-family residential property because the
market and credit risks are lower for the mortgages
collateralized by single-family residential property and there
are less competitors with commercial real estate financing
capabilities. However, investments in Commercial Loans are less
diversified because the principal amount of a Commercial Loan is
generally greater than the principal amount of a residential
mortgage or other Receivable.

Management continually monitors economic and
demographic conditions throughout the country in an effort to
avoid a concentration of its acquired real estate Receivables in
those areas experiencing economic decline, which could result in
higher than anticipated default rates and subsequent investment
losses.

22



---



##### Table of Contents



The following depicts the distribution of the
Consolidated Groups real estate Receivables by collateral
type and security position as of September 30, 2002:

Receivables by Collateral Type

(PIE CHART)

Receivables by Security Position

PIE CHART

The Consolidated Groups real estate
Receivables at September 30, 2002 were collateralized by
properties located throughout the United States as follows:

|                  |  |            |        |             |  |  |        |  
|----------------- |  | ---------- | ------ | ----------- |  |  | ------ | -
|                  |  | Commercial |        | Residential
|                  |  | Originated |        | and Other  
|                  |  |            |        |            
|Pacific Southwest |  |            | 48.08  | %           |  |  | 30.66  | %
|Southwest         |  |            | 19.63  | %           |  |  | 17.44  | %
|Pacific Northwest |  |            | 15.87  | %           |  |  | 29.43  | %
|Southeast         |  |            | 10.50  | %           |  |  | 12.70  | %
|Northeast         |  |            | 3.72   | %           |  |  | 5.46   | %
|Midwest           |  |            | 2.20   | %           |  |  | 4.31   | %
|                  |  |            |        |             |  |  |        |  
|                  |  |            | 100.00 | %           |  |  | 100.00 | %
|                  |  |            |        |             |  |  |        |  

23



---



##### Table of Contents



At September 30, 2002, the Consolidated
Group held contracts and mortgage notes Receivables with face
values as follows:

|                                                                                                      |  |             |             |            |  |                |            |          |  |  |      |   |  |  |      |  
|----------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | ---------- |  | -------------- | ---------- | -------- |  |  | ---- | - |  |  | ---- | -
|                                                                                                      |  | Carrying    |             | Delinquent |  | Weighted       |            | Weighted
|                                                                                                      |  | Amount of   |             | Principal  |  | Average Coupon |            | Average 
|Description                                                                                           |  | Receivables |             | Amount(2)  |  | Rate(3)        |            | Yield(4)
|                                                                                                      |  |             |             |            |  |                |            |         
|Commercial(1)                                                                                         |  | $           | 221,246,934 |            |  | $              | 62,679,596 |          |  |  | 13.0 | % |  |  | 15.3 | %
|Residential                                                                                           |  |             | 20,184,476  |            |  |                | 810,869    |          |  |  | 8.2  | % |  |  | 10.5 | %
|Other                                                                                                 |  |             | 10,942,493  |            |  |                | 494,165    |          |  |  | 9.7  | % |  |  | 11.7 | %
|Unrealized discounts, net of unamortized
    acquisition cost, on Receivables purchased at a discount |  |             | (1,083,404  | )          |  |                |            |          |  |  |      |   |  |  |      |  
|Accrued interest receivable                                                                           |  |             | 13,532,104  |            |  |                |            |          |  |  |      |   |  |  |      |  
|                                                                                                      |  |             |             |            |  |                |            |          |  |  |      |   |  |  |      |  
|CARRYING VALUE                                                                                        |  | $           | 264,822,603 |            |  | $              | 63,984,630 |          |  |  |      |   |  |  |      |  
|                                                                                                      |  |             |             |            |  |                |            |          |  |  |      |   |  |  |      |  



---



|    |                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The commercial real estate Receivables are
    defined as those generated through the Consolidated Groups
    commercial lending source.                 
|   
|(2) | The principal amounts of real estate Receivables
    subject to delinquent principal or interest is defined as being
    in arrears for more than 90 days.
|   
|(3) | Less than 1% of the real estate Receivables are
    subject to variable interest rates.                                                                   
|   
|(4) | See RECEIVABLE INVESTMENTSYield and
    Discount Considerations under Item 1.                                                                          

The future maturities of the aggregate amounts of
Commercial Loans (face amount) at September 30, 2002 are as
follows:

|                                      |  |            |             | 
|------------------------------------- |  | ---------- | ----------- | 
|                                      |  | Commercial
|                                      |  | Principal 
|                                      |  |           
|Due in one year or less               |  | $          | 88,209,447  | 
|Due after one year through five years |  |            | 74,520,413  | 
|Due after five years                  |  |            | 58,517,074  | 
|                                      |  |            |             | 
|                                      |  | $          | 221,246,934 | 
|                                      |  |            |             | 

At September 30, 2001, the Consolidated
Group held contracts and mortgage notes Receivables with face
values as follows:

|                                                                                                      |  |             |             |            |  |                |            |          |  |  |      |   |  |  |      |  
|----------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | ---------- |  | -------------- | ---------- | -------- |  |  | ---- | - |  |  | ---- | -
|                                                                                                      |  | Carrying    |             | Delinquent |  | Weighted       |            | Weighted
|                                                                                                      |  | Amount of   |             | Principal  |  | Average Coupon |            | Average 
|Description                                                                                           |  | Receivables |             | Amount(2)  |  | Rate(3)        |            | Yield(4)
|                                                                                                      |  |             |             |            |  |                |            |         
|Commercial(1)                                                                                         |  | $           | 187,859,448 |            |  | $              | 32,162,791 |          |  |  | 13.3 | % |  |  | 14.7 | %
|Residential                                                                                           |  |             | 19,407,841  |            |  |                | 1,098,402  |          |  |  | 9.0  | % |  |  | 11.2 | %
|Other                                                                                                 |  |             | 9,464,495   |            |  |                | 756,727    |          |  |  | 8.6  | % |  |  | 11.9 | %
|Unrealized discounts, net of unamortized
    acquisition cost, on Receivables purchased at a discount |  |             | (4,766,368  | )          |  |                |            |          |  |  |      |   |  |  |      |  
|Accrued interest receivable                                                                           |  |             | 8,316,276   |            |  |                |            |          |  |  |      |   |  |  |      |  
|                                                                                                      |  |             |             |            |  |                |            |          |  |  |      |   |  |  |      |  
|CARRYING VALUE                                                                                        |  | $           | 220,281,692 |            |  | $              | 34,017,920 |          |  |  |      |   |  |  |      |  
|                                                                                                      |  |             |             |            |  |                |            |          |  |  |      |   |  |  |      |  



---



|    |                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The commercial real estate Receivables are
    defined as those generated through the Consolidated Groups
    commercial lending source.                 
|   
|(2) | The principal amounts of real estate Receivables
    subject to delinquent principal or interest is defined as being
    in arrears for more than 90 days.
|   
|(3) | Less than 1% of the real estate Receivables are
    subject to variable interest rates.                                                                   
|   
|(4) | See RECEIVABLE INVESTMENTS Yield and
    Discount Considerations under Item 1.                                                                         

24



---



##### Table of Contents



The future maturities of the aggregate amounts of
Commercial Loans (face amount) at September 30, 2001 are as
follows:

|                                      |  |            |             | 
|------------------------------------- |  | ---------- | ----------- | 
|                                      |  | Commercial
|                                      |  | Principal 
|                                      |  |           
|Due in one year or less               |  | $          | 81,733,926  | 
|Due after one year through five years |  |            | 104,391,318 | 
|Due after five years                  |  |            | 1,734,204   | 
|                                      |  |            |             | 
|                                      |  | $          | 187,859,448 | 
|                                      |  |            |             | 

Securities Investments

At September 30, 2002 and 2001, 95% and 86%,
respectively, of the Consolidated Groups securities,
excluding stock investment in affiliated companies, were held by
its insurance subsidiaries.

The following table outlines the nature and
carrying value of securities investments held by the
Consolidated Group at September 30, 2002:

|                                     |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |       |  
|------------------------------------ | ------------------------------------ | -------------- | ----------- | ----------- |  | ----- | --------- | ---------- |  | - | ----------- | ----------- |  |  | ------ | ----- | -
|                                     |                                      |                |             | Held-to-    |  |       |           |           
|                                     |                                      | Available-For- |             | Maturity    |  |       |           |           
|                                     |                                      | Sale Portfolio |             | Portfolio   |  | Total |           | Percentage
|                                     |                                      |                |             |             |  |       |           |           
|Total Amount                         |                                      | $              | 163,500,373 |             |  | $     | 5,883,021 |            |  | $ | 169,383,394 |             |  |  | 100.00 | %    
|                                     |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      
|Invested in:                         |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      
|                                     | Fixed Income                         |                | $           | 150,831,826 |  |       | $         | 5,883,021  |  |   | $           | 156,714,847 |  |  |        | 92.52 | %
|                                     | Equities                             |                |             | 11,858,548  |  |       |           |           |  |   |             | 11,858,548  |  |  |        | 7.00  |  
|                                     | Venture Capital/ Limited Partnership |                |             | 809,999     |  |       |           | 0          |  |   |             | 809,999     |  |  |        | 0.48  |  
|                                     |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      
|                                     |                                      | $              | 163,500,373 |             |  | $     | 5,883,021 |            |  | $ | 169,383,394 |             |  |  | 100.00 | %    
|                                     |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      
|Fixed Income:                        |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      
|                                     | US Government                        |                | $           | 1,156,406   |  |       | $         |           |  |   | $           | 1,156,406   |  |  |        | 0.74  | %
|                                     | Other                                |                |             | 149,675,420 |  |       |           | 5,883,021  |  |   |             | 155,558,441 |  |  |        | 99.26 |  
|                                     |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      
|                                     |                                      | $              | 150,831,826 |             |  | $     | 5,883,021 |            |  | $ | 156,714,847 |             |  |  | 100.00 | %    
|                                     |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      
|Other Fixed Income by Rating:        |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      
|                                     | AAA                                  |                | $           | 101,687,346 |  |       | $         | 5,883,021  |  |   | $           | 107,570,367 |  |  |        | 69.16 | %
|                                     | AA                                   |                |             | 6,773,723   |  |       |           |           |  |   |             | 6,773,723   |  |  |        | 4.35  |  
|                                     | A                                    |                |             | 12,328,409  |  |       |           |           |  |   |             | 12,328,409  |  |  |        | 7.93  |  
|                                     | BBB                                  |                |             | 9,672,828   |  |       |           |           |  |   |             | 9,672,828   |  |  |        | 6.22  |  
|                                     | BB                                   |                |             | 12,451,265  |  |       |           |           |  |   |             | 12,451,265  |  |  |        | 8.00  |  
|                                     | B                                    |                |             | 3,054,028   |  |       |           |           |  |   |             | 3,054,028   |  |  |        | 1.96  |  
|                                     | Other                                |                |             | 3,707,821   |  |       |           |           |  |   |             | 3,707,821   |  |  |        | 2.38  |  
|                                     |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      
|                                     |                                      | $              | 149,675,420 |             |  | $     | 5,883,021 |            |  | $ | 155,558,441 |             |  |  | 100.00 | %    
|                                     |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      
|Other Fixed Income by Market Sector: |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      
|                                     | Mortgage- and asset-backed           |                | $           | 147,811,385 |  |       | $         | 5,883,021  |  |   | $           | 153,694,406 |  |  |        | 98.80 | %
|                                     | Finance                              |                |             |            |  |       |           |           |  |   |             |            |  |  |        |      |  
|                                     | Industrial                           |                |             | 1,864,035   |  |       |           |           |  |   |             | 1,864,035   |  |  |        | 1.20  |  
|                                     |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      
|                                     |                                      | $              | 149,675,420 |             |  | $     | 5,883,021 |            |  | $ | 155,558,441 |             |  |  | 100.00 | %    
|                                     |                                      |                |             |             |  |       |           |            |  |   |             |             |  |  |        |      

25



---



##### Table of Contents





| |                                 
| | --------------------------------
| | Unrealized Losses on Investments

Temporary declines in the fair value of
investments that are available-for-sale are excluded
from earnings and presented as accumulated other comprehensive
income or loss, net of related income taxes. The Consolidated
Group continually monitors its investment portfolio for other
than temporary impairments of its securities. When an other than
temporary decline in value below cost or amortized cost is
identified, the investment is reduced to its fair value, which
becomes the new cost basis of the investment. The amount of
reduction is reported as a realized loss in the statement of
operations. In determining whether the losses are temporary or
other than temporary, the Consolidated Group considers
(1) the length of time and extent to which the fair value
has been less than cost or carrying value, (2) the
circumstances contributing to the decline in fair value
(including a change in interest rates or spreads to benchmarks),
(3) recent performance of the security, (4) the
financial strength of the issuer, and (5) the intent and
ability of the Consolidated Group to retain the investment for a
period of time sufficient to allow for anticipated recovery.
Additionally, for asset-backed investments, the Consolidated
Group also considers the credit rating and determines the amount
of credit support available for the security. At
September 30, 2002, the Consolidated Groups
investment portfolio had approximately $0.7 million in
unrealized losses that were deemed to be temporary. To the
extent that any losses currently deemed as temporary are
determined to be other than temporary in the future, the
unrealized losses will be reported as realized losses in future
statements of operations.

The following table stratifies the unrealized
losses as of September 30, 2002 by investment category:

|                                      |                               |                |           |                   |  |   |          |          |  
|------------------------------------- | ----------------------------- | -------------- | --------- | ----------------- |  | - | -------- | -------- | -
|                                      |                               | Carrying Value |           | Unrealized Losses
|                                      |                               |                |           |                  
|Corporate bonds                       |                               | $              | 248,625   |                   |  | $ | (1,375   | )       
|Mortgage- and asset-backed securities |                               |                | 4,764,575 |                   |  |   | (331,946 | )       
|                                      |                               |                |           |                   |  |   |          |         
|                                      | Total fixed income securities |                |           | 5,013,200         |  |   |          | (333,321 | )
|                                      |                               |                |           |                   |  |   |          |         
|Common stock                          |                               |                | 1,851,892 |                   |  |   | (326,804 | )       
|Preferred stock                       |                               |                | 2,511,949 |                   |  |   | (74,909  | )       
|                                      |                               |                |           |                   |  |   |          |         
|                                      | Totals                        |                | $         | 9,377,041         |  |   | $        | (735,034 | )
|                                      |                               |                |           |                   |  |   |          |         

The following table stratifies the unrealized
losses as of September 30, 2002 by credit rating:

|             |        |                |           |                   |  |   |          |          |  
|------------ | ------ | -------------- | --------- | ----------------- |  | - | -------- | -------- | -
|             |        | Carrying Value |           | Unrealized Losses
|             |        |                |           |                  
|AAA          |        | $              | 852,728   |                   |  | $ | (47,969  | )       
|AA           |        |                | 2,588,459 |                   |  |   | (135,677 | )       
|A            |        |                | 2,170,987 |                   |  |   | (132,532 | )       
|BBB          |        |                | 1,056,987 |                   |  |   | (32,819  | )       
|BB           |        |                | 855,988   |                   |  |   | (59,231  | )       
|Common stock |        |                | 1,851,892 |                   |  |   | (326,804 | )       
|             |        |                |           |                   |  |   |          |         
|             | Totals |                | $         | 9,377,041         |  |   | $        | (735,034 | )
|             |        |                |           |                   |  |   |          |         

Unrealized losses relating to the investment
grade assets (BBB and higher) are generally due to changes in
interest rates which may include changes in spreads to
benchmarks for a particular sector of the market. To the extent
that unrealized losses in the Consolidated Groups
investment grade portfolio are the result of issues other than
interest rate changes, the investments are evaluated for other
than temporary impairment. At September 30, 2002,
approximately $0.2 million in unrealized losses in the
Consolidated Groups investment grade assets and
approximately $0.1 million in non-investment grade assets
were due to investments in airline-related asset-backed
securities. In determining whether these losses were temporary
or other than temporary, the Consolidated Group considered
(1) recent performance of the security, (2) the credit
rating of the security, (3) the amount of credit support
available for the security, (4) circumstances contributing
to the decline in value, (5) the length of time and extent
to which the fair value has been less than cost or carrying
value, and (6) the intent and ability of the Consolidated
Group to retain the investment for a period of time sufficient
to allow for anticipated recovery.

26



---



##### Table of Contents



The following table stratifies the unrealized
losses as of September 30, 2002 by trading class:

|           |        |                |           |                   |  |   |          |          |  
|---------- | ------ | -------------- | --------- | ----------------- |  | - | -------- | -------- | -
|           |        | Carrying Value |           | Unrealized Losses
|           |        |                |           |                  
|Traded     |        | $              | 9,377,041 |                   |  | $ | (735,034 | )       
|Non-Traded |        |                |          |                   |  |   |         |         
|           |        |                |           |                   |  |   |          |         
|           | Totals |                | $         | 9,377,041         |  |   | $        | (735,034 | )
|           |        |                |           |                   |  |   |          |         

The following table stratifies the unrealized
losses as of September 30, 2002 by length of time the
securities have continuously been in an unrealized loss position:

|                         |                      |                |             |                   |           |           |  |          |          |         |  
|------------------------ | -------------------- | -------------- | ----------- | ----------------- | --------- | --------- |  | -------- | -------- | ------- | -
|                         |                      | Carrying Value |             | Unrealized Losses
|                         |                      |                |             |                  
|Fixed Income Securities: |                      |                |             |                   |           |           |  |         
|                         | Investment Grade     |                |             |                   |           |           |  |          |         
|                         |                      |                | 0- 6 months |                   | $         | 1,830,776 |  |          | $        | (89,770 | )
|                         |                      | 13-18 months   |             |                   | 2,326,436 |           |  |          | (184,319 | )      
|                         | Non-Investment Grade |                |             |                   |           |           |  |          |         
|                         |                      |                | 0- 6 months |                   |           | 248,625   |  |          |          | (1,375  | )
|                         |                      |                | 7-12 months |                   |           | 237,950   |  |          |          | (15,475 | )
|                         |                      | 13-18 months   |             |                   | 369,413   |           |  |          | (42,382  | )      
|Preferred Stock:         |                      |                |             |                   |           |           |  |         
|                         | 0-6 months           |                |             | 2,511,949         |           |           |  | (74,909  | )       
|Common Stock:            |                      |                |             |                   |           |           |  |         
|                         | 0-6 months           |                |             | 1,851,892         |           |           |  | (326,804 | )       
|                         |                      |                |             |                   |           |           |  |         
|                         |                      | Total          |             | $                 | 9,377,041 |           |  | $        | (735,034 | )      
|                         |                      |                |             |                   |           |           |  |         

The maturities of fixed income investments that
are in an unrealized loss position at September 30, 2002
are as follows:

|                                     |                                                |                |           |                   |  |   |          |          |  
|------------------------------------ | ---------------------------------------------- | -------------- | --------- | ----------------- |  | - | -------- | -------- | -
|                                     |                                                | Carrying Value |           | Unrealized Losses
|                                     |                                                |                |           |                  
|Due in one year through five years   |                                                | $              | 248,625   |                   |  | $ | (1,375   | )       
|                                     |                                                |                |           |                   |  |   |          |         
|                                     | Total non-mortgage-and-asset-backed securities |                |           | 248,625           |  |   |          | (1,375   | )
|Mortgage-and-asset-backed securities |                                                |                | 4,764,575 |                   |  |   | (331,946 | )       
|                                     |                                                |                |           |                   |  |   |          |         
|                                     | Total fixed income securities                  |                | $         | 5,013,200         |  |   | $        | (333,321 | )
|                                     |                                                |                |           |                   |  |   |          |         

The Consolidated Group is authorized by their
respective investment policies to use financial futures
instruments for the purpose of hedging interest rate risk
relative to the securities portfolio or potential trading
situations. In both cases, the futures transaction is intended
to reduce the risk associated with price movements for a balance
sheet asset. Securities may be sold short (the sale
of securities which are not currently in the portfolio and
therefore must be purchased to close out the sale agreement) as
another means of hedging interest rate risk, to benefit from an
anticipated movement in the financial markets. At
September 30, 2002, the Consolidated Group had no
outstanding hedge transactions or open short sales positions.
See Market Risk Management.

Other Receivables

In conjunction with Metropolitan, the
Consolidated Group also negotiates the purchase of Receivables
that are not collateralized by real estate, such as structured
settlements, annuities and lottery prizes. The lottery prizes
generally arise out of state operated lottery games that are
typically paid in annual installments to the prize winner. The
structured settlements generally arise out of the settlement of
legal disputes whereby the prevailing party is awarded a sum of
money, payable over a period of time, generally through the
creation of an annuity. Other annuities generally consist of
investments that cannot be immediately converted to cash

27



---



##### Table of Contents



directly with the issuing insurance company.
Metropolitans source for these investments is generally
private brokers who specialize in these types of Receivables.


The following table outlines the nature and
carrying value of other Receivables held by the Consolidated
Group at September 30, 2002:

|             |                                   |          |            |            |  |  |        |       |  
|------------ | --------------------------------- | -------- | ---------- | ---------- |  |  | ------ | ----- | -
|             |                                   | Carrying |            |           
|             |                                   | Value    |            | Percentage
|             |                                   |          |            |           
|Invested in: |                                   |          |            |            |  |  |        |      
|             | Lotteries                         |          | $          | 50,864,993 |  |  |        | 56.48 | %
|             | Annuities/ Structured settlements |          |            | 22,526,786 |  |  |        | 25.01 |  
|             | Notes receivable                  |          |            | 14,525,601 |  |  |        | 16.13 |  
|             | Financing leases                  |          |            | 1,231,175  |  |  |        | 1.37  |  
|             | Other                             |          |            | 911,702    |  |  |        | 1.01  |  
|             |                                   |          |            |            |  |  |        |      
|             |                                   | $        | 90,060,257 |            |  |  | 100.00 | %    
|             |                                   |          |            |            |  |  |        |      

Real Estate Held for Sale and
Development

From time to time, the Consolidated Group
acquires development properties through foreclosures or direct
purchases from third parties. The development or improvement of
properties is undertaken for the purpose of enhancing values to
increase marketability and to maximize profit potential.

Development properties

The following development properties exceeded 5%
of the Consolidated Groups stockholders equity at
September 30, 2002.

|                     |  |          |           | 
|-------------------- |  | -------- | --------- | 
|                     |  | Carrying
|Property Description |  | Value   
|                     |  |         
|Grand Hills, Nevada  |  | $        | 6,982,904 | 
|PuyallupNIC         |  |          | 2,396,391 | 



| |            
| | -----------
| | Grand Hills

Grand Hills is legally described as Seven Hills
Parcel I, in a large PUD development in Henderson, Nevada.
There are 20 acres in this parcel, platted into 31 lots.
The Consolidated Group has entered into a rolling option
agreement with a local developer for all of the lots.



| |         
| | --------
| | Puyallup

Puyallup consists of 6.42 acres of commercial
property adjacent to the Southwest Regional Shopping Mall
located in Puyallup, Washington. The Consolidated Group has been
actively marketing this property and it is currently under
contract for sale.



| |              
| | -------------
| | Repossessions

In the course of its real estate Receivable
investment activity, the Consolidated Group acquires various
parcels of real estate as a result of foreclosures and/or
voluntary repossessions. It is the Consolidated Groups
general policy to attempt to resell these properties at the
earliest possible time following acquisition. Improvements may
be made to some properties for the purpose of preservation or
restoration to maximize the resale price. The marketing status
of all properties is reviewed at least monthly by a committee
that includes both sales personnel and management. Generally,
repossessed properties are resold within one year from the date
of repossession and losses are reported as a component of
provision for losses on real estate held for sale.

28



---



##### Table of Contents



The following table presents specific information
about the Consolidated Groups repossessed properties with
carrying values greater than 5% of stockholders equity at
September 30, 2002.

|                                                   |  |                    |            | 
|-------------------------------------------------- |  | ------------------ | ---------- | 
|                                                   |  | Carrying Value    
|Property                                           |  | September 30, 2002
|                                                   |  |                   
|Commercial land, California                        |  | $                  | 11,025,505 | 
|Family amusement center, Virginia                  |  |                    | 3,610,977  | 
|House, Arizona                                     |  |                    | 3,008,000  | 
|Residential land, Connecticut                      |  |                    | 2,951,196  | 
|Large manufacturing facility, Mississippi          |  |                    | 2,504,335  | 
|Residential land, Oregon                           |  |                    | 2,347,019  | 
|Residential development and commercial land, Texas |  |                    | 2,044,970  | 
|Commercial land, Texas                             |  |                    | 1,912,305  | 

The following is a summary of the changes in real
estate held for sale and development for the years ended
September 30, 2002, 2001 and 2000.

|                               |                                 |                          |            |            |  |      |           |           |  |   |           |           | 
|------------------------------ | ------------------------------- | ------------------------ | ---------- | ---------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                               |                                 |                         
|                               |                                 | Year Ended September 30,
|                               |                                 |                         
|                               |                                 | 2002                     |            | 2001       |  | 2000
|                               |                                 |                          |            |            |  |     
|Balance at beginning of period |                                 | $                        | 9,590,563  |            |  | $    | 5,033,370 |           |  | $ | 3,532,386 |          
|Additions during period:       |                                 |                          |            |            |  |      |           |           |  |   |           |          
|                               | Purchases and development costs |                          |            | 12,783,639 |  |      |           | 1,430,832 |  |   |           | 1,071,894 | 
|                               | Foreclosures                    |                          |            | 32,203,490 |  |      |           | 5,578,951 |  |   |           | 6,992,626 | 
|                               |                                 |                          |            |            |  |      |           |           |  |   |           |          
|Total additions                |                                 |                          | 44,987,129 |            |  |      | 7,009,783 |           |  |   | 8,064,520 |          
|                               |                                 |                          |            |            |  |      |           |           |  |   |           |          
|Deductions during period:      |                                 |                          |            |            |  |      |           |           |  |   |           |          
|                               | Real estate sold                |                          |            | 6,303,841  |  |      |           | 2,452,590 |  |   |           | 6,563,536 | 
|                               |                                 |                          |            |            |  |      |           |           |  |   |           |          
|Total deductions               |                                 |                          | 6,303,841  |            |  |      | 2,452,590 |           |  |   | 6,563,536 |          
|                               |                                 |                          |            |            |  |      |           |           |  |   |           |          
|Balance at end of period       |                                 | $                        | 48,273,851 |            |  | $    | 9,590,563 |           |  | $ | 5,033,370 |          
|                               |                                 |                          |            |            |  |      |           |           |  |   |           |          

Asset Quality

Servicing, Collection and Delinquency
Experience

Prior to April 2001, Metwest performed the
servicing and collection functions related to the Consolidated
Groups Receivable portfolio in accordance with an
established servicing agreement.

In April 2001, as a result of Metropolitans
decision to stop performing loan servicing operations, the
Consolidated Group participated with Metropolitan and some of
Metropolitans affiliates in a transaction with a
wholly-owned subsidiary of Ocwen Financial Corporation
(NYSE: OCN), where the servicing rights to Receivables and
foreclosed properties held for sale were transferred to Ocwen.
In October 2001, the Consolidated Group entered into a
subservicing agreement, whereby Ocwen will provide servicing for
the majority of the remaining Receivable portfolio in addition
to the Consolidated Groups future acquisitions of new
Receivables. As the servicer for the Consolidated Group, Ocwen
is responsible for all servicing related functions ranging from
payment processing to the liquidation of property acquired as a
result of foreclosure. Moodys Investor Service, Inc.
(Moodys) assigned its highest rating, SQ1, to
Ocwen as a Primary Servicer of subprime loans and as a Specialty
Servicer. Ocwen carries a level 2 Fitch servicer rating.
According to Fitch, level 2 servicers have demonstrated
high performance in all relevant categories. Standard &
Poors (S&P) has assigned its Strong
Residential Subprime and Residential Special Servicer rankings
to Ocwen. S&P has also assigned an Above Average Residential
Alternative Servicer ranking to Ocwen for subordinate lien
products. Ocwens primary business is the servicing and
special servicing of nonconforming and subprime residential and
commercial mortgage loans. Ocwen also specializes in the related
development of loan servicing technology and software for the
mortgage and real estate industries. As of September 30,
2002,

29



---



##### Table of Contents



Ocwen serviced approximately 57% of the
Consolidated Groups Receivable portfolio. The remaining
43% was serviced by Metwest.


The principal amount of the Consolidated
Groups Commercial Loans (as a percentage of total
outstanding Commercial Loans) that were in arrears for more than
90 days as of the following dates were as follows:

|                   |  |            |             |            |  |            |            |  |  |  |       |  
|------------------ |  | ---------- | ----------- | ---------- |  | ---------- | ---------- |  |  |  | ----- | -
|                   |  | Total      |             | Commercial |  |           
|                   |  | Commercial |             | Loans in   |  | Percentage
|                   |  | Loans      |             | Arrears    |  | in Arrears
|                   |  |            |             |            |  |           
|September 30, 2002 |  | $          | 221,246,934 |            |  | $          | 62,679,596 |  |  |  | 28.33 | %
|September 30, 2001 |  | $          | 187,859,448 |            |  | $          | 32,162,791 |  |  |  | 17.12 | %
|September 30, 2000 |  | $          | 135,417,003 |            |  | $          | 9,946,047  |  |  |  | 7.34  | %

In addition to the amounts included in the table
above at September 30, 2002, there were approximately
$7.8 million in additional delinquent loans that the
Consolidated Group had serious doubts that the borrowers had the
ability to comply with present loan repayment terms, and
therefore may become 90 days delinquent. As of
September 30, 2002, these loans accounted for 3.5% of the
total outstanding Commercial Loans, but were not included in the
table above because they were less than 90 days delinquent.

When a payment becomes delinquent on a Commercial
Loan, either Ocwens or the Consolidated Groups
collection unit (depending on which entity is acting as
servicer) will begin making collection calls immediately. If the
defaulted payment is not received by the next payment due date,
a notice of default is sent to the borrower and the account is
assigned to a Consolidated Group workout manager according to
property type, size of loan and complexity of transaction. The
workout manager will review the file and related documentation
and attempt to contact the borrower to negotiate with the
borrower to cure the default. If, upon the expiration of the
notice of default, the default is not cured, foreclosure is
begun immediately by counsel. Concurrent with the notice of
default period and the foreclosure process, the assigned workout
manager will continue to contact and attempt to negotiate a full
reinstatement with the borrower. During this same period, the
workout manager will also develop a workout program and make
recommendations to the Consolidated Groups Problem Loan
Review Committee for approval. As a part of formulating this
workout plan, the workout manager will typically visit the
collateral property, talk with local experts and make an
assessment of the condition of the collateral and its
marketability in the event of a potential foreclosure. The final
workout plan is presented to the Problem Loan Review Committee
with all relevant information regarding contact with the
borrower, condition and marketability of collateral and an
assessment of the likelihood of default cure or recovery of the
loan balance if the default continues through foreclosure. Any
actions undertaken by the workout manager with the borrower that
would result in other than full reinstatement are subject to
prior approval by the Problem Loan Review Committee.

The Problem Loan Review Committee is composed of
representatives from underwriting, risk management, operations,
commercial lending, legal and property development. The
committee meets weekly and reviews all newly defaulted loans,
continuing defaulted loans, loans in foreclosure, loans in
bankruptcy and progress on approved workout plans.

The principal amount of the Consolidated
Groups residential and other Receivables collateralized by
real estate (as a percentage of total residential and other
Receivables collateralized by real estate) that were in arrears
for more than 90 days as of the following dates were as
follows:

|                   |  |                    |            |                   |  |            |           |  |  |  |      |  
|------------------ |  | ------------------ | ---------- | ----------------- |  | ---------- | --------- |  |  |  | ---- | -
|                   |  |                    |            | Residential and   |  |           
|                   |  | Total Residential  |            | Other Real Estate |  |           
|                   |  | and Other Real     |            | Receivables in    |  | Percentage
|                   |  | Estate Receivables |            | Arrears           |  | in Arrears
|                   |  |                    |            |                   |  |           
|September 30, 2002 |  | $                  | 31,126,969 |                   |  | $          | 1,305,034 |  |  |  | 4.19 | %
|September 30, 2001 |  | $                  | 28,872,336 |                   |  | $          | 1,855,129 |  |  |  | 6.43 | %
|September 30, 2000 |  | $                  | 30,687,423 |                   |  | $          | 2,272,168 |  |  |  | 7.40 | %

30



---



##### Table of Contents



The carrying values of the Consolidated
Groups other Receivable investments (as a percentage of
total other Receivable investments) that were in arrears for
more than 90 days as of the following dates were as follows:

|                   |  |             |            |                   |  |            |            |  |  |  |       |  
|------------------ |  | ----------- | ---------- | ----------------- |  | ---------- | ---------- |  |  |  | ----- | -
|                   |  | Total Other |            | Other Receivables |  | Percentage
|                   |  | Receivables |            | in Arrears        |  | in Arrears
|                   |  |             |            |                   |  |           
|September 30, 2002 |  | $           | 90,060,257 |                   |  | $          | 16,581,374 |  |  |  | 18.41 | %
|September 30, 2001 |  | $           | 44,317,237 |                   |  | $          | 16,700,000 |  |  |  | 37.68 | %
|September 30, 2000 |  | $           | 49,721,958 |                   |  | $          | 2,738,993  |  |  |  | 5.51  | %

The increase in delinquency at September 30,
2001 is primarily attributable to a Receivable, the Koa Timber
Project, secured by harvest timber rights. The Koa Timber
Project is located in the District of South Hilo, Island and
County of Hawaii, State of Hawaii. The Koa Timber Project
consists of approximately 16,924 acres of natural forest
containing a very unique timber commonly referred to as Koa
timber. Koa timber is a unique hardwood utilized in the
manufacturing of specialty wood products. Generally, the end
uses of Koa timber are for custom architectural millwork, custom
furniture and millwork, musical instruments, veneer products,
and art and craft items that generally demand a higher market
price than comparable specialty wood products of a similar
nature.

Old Standard and Summit are finance lenders and
mortgagees for the underlying real property containing the Koa
timber. In addition, Summit is also the owner of, and holds the
right to harvest, the Koa timber. Summit entered into a Timber
Harvesting Agreement with Hawaii Forest Preservation LLC
(HFP), a Hawaii limited liability company who has
substantial experience in harvesting Koa timber.

Under the Timber Harvesting Agreement, Summit
granted the right to harvest the Koa timber owned by Summit to
HFP, and Summit is to receive certain scheduled monthly
payments. Under the terms of the Timber Harvesting Agreement,
HFP is currently in default for amounts due to Summit under the
Timber Harvesting Agreement. As of September 30, 2002, the
total amount of the default, together with late charges, was
approximately $6.5 million. In August of 2001, Summit filed
litigation against HFP and related parties in the State of
Hawaii where Summit seeks recovery of amounts due under the
Timber Harvesting Agreement. Until substantive discovery is
completed, it is not possible for Summit to estimate either the
probability of success in the litigation or a range of possible
loss, if any.

Provision and Allowance for Losses on
Receivables

Changes in the allowance for losses on
Receivables were as follows:

|                                                |                                         |      |           |          |   |      |           |            |   |   |           |          |  
|----------------------------------------------- | --------------------------------------- | ---- | --------- | -------- | - | ---- | --------- | ---------- | - | - | --------- | -------- | -
|                                                |                                         | 2002 |           | 2001     |   | 2000
|                                                |                                         |      |           |          |   |     
|Beginning balance                               |                                         | $    | 5,146,119 |          |   | $    | 6,512,642 |            |   | $ | 3,082,918 |         
|Provisions                                      |                                         |      | 939,905   |          |   |      | 687,218   |            |   |   | 3,886,086 |         
|Charge offs:                                    |                                         |      |           |          |   |      |           |            |   |   |           |         
|                                                | Commercial Loans                        |      |           | (925,385 | ) |      |           | (1,685,424 | ) |   |           |         |  
|                                                | Residential and other real estate loans |      |           | (292,572 | ) |      |           | (228,116   | ) |   |           | (440,612 | )
|                                                | Other receivable investments            |      |           | (152,578 | ) |      |           | (140,201   | ) |   |           | (15,750  | )
|                                                |                                         |      |           |          |   |      |           |            |   |   |           |         
|Ending balance                                  |                                         | $    | 4,715,489 |          |   | $    | 5,146,119 |            |   | $ | 6,512,642 |         
|                                                |                                         |      |           |          |   |      |           |            |   |   |           |         
|Charge offs as a percent of average Receivables |                                         |      | 0.45      | %        |   |      | 0.86      | %          |   |   | 0.25      | %       
|Allowance as a percentage of total Receivables  |                                         |      | 1.38      | %        |   |      | 1.97      | %          |   |   | 3.02      | %       

31



---



##### Table of Contents



An analysis of the allowance for losses on
Receivables was as follows:

|                                        |  |                   |           |            |  |                 |      |   |  |  |        |  
|--------------------------------------- |  | ----------------- | --------- | ---------- |  | --------------- | ---- | - |  |  | ------ | -
|                                        |  |                   |           | Allocated  |  |                
|                                        |  |                   |           | Allowance  |  |                
|                                        |  | Allocated         |           | as a % of  |  | Loan Category  
|                                        |  | Allowance for     |           | Receivable |  | as a % of Total
|                                        |  | Receivable Losses |           | Category   |  | Receivables    
|                                        |  |                   |           |            |  |                
|2002                                    |  |                   |           |            |  |                 |      |   |  |  |        |  
|Commercial Loans                        |  | $                 | 3,501,078 |            |  |                 | 1.58 | % |  |  | 64.61  | %
|Residential and other real estate loans |  |                   | 328,672   |            |  |                 | 1.06 | % |  |  | 9.09   | %
|Other receivable investments            |  |                   | 325,548   |            |  |                 | 0.36 | % |  |  | 26.30  | %
|Unallocated                             |  |                   | 560,191   |            |  |                 | 0.22 | % |  |  | 0.00   | %
|                                        |  |                   |           |            |  |                 |      |   |  |  |        |  
|                                        |  | $                 | 4,715,489 |            |  |                 | 1.38 | % |  |  | 100.00 | %
|                                        |  |                   |           |            |  |                 |      |   |  |  |        |  
|2001                                    |  |                   |           |            |  |                 |      |   |  |  |        |  
|Commercial Loans                        |  | $                 | 2,994,182 |            |  |                 | 1.59 | % |  |  | 71.96  | %
|Residential and other real estate loans |  |                   | 610,427   |            |  |                 | 2.11 | % |  |  | 11.06  | %
|Other receivable investments            |  |                   | 1,021,017 |            |  |                 | 2.30 | % |  |  | 16.98  | %
|Unallocated                             |  |                   | 520,493   |            |  |                 | 0.24 | % |  |  | 0.00   | %
|                                        |  |                   |           |            |  |                 |      |   |  |  |        |  
|                                        |  | $                 | 5,146,119 |            |  |                 | 1.97 | % |  |  | 100.00 | %
|                                        |  |                   |           |            |  |                 |      |   |  |  |        |  
|2000                                    |  |                   |           |            |  |                 |      |   |  |  |        |  
|Commercial Loans                        |  | $                 | 4,249,540 |            |  |                 | 3.14 | % |  |  | 62.74  | %
|Residential and other real estate loans |  |                   | 721,222   |            |  |                 | 2.35 | % |  |  | 14.22  | %
|Other receivable investments            |  |                   | 1,149,297 |            |  |                 | 2.31 | % |  |  | 23.04  | %
|Unallocated                             |  |                   | 392,583   |            |  |                 | 0.24 | % |  |  | 0.00   | %
|                                        |  |                   |           |            |  |                 |      |   |  |  |        |  
|                                        |  | $                 | 6,512,642 |            |  |                 | 3.02 | % |  |  | 100.00 | %
|                                        |  |                   |           |            |  |                 |      |   |  |  |        |  

The allowance for losses on Receivables
represents managements estimate of credit losses inherent
in the portfolios as of the balance sheet dates. Management
performs regular reviews in order to identify these inherent
losses and to assess the overall collection probability of the
portfolios. This process provides an allowance that consists of
two components: allocated and unallocated. To arrive at the
allocated component, the Consolidated Group combines estimates
of the allowance needed for loans that are evaluated
collectively and those that are evaluated individually.

Commercial Loans are individually monitored for
impairment. When a loan has been identified as impaired, the
Consolidated Group determines the allowance for loss based on
the estimated fair market value, less estimated liquidation
expenses, of the collateral compared to the carrying value of
the Receivable, including accrued interest. The estimated fair
value is based on the most recent appraisal of the collateral.
If the most recent appraisal is more than one year old, a new
appraisal is ordered. In the interim, estimated fair value is
established through a review of the most recent appraisal in
addition to a review of other relevant market information. When
reviewing the most recent appraisal, management considers
several factors. Some of those factors include the type of
property, changes in regional economic factors, the underlying
appraisal assumptions, and any recent communication with local
real estate brokers. If the estimated fair market value of the
collateral is less than the carrying value, including accrued
interest, an allowance for loss is recorded. Fluctuations in the
provision for losses and/or percentage of allowance to
outstanding principal result from using the specific impairment
methodology.

The Consolidated Group established an allowance
for losses on residential and other real estate Receivables,
including accrued interest, inherent in the portfolio at the
balance sheet date based primarily on current delinquencies and
historical foreclosure and loss experience. The residential and
other Receivable portfolio is comprised of a large group of
smaller-balance homogeneous loans that are collectively
evaluated for impairment. The reduction in loan loss provisions
and the ending balance as a percent of outstanding

32



---



##### Table of Contents



residential and other real estate backed
Receivables in fiscal 2002 was primarily due to portfolio
seasoning that has resulted in a reduction in 90 day
delinquencies. The 90-day delinquency rate was 4.19%, 6.43%, and
7.40% at September 30, 2002, 2001 and 2000, respectively.


During the fiscal year ended September 30,
2000, the Consolidated Group established an allowance for losses
on its investments in annuities and structured settlements as
the industry began to focus on state and federal collection laws
and their applicability to annuity and structured settlement
payments.

The reduction in ending allocated allowance
balances for other Receivable investments during the fiscal year
ended September 30, 2002 was due to a positive change in
the federal tax law effecting structured settlement transfers
and the consequential cooperation by certain annuity issuers
with respect to the payment of defaulted, and in some cases
current, structured settlements.

In estimating the amount of credit losses
inherent in the Receivable portfolios, management utilizes
various judgments and assumptions. For Receivables that are
collateral-dependent, the estimated fair market value of the
collateral may deviate significantly from the proceeds received
when the collateral is sold. To mitigate the imprecision
inherent in most estimates of expected credit losses, the
allocated component of the allowance is supplemented by an
unallocated component. The unallocated component reflects
managements judgmental assessment of the impact that
various quantitative factors have on the overall measurement of
credit losses.

Allowance for Losses on Real Estate Held for
Sale

The following table summarizes changes in the
Consolidated Groups allowance for losses on real estate
held for sale:

|                        |  |      |            |      |  |      |           |   |  |   |          |  
|----------------------- |  | ---- | ---------- | ---- |  | ---- | --------- | - |  | - | -------- | -
|                        |  | 2002 |            | 2001 |  | 2000
|                        |  |      |            |      |  |     
|Beginning Balance       |  | $    | 2,626,303  |      |  | $    | 242,602   |   |  | $ | 878,102  |  
|Provisions (Recoveries) |  |      | 1,364,100  |      |  |      | 2,398,619 |   |  |   | (429,930 | )
|Charge-Offs             |  |      | (1,674,310 | )    |  |      | (14,918   | ) |  |   | (205,570 | )
|                        |  |      |            |      |  |      |           |   |  |   |          |  
|Ending Balance          |  | $    | 2,316,093  |      |  | $    | 2,626,303 |   |  | $ | 242,602  |  
|                        |  |      |            |      |  |      |           |   |  |   |          |  

Real estate held for sale is periodically
evaluated for impairment. Loss provisions for real estate held
for sale are calculated as the difference between the estimated
net realizable value and the carrying value at the measurement
date. Any loss on liquidation or subsequent reduction in the
carrying value is charged to operations through provision for
losses.

The increase in loss provisions during the fiscal
years ended September 30, 2002 and 2001 was primarily due
to additional funds that the Consolidated Group expended
subsequent to repossessing property collateralizing a Commercial
Loan. The collateral was a residential lot development in the
Northeast. Due to a combination of poor weather conditions and
improper road construction techniques employed by the borrower,
an access road washed out into a nearby wetland and protected
creek. Under guidance from the State Department of Environmental
Protection Agency and local municipalities, the Consolidated
Group cleaned out the wetland and completed the necessary road
construction in order to secure the permits needed to sell the
developed lots. The expenses, which did not add value to the
development, resulted in significant provisions during the
fiscal years ended September 30, 2002 and 2001. The charge
offs in 2002 represent the loss recognized upon the disposition
of some of the lots. At September 30, 2002, the
Consolidated Group has approximately $1.8 million remaining
in reserves on this property, which management believes is
adequate to protect the Consolidated Group from additional
losses.

Market Risk Management

Market risk is defined as the sensitivity of
income and capital to changes in interest rates, equity prices
and other market variables. Market risk is managed within an
overall asset/ liability management framework.

33



---



##### Table of Contents



The Consolidated Groups Asset/ Liability
Committee is responsible for reviewing and administering its
asset/ liability management positions.


Interest rates.Management continually monitors the
interest sensitive income and expense of the Consolidated Group.
Interest sensitive expense is predominantly related to annuity
benefits, and the interest costs of certificates and
collateralized borrowings, while interest sensitive income
includes interest, earned discounts and other income from the
Receivable and investment portfolio. Substantially all of the
Consolidated Groups interest rate risk arises from
instruments, positions and transactions entered into for
purposes other than trading. They include loans, securities,
annuity deposits and long-term debt. Increases or decreases in
interest rates can cause changes in net income and fluctuations
in the fair market value of interest sensitive assets and
liabilities.

Equity prices.The
Consolidated Groups investments in equity securities
expose it to changes in equity prices. It manages this risk on
an integrated basis with other risks through its asset/
liability management strategies. The Consolidated Group also
manages equity price risk through industry and issuer
diversification and asset allocation techniques.

Fair value analysis.As with the impact on operations from
changes in interest rates, the Consolidated Groups fair
market value of financial assets and liabilities is subject to
fluctuations in interest rates. The Consolidated Group monitors
the sensitivity of net interest income and fair market value to
changes in interest rates.

The following table presents, as of
September 30, 2002, the Consolidated Groups estimated
effects of hypothetical increases and decreases in interest
rates on assets and liabilities that are subject to interest
rate risk. It is assumed that the changes occur immediately and
uniformly to each category of instrument containing interest
rate risks. The hypothetical changes in market interest rates do
not reflect what could be deemed best or worst case scenarios.
Variations in market interest rates could produce significant
changes in the timing of repayments due to prepayment options
available. For these reasons, actual results will most likely
differ from those reflected in the table that follows.

|                       |                              |                                          |         |         |         |                                             |         |          |         |          |         |          |         |   |         |         |         |   |         |         |         |   |         |         |         | 
|---------------------- | ---------------------------- | ---------------------------------------- | ------- | ------- | ------- | ------------------------------------------- | ------- | -------- | ------- | -------- | ------- | -------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                       |                              |                                          |         |         |         |                                            
|                       |                              |                                          |         |         |         | Fair Market Value With Interest Rate Change
|                       |                              |                                          |         | Fair    |         |                                            
|                       |                              | Carrying                                 |         | Market  |         | Decrease                                    |         | Decrease |         | Increase |         | Increase
|                       |                              | Amounts                                  |         | Value   |         | 1%                                          |         | 2%       |         | 1%       |         | 2%      
|                       |                              |                                          |         |         |         |                                             |         |          |         |          |         |         
|                       |                              |                                         
|                       |                              | (Dollars in Thousands)                  
|Financial Assets:      |                              |                                          |         |         |         |                                             |         |          |         |          |         |          |         |   |         |         |         |   |         |         |         |   |         |        
|                       | Cash and cash equivalents    |                                          | $       | 30,725  |         |                                             | $       | 30,725   |         |          | $       | 30,725   |         |   | $       | 30,725  |         |   | $       | 30,725  |         |   | $       | 30,725  |        
|                       | Investments:                 |                                          |         |         |         |                                             |         |          |         |          |         |          |         |   |         |         |         |   |         |         |         |   |         |         |        
|                       |                              | Affiliated companies                     |         |         | 3,022   |                                             |         |          | 3,022   |          |         |          | 3,022   |   |         |         | 3,022   |   |         |         | 3,022   |   |         |         | 3,022   | 
|                       |                              | Available-for-sale                       |         |         | 163,500 |                                             |         |          | 163,500 |          |         |          | 167,662 |   |         |         | 172,049 |   |         |         | 159,545 |   |         |         | 155,788 | 
|                       |                              | Held-to-maturity                         |         |         | 5,883   |                                             |         |          | 6,089   |          |         |          | 6,265   |   |         |         | 6,450   |   |         |         | 5,922   |   |         |         | 5,763   | 
|                       |                              | Real estate contracts and mortgage notes |         |         | 251,290 |                                             |         |          | 253,947 |          |         |          | 254,053 |   |         |         | 254,160 |   |         |         | 253,841 |   |         |         | 253,736 | 
|                       |                              | Other receivable investments             |         |         | 90,060  |                                             |         |          | 95,029  |          |         |          | 98,542  |   |         |         | 102,254 |   |         |         | 91,703  |   |         |         | 88,552  | 
|                       |                              |                                          |         |         |         |                                             |         |          |         |          |         |          |         |   |         |         |         |   |         |         |         |   |         |        
|                       |                              | $                                        | 544,480 |         |         | $                                           | 552,312 |          |         | $        | 560,269 |          |         | $ | 568,660 |         |         | $ | 544,758 |         |         | $ | 537,586 |        
|                       |                              |                                          |         |         |         |                                             |         |          |         |          |         |          |         |   |         |         |         |   |         |         |         |   |         |        
|Financial Liabilities: |                              |                                          |         |         |         |                                             |         |          |         |          |         |          |         |   |         |         |         |   |         |         |         |   |         |        
|                       | Annuity reserves             |                                          | $       | 420,285 |         |                                             | $       | 425,820  |         |          | $       | 435,804  |         |   | $       | 446,161 |         |   | $       | 416,193 |         |   | $       | 406,907 |        
|                       | Investment certificates      |                                          |         | 112,242 |         |                                             |         | 112,856  |         |          |         | 114,447  |         |   |         | 116,076 |         |   |         | 111,303 |         |   |         | 109,786 |        
|                       | Debt payable                 |                                          |         | 40,869  |         |                                             |         | 40,899   |         |          |         | 41,848   |         |   |         | 42,862  |         |   |         | 40,009  |         |   |         | 39,176  |        
|                       | Commitments to extend credit |                                          |         | 10,094  |         |                                             |         | 10,094   |         |          |         | 10,094   |         |   |         | 10,094  |         |   |         | 10,094  |         |   |         | 10,094  |        
|                       |                              |                                          |         |         |         |                                             |         |          |         |          |         |          |         |   |         |         |         |   |         |         |         |   |         |        
|                       |                              | $                                        | 583,490 |         |         | $                                           | 589,669 |          |         | $        | 602,193 |          |         | $ | 615,193 |         |         | $ | 577,599 |         |         | $ | 565,963 |        
|                       |                              |                                          |         |         |         |                                             |         |          |         |          |         |          |         |   |         |         |         |   |         |         |         |   |         |        

Gap Analysis.A
conventional view of interest rate sensitivity for financial
institutions is the gap report, which indicates the difference
between assets maturing or repricing within a period and total
liabilities maturing or repricing within the same period. In
assigning assets to maturity and repricing categories, the

34



---



##### Table of Contents



Consolidated Group takes into consideration
expected prepayment speeds and contractual maturities. The
balances reflect estimated amortization of principal and do not
take into consideration reinvestment of cash. Principal
prepayments are the amounts of principal reduction over and
above normal amortization. The Consolidated Group has used
prepayment assumptions based on market estimates and past
experience with its current portfolio. In assigning liabilities
to maturity and repricing categories, the Consolidated Group
takes into consideration expected annuity policy lapse rates
based on past experience. Non-rate sensitive items such as the
allowance for loan losses and deferred loan fees/ costs are not
included in the table.


The gap information is limited by the fact that
it is a point-in-time analysis. The data reflects conditions and
assumptions as of September 30, 2002. These conditions and
assumptions may not be appropriate at another point in time.
Consequently, the interpretation of the gap information is
subjective.

|                                                                      |                                                         |                                        |       |             |  |           |       |            |  |       |        |       |  |   |       |       |  |   |        |       | 
|--------------------------------------------------------------------- | ------------------------------------------------------- | -------------------------------------- | ----- | ----------- |  | --------- | ----- | ---------- |  | ----- | ------ | ----- |  | - | ----- | ----- |  | - | ------ | ----- | 
|                                                                      |                                                         |                                       
|                                                                      |                                                         | September 30, 2002 Projected Repricing
|                                                                      |                                                         |                                       
|                                                                      |                                                         | 0-3 months                             |       | 4-12 months |  | 1-5 years |       | Thereafter |  | Total
|                                                                      |                                                         |                                        |       |             |  |           |       |            |  |      
|                                                                      |                                                         |                                       
|                                                                      |                                                         | (dollars in millions)                 
|Interest-Sensitive Assets                                             |                                                         |                                        |       |             |  |           |       |            |  |       |        |       |  |   |       |       |  |   |        |      
|                                                                      | Cash                                                    |                                        | $     | 30.7        |  |           | $     |           |  |       | $      |      |  |   | $     |      |  |   | $      | 30.7  | 
|                                                                      | Real estate contracts and mortgage notes
    receivable |                                        |       | 41.0        |  |           |       | 58.0       |  |       |        | 84.4  |  |   |       | 81.4  |  |   |        | 264.8 | 
|                                                                      | Securities investments                                  |                                        |       | 7.6         |  |           |       | 18.6       |  |       |        | 69.7  |  |   |       | 62.2  |  |   |        | 158.1 | 
|                                                                      | Other                                                   |                                        |       | 4.3         |  |           |       | 11.7       |  |       |        | 56.9  |  |   |       | 33.3  |  |   |        | 106.2 | 
|                                                                      |                                                         |                                        |       |             |  |           |       |            |  |       |        |       |  |   |       |       |  |   |        |      
|                                                                      | Total interest-sensitive assets                         |                                        |       | 83.6        |  |           |       | 88.3       |  |       |        | 211.0 |  |   |       | 176.9 |  |   |        | 559.8 | 
|                                                                      |                                                         |                                        |       |             |  |           |       |            |  |       |        |       |  |   |       |       |  |   |        |      
|Interest-Sensitive Liabilities                                        |                                                         |                                        |       |             |  |           |       |            |  |       |        |       |  |   |       |       |  |   |        |      
|                                                                      | Life and annuity reserves                               |                                        |       | 13.1        |  |           |       | 27.3       |  |       |        | 242.5 |  |   |       | 137.4 |  |   |        | 420.3 | 
|                                                                      | Investment certificates                                 |                                        |       | 1.3         |  |           |       | 12.3       |  |       |        | 93.7  |  |   |       | 6.4   |  |   |        | 113.7 | 
|                                                                      | Debt payable                                            |                                        |       | 11.7        |  |           |       | 11.1       |  |       |        | 5.2   |  |   |       | 12.9  |  |   |        | 40.9  | 
|                                                                      |                                                         |                                        |       |             |  |           |       |            |  |       |        |       |  |   |       |       |  |   |        |      
|                                                                      | Total interest-sensitive liabilities                    |                                        |       | 26.1        |  |           |       | 50.7       |  |       |        | 341.4 |  |   |       | 156.7 |  |   |        | 574.9 | 
|                                                                      |                                                         |                                        |       |             |  |           |       |            |  |       |        |       |  |   |       |       |  |   |        |      
|Repricing gap                                                         |                                                         | $                                      | 57.5  |             |  | $         | 37.6  |            |  | $     | (130.4 | )     |  | $ | 20.2  |       |  | $ | (15.1  | )    
|                                                                      |                                                         |                                        |       |             |  |           |       |            |  |       |        |       |  |   |       |       |  |   |        |      
|Cumulative gap                                                        |                                                         | $                                      | 57.5  |             |  | $         | 95.1  |            |  | $     | (35.3  | )     |  | $ | (15.1 | )     |  | $ | (15.1  | )    
|                                                                      |                                                         |                                        |       |             |  |           |       |            |  |       |        |       |  |   |       |       |  |   |        |      
|Cumulative gap as a percentage of total interest
    sensitive assets |                                                         |                                        | 10.27 | %           |  |           | 16.99 | %          |  |       | -6.31  | %     |  |   | -2.70 | %     |  |   | - 2.70 | %    
|                                                                      | Total interest sensitive assets                         |                                        |       |             |  |           |       |            |  |       |        |       |  |   |       |       |  |   | $      | 559.8 | 
|                                                                      |                                                         |                                        |       |             |  |           |       |            |  |       |        |       |  |   |       |       |  |   |        |      

In the next 12 months, the Consolidated
Groups Gap Analysis indicates a positive gap, meaning that
its interest-sensitive assets are expected to reprice before its
interest sensitive liabilities. In a rising interest rate
environment, the net interest income will tend to increase which
will have a positive impact on results of operations.
Conversely, in a falling interest rate environment, the net
interest income will tend to decrease which will have a negative
impact on results of operations.

After the next year, the Consolidated
Groups Gap Analysis indicates a negative gap, meaning that
its interest-sensitive liabilities are expected to reprice
before its interest-sensitive assets. In a rising interest rate
environment, the net interest income will tend to decrease which
will have a negative impact on results of operations.
Conversely, in a falling interest rate environment, the net
interest income will tend to increase which will have a positive
impact on results of operations.

The Consolidated Groups asset base is
comprised partially of Commercial Loans. Commercial Loans make
up approximately 40% of the interest-sensitive assets as of
September 30, 2002. These assets tend to be short-term in
nature (weighted average maturity is approximately
14 months). These assets contribute to the transition from
a positive gap to a negative gap in the 1-5 year time
period. The Consolidated Group intends to continue to invest in
Commercial Loans. This, along with the management of the
interest sensitive liability

35



---



##### Table of Contents



portfolio, should enable the Consolidated Group
to effectively monitor and control its interest-rate sensitivity
over time.


Liquidity and Capital Resources

The objective of liquidity management is to
provide funds at an acceptable cost to service liabilities as
they become due and to meet demands for additional Commercial
Loans and Receivable purchases. Managing liquidity also enables
the Consolidated Group to take advantage of opportunities for
business expansion. The Consolidated Group finances its business
operations and growth primarily through the sale of annuity
products, the sale of debt securities and preferred stock and a
secured line of credit agreement in addition to the maturity of
the current Receivable portfolio.

The annuity business is highly competitive. Old
Standard and Old West compete with other financial institutions,
including ones with greater resources and greater name
recognition. Annuity yields and commissions to agents are
particularly sensitive to competitive forces. Additionally,
management believes that the primary competitive factors among
life insurance companies for investment-oriented insurance
products, like annuities, include product flexibility, net
return after fees, innovation in product design, the
claims-paying ability rating and the name recognition of the
issuing company, the availability of distribution channels and
service rendered to the customer before and after a policy is
issued. Other factors affecting the annuity business include the
benefits, including before-tax and after tax investment returns,
and guarantees provided to the customer and the commissions paid
to the agent. If the Consolidated Group is unable to effectively
price its annuities, offer competitive commissions and
effectively compete in general for the sale of its annuity
products, its liquidity could be adversely affected.

The States of Idaho and Arizonas Risk Based
Capital Model Laws require an insurance company to maintain
specified amounts of capital and surplus based on complex
calculations of risk factors that encompass the invested assets
and business activities of the insurance company. Compliance
with the Risk-Based Capital Model Law requirements is tested
annually as of a calendar year-end. At the last annual review at
their statutory reporting period ended December 31, 2001, the
Consolidated Groups insurance subsidiaries capital
and surplus levels exceeded the calculated specified
requirements. Historically, Old Standard and Old West have
maintained adequate levels of capital through the sale of common
stock to Summit. To the extent that Summit does not maintain
adequate levels of liquidity permitting it to make further
capital investments in its insurance subsidiaries, Old Standard
and Old Wests ability to generate capital could be
adversely affected, which in turn could negatively affect their
ability to increase their investments in higher risk-adjusted
assets such as Commercial Loans, real estate and equity
investments.

Old Standard has a secured line of credit
agreement with the Federal Home Loan Bank of Seattle
(FHLB). When an institution becomes a stockholder in
the FHLB, it can borrow from the FHLB at a stock to borrowing
ratio of 1 to 20. At September 30, 2002, Old Standard
had a stock investment in the FHLB of approximately
$1.1 million. The collateral eligible to be used to secure
the borrowing is predefined by the FHLB and generally consists
of high quality collateralized mortgage obligations. Each type
of collateral has a minimum requirement that ranges from 100% to
125% of borrowings. At September 30, 2002, Old Standard had
$50.4 million in eligible collateral with a market value of
$52.3 million and had a borrowing potential of
$35.7 million, subject to the purchase of additional stock.
Approximately $28.8 million in securities having a market
value of $42.1 million were pledged to collateralize the
outstanding borrowings to FHLB at September 30, 2002. At
September 30, 2002, Old Standard had approximately
$27.5 million in outstanding borrowings leaving an unused
borrowing potential of approximately $8.2 million, subject
to the purchase of additional stock. During the year ended
September 30, 2002, Old Standards outstanding
borrowings on the secured line of credit increased
$27.5 million. This increase accounted for approximately
18.4% of the Consolidated Groups net cash provided by
financing activities. In order to increase the unused borrowing
potential, Old Standard would be required to purchase
approximately $0.8 million in additional FHLB stock.

Old Standard has an annuity reinsurance agreement
with Western Life, which became effective July 1, 1998.
Under this agreement, Western Life may reinsure with Old
Standard 75% of the risk on 15 different annuity products. The
premiums ceded to Old Standard during the fiscal year ended
September 30, 2002,

36



---



##### Table of Contents



2001 and 2000 were approximately
$56.5 million, $0.6 million and $27.4 million,
respectively. Old Standard paid Western Life ceding allowances
equal to actual commission plus 1.5% of the premium, which was
approximately $3.3 million, $0.1 million and
$1.5 million during the fiscal years ended
September 30, 2002, 2001 and 2000, respectively. These
ceding allowances are paid by Old Standard to compensate Western
Life for its annuity issuance costs. Old Standard also pays a
fee to Western Life for servicing the reinsured policies of
approximately 0.40% annually on the cash value of the reinsured
policies.


Summit engages in public offerings of debt
securities and preferred stock. These investments are typically
offered to the public on a continuous best efforts basis through
MIS. At September 30, 2002, Summit had registered for sale
up to $50.0 million of Series B and B-1 Investment
Certificates. This investment certificate registration expires
January 31, 2003. Additionally, Summit had registered for
sale up to 500,000 shares of Series S-3 preferred stock
that carry a $100.00 issue price for a total preferred stock
offering price of $50.0 million. This preferred stock
registration expires January 31, 2003. On April 8,
2002, Summits board of directors declared a 4:1 stock
split for the Series S-3 preferred stock effective
May 5, 2002. Accordingly, the par value of each share of
stock was adjusted from $10.00 per share to $2.50 per share.

Another source of liquidity is derived from
payments received on Receivables and the sale of real estate. A
decrease in the prepayment rate on Receivables or in the ability
to sell real estate would reduce future cash flows from
Receivables. Additionally, to increase liquidity, the
Consolidated Group may occasionally sell securities to a
broker-dealer under the provision that the Consolidated Group
will buy them back by a predetermined date for a specific price,
often called a reverse repurchase agreement. At
September 30, 2002, the Consolidated Group had no
outstanding reverse repurchase agreements.

While there are no specific regulatory
limitations imposed by Idaho or Arizona on the percent of assets
that Old Standard or Old West may invest in Receivables
collateralized by real estate, management monitors and manages
the percent of statutory assets that Old Standard or Old West
holds in Receivables collateralized by real estate. Old Standard
and Old Wests ability to sell available-for-sale
investments for liquidity purposes is partially affected by this
internally regulated policy. Management may restrict the selling
of non-real estate related assets if, after the sale, Old
Standard or Old Wests real estate assets would exceed
acceptable levels of statutory assets.

For statutory purposes, Old Standard and Old West
perform cash flow testing under seven different rate scenarios.
An annual opinion regarding the adequacy of the cash flow
testing is filed with the insurance departments in the states
where Old Standard and Old West are licensed as an insurance
company. At the last annual review at its statutory reporting
period ended December 31, 2001, the results of this cash
flow testing process were satisfactory.

The following table summarizes the Consolidated
Groups maturity schedule for its current outstanding debt
security obligations (principal and interest), credit lines and
other debt payable and anticipated annual cash dividend
requirements on outstanding preferred stock for the periods
indicated:

|                   |  |                        |         |             |  |              |        |       |  |   |        |  |  |   |         | 
|------------------ |  | ---------------------- | ------- | ----------- |  | ------------ | ------ | ----- |  | - | ------ |  |  | - | ------- | 
|                   |  | Investment             |         | Lines/Other |  | Preferred    |        |      
|Fiscal Year Ending |  | Certificates           |         | Debt        |  | Stock        |        |      
|September 30,      |  | (Debt Securities)      |         | Payable     |  | Dividends(1) |        | Total
|                   |  |                        |         |             |  |              |        |      
|                   |  |                       
|                   |  | (Dollars in Thousands)
|2003               |  | $                      | 19,354  |             |  | $            | 22,192 |       |  | $ | 2,561  |  |  | $ | 44,106  | 
|2004               |  |                        | 22,432  |             |  |              | 1,225  |       |  |   | 2,561  |  |  |   | 26,218  | 
|2005               |  |                        | 36,527  |             |  |              | 1,383  |       |  |   | 2,561  |  |  |   | 40,471  | 
|2006               |  |                        | 24,734  |             |  |              | 1,429  |       |  |   | 2,561  |  |  |   | 28,724  | 
|2007               |  |                        | 31,898  |             |  |              | 1,507  |       |  |   | 2,561  |  |  |   | 35,966  | 
|                   |  |                        |         |             |  |              |        |       |  |   |        |  |  |   |         | 
|                   |  | $                      | 134,945 |             |  | $            | 27,736 |       |  | $ | 12,805 |  |  | $ | 175,486 | 
|                   |  |                        |         |             |  |              |        |       |  |   |        |  |  |   |         | 



| |  | 
| |  | 
| |  | 



| |     |                                                         | 
| | --- | ------------------------------------------------------- | 
| | (1) | Based on an assumed dividend rate per annum of
    7.8% | 

Summit expects to fund the retirement of maturing
debt securities with cash flow generated by Receivable
investments, sales of real estate, the issuance of additional
securities or through reinvested debt

37



---



##### Table of Contents



securities. During the year ended
September 30, 2002, approximately 46% of Summits debt
securities were reinvested at maturity. Principal payments
received from Summits Receivable portfolio and proceeds
from sales of real estate and Receivables were as follows for
the periods indicated (in millions):


|             |  |   |      | 
|------------ |  | - | ---- | 
|Fiscal 2002: |  | $ | 21.9 | 
|Fiscal 2001: |  | $ | 6.6  | 
|Fiscal 2000: |  | $ | 35.8 | 

Additionally, a portion of Old Standard or Old
Wests annuities may re-price annually, which could cause
termination of annuities subject to a surrender charge. In the
event of termination, the expected cash outlays of Old Standard
or Old West will increase. See Market Risk
Management above.

The Consolidated Group had approximately
$10.1 million and $11.6 million of outstanding
commitments to extend credit to commercial borrowers at
September 30, 2002 and 2001, respectively.

During the fiscal year ended September 30,
2002, $396.2 million in funds provided by the Consolidated
Groups various liquidity sources were used to
(1) invest $361.4 million primarily in Receivables and
investments and (2) fund $41.7 million in debt
maturities, annuity product surrenders and payment of dividends.

During the fiscal year ended September 30,
2001, $212.6 million in funds provided by the Consolidated
Groups various liquidity sources were used to
(1) invest $136.6 million primarily in Receivables and
investments and (2) fund $58.6 million in debt
maturities, annuity product surrenders and payment of dividends
and (3) fund $4.0 million in operating activities.

During the fiscal year ended September 30,
2000, $188.5 million in funds provided by the Consolidated
Groups various liquidity sources were used to
(1) invest $164.1 million primarily in Receivables and
investments and (2) fund $42.5 million in debt
maturities, annuity product surrenders and the payment of
dividends.

The Consolidated Group expects to maintain
adequate levels of liquidity in the foreseeable future through
its sale of annuities, securities offerings, its secured line of
credit and the maturing of currently held Receivables.

Management believes that cash flow from financing
activities and liquidity provided from current investments will
be sufficient for the Consolidated Group to conduct its business
and meet its anticipated obligations as they mature during the
fiscal year ending September 30, 2003. Summit has not
defaulted on any of its obligations since its founding in 1990.

New Accounting Rules

In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS
No. 133). SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June
1999 and 2000, Statement of Financial Accounting Standards
No. 137, Accounting for Derivative Instruments and
Hedging ActivitiesDeferral of Effective Date of SFAS
No. 133 (SFAS No. 137) and Statement
of Financial Accounting Standards No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging
Activities an amendment of SFAS No. 133 (SFAS
No. 138) were issued, respectively. SFAS No. 137
amends SFAS No. 133 to become effective for all quarters of
fiscal years beginning after June 15, 2000. The
implementation of SFAS No. 133, as amended, will not have a
material effect on the Consolidated Groups financial
statements. As part of implementing SFAS No. 133 on
October 1, 2000, the Consolidated Group reclassified
approximately $4.6 million of investments from
held-to-maturity to available-for-sale. The unrealized gain on
the date of transfer was $0.1 million.

38



---



##### Table of Contents



In September 2000, the FASB issued Statement of
Financial Accounting Standards No. 140, Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of LiabilitiesA Replacement of FASB
Statement No. 125 (SFAS No. 140).
The implementation of SFAS No. 140 on April 1, 2001
did not have a material impact on the Consolidated Groups
financial statements.

In July 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS 142). SFAS No. 142 will require
discontinuing the amortization of goodwill and other intangible
assets with indefinite useful lives. Instead, these assets will
be tested periodically for impairment and written down to their
fair market values as necessary. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001. The
implementation of this statement on October 1, 2002 did not
have a material impact on the Consolidated Groups
financial statements.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which is effective for fiscal years beginning
after December 15, 2001. SFAS No. 144 addresses
accounting and reporting of long-lived assets, except goodwill,
that are either held and used or disposed of through sale or
other means. The implementation of this new statement on
October 1, 2002 did not have a material impact on the
Consolidated Groups financial statements.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections. This
statement amends FASB Statement No. 13, Accounting for
Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This
statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed
conditions. The provisions of this statement are effective for
financial statements issued on or after May 15, 2002. The
implementation of this statement did not have a material impact
on the Consolidated Groups financial statements.

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which is effective for exit or disposal activities
initiated after December 31, 2002. This statement requires
companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. The provisions of this
statement are effective for exit or disposal activities that are
initiated after December 31, 2002 with early application
encouraged. The Consolidated Group has completed an evaluation
of the effects of this statement and does not believe it will
have a material impact on the Consolidated Groups
financial statements.




Item 7.A. Quantitative And Qualitative
Disclosures About Market Risk

For quantitative and quantitative information
about market risk of the Consolidated Group, see
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONSMarket Risk
Management under Item 7.




Item 8. Financial Statements and
Supplementary Data

The consolidated financial statements and related
financial information required to be filed are attached to this
Report. Reference is made to page F-1 of this Report for an
index to the consolidated financial statements.




Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure

Information called for by Item 304(a) of
Regulation S-K was previously reported by Summit in its
current report on Form 8-K dated June 12, 2001.

39



---



##### Table of Contents






PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

MANAGEMENT

Directors and Executive Officers

(As of September 30, 2002)


|                 |  |     |    |          |  |                                                  
|---------------- |  | --- | -- | -------- |  | -------------------------------------------------
|Name             |  | Age |    | Position
|                 |  |     |    |         
|Tom Turner       |  |     | 52 |          |  | President and Director                           
|Philip Sandifur  |  |     | 31 |          |  | Vice President and Director                      
|Gregory Strate   |  |     | 55 |          |  | Secretary, Treasurer, Vice President and Director
|Robert K. Potter |  |     | 75 |          |  | Director                                         
|James V. Hawkins |  |     | 65 |          |  | Director                                         
|Clayton Rudd     |  |     |    |          |  | Director                                         

All officers are appointed by and serve at the
discretion of the Board of Directors. Directors serve for
one-year terms or until their successor is duly elected and
qualified.

Tom Turner,President and Director. Mr. Turner was elected President on
October 31, 1995. Prior to serving as President, he had
served as Secretary and Treasurer since September 28, 1994.
He has been associated with the Metropolitan Mortgage &
Securities Co., Inc. Consolidated Group since 1985 when he was
hired as a financial analyst. Mr. Turners prior
experience was in the real estate industry where he owned and
managed a real estate franchise. Mr. Turner holds a
Bachelor of Arts in Economics, as well as a Master of Business
Administration from the University of California, Los Angeles.

Philip Sandifur,Vice President and Director. Mr. Sandifur was elected Vice
President on September 24, 1994, and is the son of
C. Paul Sandifur, Jr., who is the controlling
shareholder of both Metropolitan and National Summit Corp., the
parent company of Summit. Mr. Sandifur graduated in 1993
from Santa Clara University, receiving a Bachelor of Arts in
Business. Mr. Sandifur is also President of Jaguar
Ventures, Inc., a wholly owned subsidiary of Summits
parent company, National Summit Corp., where he actively manages
the Consolidated Groups venture capital and equity
investment fund department. In the past, he was active with the
Consolidated Groups commercial lending activities.

Gregory Strate,Secretary, Treasurer, Vice President and Director.
Mr. Strate was became a Vice President of Summit in August
2002. Mr. Strate was elected Secretary, Treasurer and
Director of Summit in 2000. Since August of 1998,
Mr. Strate has worked as a manager for Old Standards
commercial lending division as well as being a member of the
commercial underwriting group. Presently, his position with Old
Standard is Lead Commercial Underwriter. From April of 1978 to
July of 1998, Mr. Strate was the vice president and
Commercial Loan officer of Washington Trust Bank.

Robert K. Potter,Director. Mr. Potter was elected Director of Summit on
March 14, 1995. He is an outside director, not active in
the day-to-day business of Metropolitan or Summit. From 1987 to
present, Mr. Potter has served as President of Jobs Plus,
Inc., a nonprofit corporation formed to diversify and broaden
the economic base of Kootenai County, Idaho. Prior to 1987,
Mr. Potter was employed for approximately 6 months as
Chief Operating Officer of Incomnet Inc., and prior to that he
worked for approximately 30 years with AT&T.

James V. Hawkins,Director. Mr. Hawkins was elected a Director of Summit on
May 1, 2001. He is an outside director, not active in the
day-to-day business of Metropolitan or Summit. Currently,
Mr. Hawkins is a Co-Founder and Managing Partner in
Highway 12 Ventures. From 1996 until 2000, Mr. Hawkins
had been self-employed as an investor in Boise, Idaho. From
January 1987 until July 1, 1996, Mr. Hawkins was
Director of the Department of Commerce for the State of Idaho.
He served under Governor Andrus and Governor Batt. From 1985 to
1987 Mr. Hawkins was self-employed in Boise, Idaho as a
Consultant and prior to that,

40



---



##### Table of Contents



from 1971-1985, he was the President, Chief
Executive Officer and owner of Statewide Auto Supply in Boise,
Idaho.


Clayton Rudd,Director. Mr. Rudd was elected a
director of Summit on April 8, 2002. He is an outside
director, not active in the day-to-day business of Metropolitan
or Summit. Mr. Rudd served as President of Old Standard and
Old West from 1994 through April of 2002. From 1990 to 1994, he
was Vice President of Old Standard. Previously, he had been
employed by Western Life since 1982 in marketing. Prior to that
time, he had worked for twenty years in the insurance industry
in marketing and sales related positions.

Committees of the Board

Audit Committee.The
current members of the Consolidated Groups audit committee
are Messrs. Rudd, Chairman, Hawkins and Potter. The audit
committee makes recommendations concerning the engagement of the
Consolidated Groups independent public accountants,
reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the
independence of the independent public accountants, considers
the range of audit and non-audit fees, reviews the Consolidated
Groups corporate compliance procedures and reviews the
adequacy of the Consolidated Groups internal accounting
controls. The Consolidated Groups Audit Committee met five
times during fiscal 2002.




Item 11. Executive
Compensation

The following table sets forth the aggregate
compensation received by Summits executive officers and
other highly compensated executives during the fiscal years
specified. All other executive officers of Summit received less
than $100,000 in compensation. No executive officer is a party
to, or a participant in, any pension plan, contract or other
arrangement providing for cash or non-cash compensation except
Metropolitans 401(k) plan.

|                            |            |        |      |        |  |             |         |         |  |   |        |        |  |  | 
|--------------------------- | ---------- | ------ | ---- | ------ |  | ----------- | ------- | ------- |  | - | ------ | ------ |  |  | 
|                           
|SUMMARY COMPENSATION TABLE 
|(as of September 30, 2002) 
|                           
|                           
|                            |            | Bonus/ |      |       
|Name and Principal Position |            | Year   |      | Salary |  | Commissions |         |        
|                            |            |        |      |        |  |             |         |        
|                           
|Tom Turner                  |            |        | 2002 |        |  | $           | 160,833 |         |  | $ | 25,000 |        |  | 
|                            | President* |        |      | 2001   |  |             | $       | 150,000 |  |   | $      | 50,000 |  |  | 
|                            |            |        |      | 2000   |  |             | $       | 125,561 |  |   | $      | 50,000 |  |  | 
|                           



---



|  |                                                                                                                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The salary received by Mr. Turner is paid by
    and related to his responsibilities as an employee of
    Metropolitan. Mr. Turner devotes such time as is necessary
    to the business of Summit, and Summit contributes to his salary
    commensurate with the time devoted.

Director Compensation

All directors receive $500 for each meeting
attended. Non-employee directors also receive reimbursement of
travel expenses. There was one meeting of Summits Board of
Directors during fiscal 2002.

Compensation Committee Interlocks and Insider
Participation

Summit does not have a formal compensation
committee of the Board of Directors. Executive officer
compensation is determined by C. Paul Sandifur, Jr., the
controlling shareholder of the holding company of the
Consolidated Group. Mr. Sandifur also determines the
compensation of the executive officers of Metropolitan and
Western Holding and is a director and executive officer of
Metropolitan and Western Holding.

41



---



##### Table of Contents



Option Grants

There are currently no outstanding options to
acquire the Consolidated Groups common stock and no
options have been granted to any of the Consolidated
Groups directors or executive officers during the last
three fiscal years.




Item 12. Security Ownership of
Certain Beneficial Owners and Management

The following table sets forth information as of
December 15, 2002, regarding beneficial ownership of
Summits equity securities by (1) each director of
Summit, (2) Summits President, (3) all directors
and executive officers of Summit as a group, and (4) all
persons known to Summit to be the beneficial owner of 5% or more
of the outstanding voting securities of Summit. As of
December 15, 2002, Summit had 10,000 shares of its common
stock issued and outstanding.

|                                                                      |  |                    |        |                  |  |  |     |  
|--------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  |  | --- | -
|                                                                     
|                                                                     
|                                                                      |  | Shares of          |        |                 
|                                                                      |  | Common Stock       |        |                 
|Name and Address                                                      |  | Beneficially Owned |        | Percent of Class
|                                                                     
|                                                                     
|National Summit Corp.
    601 West First Avenue
    Spokane, WA 99201 |  |                    | 10,000 | (1)              |  |  | 100 | %
|                                                                     
|Tom Turner                                                            |  |                    |       |                  |  |  | 0   | %
|                                                                     
|Philip Sandifur                                                       |  |                    |       |                  |  |  | 0   | %
|                                                                     
|Gregory Strate                                                        |  |                    |       |                  |  |  | 0   | %
|                                                                     
|Robert K. Potter                                                      |  |                    |       |                  |  |  | 0   | %
|                                                                     
|James V. Hawkins                                                      |  |                    |       |                  |  |  | 0   | %
|                                                                     
|All directors and executive officers as a group
    (five persons)    |  |                    |       |                  |  |  | 0   | %
|                                                                     
|C. Paul Sandifur, Jr.
    601 West First Avenue
    Spokane, WA 99201 |  |                    | 10,000 | (1)              |  |  | 100 | %
|                                                                     



---



|    |                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Under the rules of the Securities and Exchange
    Commission, C. Paul Sandifur, Jr. may be deemed indirect
    beneficial owner of the shares owned by National Summit Corp. as
    the owner of all the outstanding common stock of National Summit
    Corp. C. Paul Sandifur, Jr. owns 2,618 shares of common
    stock of National Summit Corp.

As of December 15, 2002, Summit had
1,071,247 shares of preferred stock outstanding, and no officer
or director of Summit beneficially owned any shares of
Summits preferred stock. As of December 15, 2002,
Mr. C. Paul Sandifur, Jr. owned 329 shares of Summits
preferred stock.




Item 13. Certain Relationships and
Related Transactions

CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

Names and Relationship of Parties/ Persons
Involved in Related Party Transactions

Summit was originally organized as a wholly owned
subsidiary of Metropolitan. On September 9, 1994, the
controlling interest in Summit was acquired by National Summit
Corp., a Delaware corporation that is controlled by C. Paul
Sandifur, Jr. Following this sale, Metropolitan has continued to
provide, for a fee, principally all of Summits management
services. Mr. Sandifur holds effective control of
Metropolitan. Prior to the sale, Mr. Sandifur held effective
control of Summit through Metropolitan. Following the sale,
Mr. Sandifur continues to control Summit through National
Summit Corp. Currently, no officer or director of Summit is an
officer or director of Metropolitan.

42



---



##### Table of Contents



Mr. Hawkins, Director of Summit, is a
Co-Founder and Managing Partner in Highway 12 Ventures.
Summit has approximately $150,000 invested in Highway 12
Ventures.

Description of Related Party
Transactions

During the fiscal years ended September 30,
2002, the Consolidated Group had the following transactions with
Metropolitan and its subsidiaries, an affiliated group of
companies.

|                                                                                                                                              |  |      |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | -
|                                                                                                                                              |  | 2002
|                                                                                                                                              |  |     
|Real estate contracts and mortgage notes
    receivable and other receivable investments purchased from
    Metropolitan or affiliates        |  | $    | 51,376,208 |  
|Receivable acquisition fees paid to Metropolitan                                                                                              |  |      | 810,998    |  
|Proceeds from real estate contracts mortgage
    notes receivable and other receivable investments sold to
    Metropolitan or its affiliates |  |      | 1,404,024  |  
|Gains on real estate contracts and mortgage notes
    receivable and other receivable investments sold to Metropolitan
    or its affiliates  |  |      | 79,868     |  
|Proceeds from sales of minority interest
    investment to Metropolitan                                                                       |  |      | 2,325,945  |  
|Gains on sales of minority interest investment to
    Metropolitan                                                                            |  |      | 825,945    |  
|Ceding of annuity premiums from Western Life                                                                                                  |  |      | 56,527,704 |  
|Policyholder benefits reimbursed to Western Life                                                                                              |  |      | 24,884,602 |  
|Annuity servicing fees paid to Western Life                                                                                                   |  |      | 486,541    |  
|Ceding commissions paid to Western Life                                                                                                       |  |      | 3,324,726  |  
|Service fees charged to Metropolitan for property
    development assistance                                                                  |  |      | 3,519,206  |  
|Commissions and service fees charged to
    Metropolitan on sale of Metropolitans debentures and
    preferred stock                         |  |      | 5,408,006  |  
|Administrative service fee paid to Metropolitan                                                                                               |  |      | 5,993,827  |  
|Servicing and collection fees paid to
    Metropolitan affiliate                                                                              |  |      | 1,063,763  |  
|Net change in note receivable from Metropolitan                                                                                               |  |      | (1,206,161 | )
|Net change in notes payable to Metropolitan                                                                                                   |  |      | 2,346,025  |  
|Net interest received (paid) on notes
    receivable from and payable to Metropolitan                                                         |  |      | (736,477   | )
|Dividends received on investment in affiliated
    companies preferred stock                                                                 |  |      | 204,856    |  

At September 30, 2002, the Consolidated
Group had net receivables due from affiliates of
$8.5 million, an outstanding note payable to Metropolitan
of approximately $13.2 million and an outstanding note
receivable from Metropolitan for approximately $3.2 million.

The Consolidated Group is affiliated with the
Metropolitan group of companies through common control by
C. Paul Sandifur, Jr. As a result of these
relationships, conflicts of interests may arise between the
Consolidated Group and the Metropolitan Group relating to the
allocation of investments and other business opportunities among
the affiliated companies. When allocating investment
opportunities among the Consolidated Group and its affiliates,
Metropolitan considers several factors including each
companys availability of cash, regulatory constraints
related to the particular investment, the size of the investment
relative to each companys asset size and other asset/
liability management issues. The final allocation may at times
be subject to Metropolitans management discretion.
Although Metropolitan attempts to maximize the profitability of
each entity, there is no guarantee that the actual allocation of
investments and other business opportunities among the
Consolidated Group and its affiliates will prove to be in the
best interests of all of the affiliated companies. If the
allocation of investments to the Consolidated Group fails to be
in its best interests relative to those of its affiliates, the
Consolidated Groups business could be adversely affected.

The Consolidated Group receives acquisition
services from Metropolitan for a fee pursuant to the terms of a
Management, Receivable Acquisition and Servicing Agreement. The
fee is based upon yield requirements established by Summit, Old
Standard and Old West. Metropolitan charges, as its Receivable
acquisition

43



---



##### Table of Contents



service fee, the difference between the yield
requirement and the yield Metropolitan actually negotiated when
the Receivable was acquired. The agreements are non-exclusive
and may be terminated in whole or part by either party upon
notice.


During the fiscal year ended September 30,
2002, Summit purchased the remaining participation in the
structured settlements that they had acquired from Metropolitan
during the fiscal year ended September 30, 2000. The
purchase price of approximately $4.8 million, which was
derived from future expected cash flows discounted at an 8.5%
market rate, was financed in part by increasing the existing
note payable with Metropolitan.

On March 28, 2002, Old Standard and Old West
agreed to purchase a 69.20% undivided beneficial interest in a
certain Lottery Trust owned by Western Life at a fair value of
approximately $11.2 million. The purchase price was derived
from future expected cash flows discounted at a 6.957% market
rate.

On August 15, 2002, Old Standard and Old
West agreed to purchase the remaining interest in a certain
Lottery Trust owned by Western Life at approximately
$6.2 million. The purchase price was derived from future
expected cash flows discounted at a 5.527% market rate.
Additionally, on August 15, 2002, Old Standard and Old West
agreed to purchase a 95.83% undivided beneficial interest in a
certain Lottery Trust owned by Western Life at a fair value of
approximately $29.1 million. The purchase price was derived
from future expected cash flows discounted at a 5.888% market
rate.

Investment diversification was the primary
purpose for entering into the lottery trust and structured
settlement purchase and sale agreements. The market rates on the
above lottery trust sales were calculated as 2.0% over the
Treasury benchmark as of the date of the sale, which is
consistent with corporate bonds with similar credit profiles
along with recent transactions involving large blocks of lottery
Receivables.

During the fiscal year ended September 30,
2002, Summit agreed to sell their minority investment in
Consumers Group Holding Company, a subsidiary of Metropolitan,
to Metropolitan. The purchase price of approximately $2.3
million, which resulted in a gain of approximately
$0.8 million, was based on an estimated fair value of
Consumers Group Holding of approximately two times the adjusted
book value, discounted to approximately the adjusted book value
due to the minority interest nature of the investment.

Old Standard entered into a reinsurance agreement
with Western Life, which became effective July 1, 1998.
Under this agreement, Western Life may reinsure with Old
Standard 75% of the risk on certain annuity products. The
reinsurance agreement is an ongoing arrangement with no stated
expiration or termination date, although each may stop and
restart at their discretion upon providing a 30-day advance
written notice. Ceding allowances are paid by Old Standard to
compensate Western Life for a portion of its annuity issuance
costs. Western Life also receives a fee from Old Standard for
servicing the reinsured policies of approximately 0.40% annually
on the cash value of the reinsured policies.

Summit Property Development provides real estate
development services to Metropolitan and Western Life for a fee.
These services include sales, marketing, market analysis,
architectural services, design services, subdividing properties
and coordination with regulatory groups to obtain the approvals
which are necessary to develop a particular property.

MIS sells the securities products of
Metropolitan, Western Holding and of Summit. Metropolitan pays
commissions to MIS for the sale of Metropolitans
securities pursuant to the terms of written Selling Agreements.
The commission rate charged by MIS depends on the type of
security sold, its stated term and whether the security sale
involved a reinvestment by a prior investor or a new investment.

The Consolidated Group pays Metwest, an affiliate
of Metropolitan, a fee for providing Receivable servicing.
Additionally, the Consolidated Group pays Metropolitan a fee for
providing accounting, data processing, and other administrative
services. During the year ended September 30, 2001, the
Consolidated Group entered into an agreement with Metropolitan
to change the methodology for allocating the service fee and
administrative charges to a cost sharing arrangement from a
fixed and calculated fee arrangement. Management believes that
the fixed and calculated fee arrangement did not result in a
reimbursement to

44



---



##### Table of Contents



Metropolitan of all significant direct expenses
incurred on behalf of the Consolidated Group. Currently,
management anticipates that Metropolitan will continue to supply
these services in the future.


Metropolitan sponsors a Retirement Savings Plan
(the Plan), authorized under Section 401(k) of
the Tax Reform Act of 1986, as amended. This Plan is available
to all of the Consolidated Groups employees over the age
of 18 upon completion of six months of service. Prior to
January 1, Consolidated Group employees may defer from 1%
to 15% of their compensation in multiples of whole percentages.
Effective January 1, 2002, the plan was amended to allow
employees to defer from 1% to 80% of their compensation up to
the annual maximum amount as determined by the IRS.

Prior to January 1, 1999, if Metropolitan
had a net profit for the fiscal year ending within a calendar
year, a match equal to 50% of pre-tax contributions up to 6% of
the participants compensation was credited to the account
of each active participant in the Plan on December 31.
Effective January 1, 1999, the plan was amended to modify
the employer match to a discretionary matching contribution
equal to a uniform percentage of the amount of the participant
contribution, up to 6% of the participants annual
compensation. The uniform percentage is to be determined
annually by Metropolitan. Metropolitan may also make an
additional discretionary contributions during any plan year. The
Consolidated Groups contributions to the Plan were
approximately $77,000 during the year ended September 30,
2002.






PART IV







Item 14. Controls and
Procedures


Our principal executive officer and principal
financial officer have evaluated the effectiveness of our
disclosure controls and procedures, as that term is
defined in Rule 15d-14(c) of the Securities Exchange Act of
1934 (the Exchange Act), within 90 days of the
filing date of this Annual Report on Form 10-K. Based on
their evaluation, the principal executive officer and principal
financial officer concluded that our disclosure controls and
procedures are effective to ensure that information we are
required to disclose in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and
forms, and include controls and procedures designed to ensure
that information required to be disclosed by us in those reports
is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required
disclosure.

There were no significant changes in our internal
controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation.




Item 15. Exhibits, Financial Statement
Schedules and Reports on Form 8-K



|    |                                                              
|--- | -------------------------------------------------------------
|(a) | The following documents are filed as part of this
    Report:



|   |                      
|-- | ---------------------
|1. | Financial Statements.



| |                                                
| | -----------------------------------------------
| | Included in Part II, Item 8 of this
    report:

|                                                                                                          |  |  |  | 
|--------------------------------------------------------------------------------------------------------- |  |  |  | 
|Report of Independent Auditors                                                                            |  |  |  | 
|Report of Independent Accountants                                                                         |  |  |  | 
|Consolidated Balance Sheets at September 30,
    2002 and 2001                                            |  |  |  | 
|Consolidated Statements of Operations for the
    Years Ended September 30, 2002, 2001 and 2000           |  |  |  | 
|Consolidated Statements of Comprehensive Income
    for the Years Ended September 30, 2002, 2001 and 2000 |  |  |  | 
|Consolidated Statements of Stockholders
    Equity for the Years Ended September 30, 2002, 2001 and 2000 |  |  |  | 
|Consolidated Statements of Cash Flows for the
    Years Ended September 30, 2002, 2001 and 2000           |  |  |  | 
|Notes to Consolidated Financial Statements                                                                |  |  |  | 

45



---



##### Table of Contents





|   |                                    
|-- | -----------------------------------
|2. | Financial Statements
    Schedules.

Included in Part IV of this report:

Schedule ISummary
of Investments other than Investments in Related Parties

Schedule IIValuation
and Qualifying Accounts and Reserves


Schedule IIISupplementary
Insurance Information


Schedule IVMortgage
Loans on Real Estate




| |                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Other Schedules are omitted because of the
    absence of conditions under which they are required or because
    the required information is given in the consolidated financial
    statements or notes thereto.

3. Exhibits.

The following is a complete list of exhibits
filed as part of this Form 10-K.

|        |       |             |  |                                                                                                                                                                                                                                                                                                      
|------- | ----- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 3.01  |             |  | Articles of Incorporation of Summit (Incorporated
    by Reference to Exhibit 3(a) to Registration
    No. 3-36775).                                                                                                                                                                                 
|        | 3.02  |             |  | Bylaws of Summit (Incorporated by Reference to
    Exhibit 3(b) to Registration No. 33-36775).                                                                                                                                                                                                       
|        | 4.01  |             |  | Indenture dated as of May 25, 2000, between
    Summit and U.S. Bank Trust National Association, Trustee
    (Incorporated by Reference to Exhibit 4.01 to Registration
    No. 333-40074).                                                                                                          
|        | 4.02  |             |  | Indenture dated as of November 15, 1990
    between Summit and West One Bank, Idaho, N.A., Trustee
    (Incorporated by Reference to Exhibit 4(a) to Registration
    No. 33-36775).                                                                                                                 
|        | 4.03  |             |  | Tri-Party Agreement dated as of April 24,
    1996 between West One Bank, First Trust and Summit, appointing
    First Trust as successor Trustee (Incorporated by Reference to
    Exhibit 4(c) to Registration No. 333-19787).                                                                     
|        | 4.04  |             |  | First Supplemental Indenture between Summit and
    First Trust dated as of December 31, 1997, with respect to
    Investment Certificates, Series B (Incorporated by
    Reference to Exhibit 4(c) to Registration
    No. 33-36775).                                                               
|        | 4.05  |             |  | Second Supplemental Indenture between Summit and
    U.S. Bank Trust National Association, dated as of
    March 1, 2001 (Incorporated by reference to
    Exhibit 4.04 to Summits registration statement on
    Form S-2, Registration No. 333-54458, filed
    March 1, 2001.)                    
|        | 4.06  |             |  | Statement of Rights, Designations and Preferences
    of Variable Rate Cumulative Preferred Stock Series S-1
    (Incorporated by Reference to Exhibit 4(c) to Registration
    No. 33-57619).                                                                                                       
|        | 4.07  |             |  | Statement of Rights, Designations and Preferences
    of Variable Rate Cumulative Preferred Stock Series S-2
    (Incorporated by Reference to Exhibit 4(c) to Registration
    No. 333-115).                                                                                                        
|        | 4.08  |             |  | Statement of Rights, Designations and Preferences
    of Variable Rate Cumulative Preferred Stock Series S-RP
    (Incorporated by Reference to Exhibit 4(f) to Summits
    Annual Report on Form 10-K for fiscal 1997).                                                                            
|        | 4.09  |             |  | Statement of Rights, Designations and Preferences
    of Variable Rate Cumulative Preferred Stock Series S-3
    (Incorporated by Reference to Exhibit 4(d) to
    Amendment 3 to Registration No. 333-19787).                                                                                       
|        | 10.01 |             |  | Receivable Management, Acquisition and Service
    Agreement between Summit Securities, Inc. and Metropolitan
    Mortgage & Securities Co., Inc. dated September 9,
    1994 (Incorporated by Reference to Exhibit 10(a) to
    Registration No. 33-57619).                                         
|        | 10.02 |             |  | Receivable Management, Acquisition and Service
    Agreement between Old Standard Life Insurance Company and
    Metropolitan Mortgage & Securities Co., Inc. dated
    January 1, 2001. (Incorporated by Reference to
    Exhibit 10.02 to Summits Annual Report on
    Form 10-K for fiscal 2001).
|        | 10.03 |             |  | Receivable Management, Acquisition and Service
    Agreement between Old West Life Insurance Company and
    Metropolitan Mortgage & Securities Co., Inc. dated
    January 1, 2001. (Incorporated by Reference to
    Exhibit 10.03 to Summits Annual Report on
    Form 10-K for fiscal 2001).    

46



---



##### Table of Contents



|        |       |             |  |                                                                                                                                                                                                                                                                                                                             
|------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.04 |             |  | Form of Reinsurance Agreement between Western
    United Life Assurance Company and Old Standard Life Insurance
    Company (Incorporated by Reference to Exhibit 10(d) to
    Summits Annual Report on Form 10-K for fiscal 1998).                                                                                        
|        | 10.05 |             |  | Servicing Rights Purchase Agreement among Ocwen
    Federal Bank FSB, Metropolitan and various sellers named
    therein, dated as of April 1, 2001 (Incorporated by
    reference to Exhibit 10.02 to Metropolitan
    Mortgage & Securities Co., Inc.s Annual Report on
    Form 10-K for fiscal 2001).                  
|        | 10.06 |             |  | Amendment No. 1 to Servicing Rights Purchase
    Agreement among Ocwen Federal Bank FSB, Metropolitan and various
    sellers named therein, dated as of May 11, 2001
    (Incorporated by reference to Exhibit 10.03 to Metropolitan
    Mortgage & Securities Co., Inc.s Annual Report on
    Form 10-K for fiscal 2001).
|        | 10.07 |             |  | Servicing Agreement among Ocwen Federal Bank FSB,
    Metropolitan and various owners named therein, dated as of
    April 1, 2001 (Incorporated by reference to
    Exhibit 10.04 to Metropolitan Mortgage &
    Securities Co., Inc.s Annual Report on Form 10-K for
    fiscal 2001).                                   
|        | 10.08 |             |  | Flow Subservicing Agreement among Ocwen Federal
    Bank FSB, Metropolitan and various owners named therein, dated
    as of September 1, 2001 (Incorporated by reference to
    Exhibit 10.05 to Metropolitan Mortgage & Securities
    Co., Inc.s Annual Report on Form 10-K for fiscal
    2001).                       
|        | 12.01 |             |  | Statement regarding computation of ratios.                                                                                                                                                                                                                                                                                  
|        | 21.01 |             |  | Subsidiaries of Registrant (Incorporated by
    Reference to Exhibit 21 to Summits Annual Report on
    Form 10-K for fiscal 1998).                                                                                                                                                                                        



|    |                    
|--- | -------------------
|(b) | Reports on Form 8-K

Summit did not file any reports on Form 8-K
during the fourth quarter of fiscal year 2002.

47



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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.



| |                        
| | -----------------------
| | SUMMIT SECURITIES, INC.



| |    |               
| | -- | --------------
| | By | /s/ TOM TURNER

| |                      
| | ---------------------
| |                      
| | Tom Turner, President

Date: December 30, 2002

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

|                                   |  |                                                                                          |  |                  
|---------------------------------- |  | ---------------------------------------------------------------------------------------- |  | -----------------
|Signature                          |  | Title                                                                                    |  | Date             
|                                   |  |                                                                                          |  |                  
|                                  
|/s/ TOM TURNERTom Turner           |  | President and Director (Principal Executive
    Officer and Principal Financial Officer) |  | December 30, 2002
|                                  
|/s/ ROBERT A. NESSRobert A. Ness   |  | Principal Accounting Officer                                                             |  | December 30, 2002
|                                  
|/s/ PHILIP SANDIFURPhilip Sandifur |  | Vice President and Director                                                              |  | December 30, 2002
|                                  
|/s/ GREGORY STRATEGregory Strate   |  | Secretary, Treasurer and Director                                                        |  | December 30, 2002
|                                  
|/s/ JAMES HAWKINSJames Hawkins     |  | Director                                                                                 |  | December 30, 2002
|                                  
|/s/ ROBERT POTTERRobert Potter     |  | Director                                                                                 |  | December 30, 2002

48



---



##### Table of Contents



CERTIFICATIONS

I, Tom Turner, President (Chief Executive
Officer) of Summit Securities, Inc., certify that:

1. I have reviewed this annual report on
Form 10-K of Summit Securities, Inc.;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and
procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this annual report is being prepared;

b) evaluated the effectiveness of the
registrants disclosure controls and procedures as of a
date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our
conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation Date;

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the
design or operation of internal controls which could adversely
affect the registrants ability to record, process,
summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal controls; and

6. The registrants other certifying
officers and I have indicated in this annual report whether
there were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: December 30, 2002



| |                                    
| | -----------------------------------
| | /s/ TOM TURNER                     
| |                                    
| | Tom Turner                         
| | President (Chief Executive Officer)

49



---



##### Table of Contents



I, Robert A. Ness, (Principal Financial Officer)
of Summit Securities, Inc., certify that:

1. I have reviewed this annual report on
Form 10-K of Summit Securities, Inc.;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and
procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this annual report is being prepared;

b) evaluated the effectiveness of the
registrants disclosure controls and procedures as of a
date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our
conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation Date;

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the
design or operation of internal controls which could adversely
affect the registrants ability to record, process,
summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal controls; and

6. The registrants other certifying
officers and I have indicated in this annual report whether
there were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: December 30, 2002



| |                              
| | -----------------------------
| | /s/ ROBERT A. NESS           
| |                              
| | Robert A. Ness               
| | (Principal Financial Officer)

50



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

Years Ended September 30, 2002, 2001 and
2000


|                                                    |  |      |     | 
|--------------------------------------------------- |  | ---- | --- | 
|                                                    |  | Page
|                                                    |  |     
|Report of Independent Auditors                      |  |      | F-2 | 
|Report of Independent Accountants                   |  |      | F-3 | 
|Consolidated Balance Sheets                         |  |      | F-4 | 
|Consolidated Statements of Operations               |  |      | F-5 | 
|Consolidated Statements of Comprehensive Income     |  |      | F-6 | 
|Consolidated Statements of Stockholders
    Equity |  |      | F-7 | 
|Consolidated Statements of Cash Flows               |  |      | F-8 | 
|Notes to Consolidated Financial Statements          |  |      | F-9 | 

F-1



---



##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

Board of Directors and Stockholders

Summit Securities, Inc.


We have audited the accompanying consolidated
balance sheets of Summit Securities, Inc. and subsidiaries as of
September 30, 2002 and 2001, and the related consolidated
statements of operations, comprehensive income,
stockholders equity, and cash flows for the years then
ended. Our audits also included the financial statement
schedules as of September 30, 2002 and 2001 and for the
years then ended, listed in the Index at Item 15(a). These
financial statements and schedules are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedules based on our
audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Summit
Securities, Inc. and subsidiaries at September 30, 2002 and
2001, and the consolidated results of their operations and their
cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
Also, in our opinion, the related consolidated financial
statement schedules referred to above, when considered in
relation to the basic 2002 and 2001 financial statements taken
as a whole, present fairly in all material respects the
information set forth therein.



| |                      
| | ---------------------
| | /s/ Ernst & Young LLP

Seattle, Washington

December 13, 2002


F-2



---



##### Table of Contents



PRICEWATERHOUSECOOPER LOGO


Report of Independent Accountants

The Directors and Stockholders

Summit Securities, Inc.


In our opinion, the consolidated statements of
operations, of comprehensive income, of stockholders
equity and of cash flows for the year ended September 30,
2000 (appearing on pages F-5 through F-8 of this Annual
Report on Form 10-K of Summit Securities, Inc. and its
subsidiaries) present fairly, in all material respects, the
results of operations and cash flows of Summit Securities, Inc.
and its subsidiaries for the year ended September 30, 2000,
in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the
financial statements schedules, II, III and IV, listed in the
index appearing under Item 15(a)(2) on page S-2
through S-6, present fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements. These financial
statements and financial statement schedules are the
responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements and financial statement schedules based on our
audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion. We have not audited the consolidated
financial statements or financial statement schedules of Summit
Securities, Inc. and its subsidiaries for any period subsequent
to September 30, 2000.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP


Spokane, Washington

December 28, 2000


F-3



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2002 and 2001


|                                                                            |                                                                                                                                                                  |                                            |             |             |             |   |             |             |             | 
|--------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------- | ----------- | ----------- | - | ----------- | ----------- | ----------- | 
|                                                                            |                                                                                                                                                                  | 2002                                       |             | 2001       
|                                                                            |                                                                                                                                                                  |                                            |             |            
|ASSETS:                                                                    
|                                                                           
|Cash and cash equivalents                                                   |                                                                                                                                                                  | $                                          | 30,725,256  |             |             | $ | 37,606,887  |            
|Investments in affiliated companies                                         |                                                                                                                                                                  |                                            | 3,022,425   |             |             |   | 4,522,425   |            
|Investments:                                                                |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|                                                                            | Trading securities, at fair value ($0 and
    $21,628,837 at cost or amortized cost)                                                                             |                                            |             |            |             |   |             | 22,226,923  |            
|                                                                            | Available-for-sale securities, at fair value
    ($159,158,109 and $75,329,734 at cost or amortized cost),
    includes pledged securities of $35,987,956 and $0 |                                            |             | 163,500,373 |             |   |             | 73,630,137  |            
|                                                                            | Held-to maturity securities, at amortized cost
    ($6,088,889 and $0 at fair value), pledged                                                                    |                                            |             | 5,883,021   |             |   |             |            |            
|                                                                            | Accrued interest on investments                                                                                                                                  |                                            |             | 903,196     |             |   |             | 603,076     |            
|                                                                            |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|                                                                            |                                                                                                                                                                  | Total investments                          |             |             | 170,286,590 |   |             |             | 96,460,136  | 
|                                                                            |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|Receivables:                                                                |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|                                                                            | Real estate contracts and mortgage notes and
    other receivable investments, net of discounts and origination
    fees                                         |                                            |             | 354,882,860 |             |   |             | 264,598,929 |            
|                                                                            | Allowance for losses on receivables                                                                                                                              |                                            |             | (4,715,489  | )           |   |             | (5,146,119  | )          
|                                                                            |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|                                                                            |                                                                                                                                                                  | Net receivables                            |             |             | 350,167,371 |   |             |             | 259,452,810 | 
|                                                                            |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|                                                                            | Real estate held for sale at the lower of cost or
    fair value, net of allowances of $2,316,093 and $2,626,303                                                 |                                            |             | 45,957,758  |             |   |             | 6,964,260   |            
|                                                                            | Deferred costs, net                                                                                                                                              |                                            |             | 19,095,640  |             |   |             | 15,153,250  |            
|                                                                            | Deferred income tax benefit                                                                                                                                      |                                            |             | 619,811     |             |   |             | 3,836,841   |            
|                                                                            | Current income taxes receivable                                                                                                                                  |                                            |             | 73,968      |             |   |             |            |            
|                                                                            | Other assets, net                                                                                                                                                |                                            |             | 2,490,947   |             |   |             | 12,212,244  |            
|                                                                            |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|                                                                            |                                                                                                                                                                  | Total assets                               |             | $           | 622,439,766 |   |             | $           | 436,208,853 | 
|                                                                            |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|LIABILITIES:                                                               
|Annuity reserves                                                            |                                                                                                                                                                  | $                                          | 420,284,849 |             |             | $ | 292,434,738 |            
|Investment certificates                                                     |                                                                                                                                                                  |                                            | 113,677,625 |             |             |   | 93,101,273  |            
|Debt payable                                                                |                                                                                                                                                                  |                                            | 40,888,591  |             |             |   | 11,062,139  |            
|Accounts payable and accrued expenses, including
    payables to affiliates |                                                                                                                                                                  |                                            | 12,072,292  |             |             |   | 7,846,948   |            
|Current income taxes payable                                                |                                                                                                                                                                  |                                            |            |             |             |   | 76,393      |            
|                                                                            |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|                                                                            |                                                                                                                                                                  | Total liabilities                          |             |             | 586,923,357 |   |             |             | 404,521,491 | 
|                                                                            |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|Commitments and contingencies (Note 4)                                      |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|Stockholders equity:                                                       |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|                                                                            | Preferred stock (liquidation preference
    $33,060,840 and $33,251,240)                                                                                         |                                            |             | 3,306,084   |             |   |             | 3,325,124   |            
|                                                                            | Common stock, $10 par, 10,000 issued and
    outstanding                                                                                                         |                                            |             | 100,000     |             |   |             | 100,000     |            
|                                                                            | Additional paid-in capital                                                                                                                                       |                                            |             | 26,810,732  |             |   |             | 27,020,141  |            
|                                                                            | Accumulated other comprehensive income (loss)                                                                                                                    |                                            |             | 2,865,893   |             |   |             | (1,121,734  | )          
|                                                                            | Retained earnings                                                                                                                                                |                                            |             | 2,433,700   |             |   |             | 2,363,831   |            
|                                                                            |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|                                                                            |                                                                                                                                                                  | Total stockholders equity                 |             |             | 35,516,409  |   |             |             | 31,687,362  | 
|                                                                            |                                                                                                                                                                  |                                            |             |             |             |   |             |            
|                                                                            |                                                                                                                                                                  | Total liabilities and stockholders equity |             | $           | 622,439,766 |   |             | $           | 436,208,853 | 
|                                                                            |                                                                                                                                                                  |                                            |             |             |             |   |             |            

The accompanying notes are an integral part of
the consolidated financial statements.

F-4



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Years Ended September 30, 2002,
2001 and 2000


|                                                    |                                                                        |                |            |            |            |      |            |            |            |   |            |            |            | 
|--------------------------------------------------- | ---------------------------------------------------------------------- | -------------- | ---------- | ---------- | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                                    |                                                                        | 2002           |            | 2001       |            | 2000
|                                                    |                                                                        |                |            |            |            |     
|Revenues:                                           |                                                                        |                |            |            |            |      |            |            |            |   |            |           
|                                                    | Interest on receivables                                                |                | $          | 32,041,929 |            |      | $          | 25,336,947 |            |   | $          | 16,920,593 |           
|                                                    | Earned discount on receivables and investments                         |                |            | 13,668,824 |            |      |            | 7,461,573  |            |   |            | 4,302,232  |           
|                                                    | Other investment income                                                |                |            | 9,712,399  |            |      |            | 9,076,953  |            |   |            | 9,252,518  |           
|                                                    | Real estate sales                                                      |                |            | 5,507,332  |            |      |            | 2,464,803  |            |   |            | 6,519,781  |           
|                                                    | Fees, commissions, services and other income                           |                |            | 14,226,149 |            |      |            | 8,555,396  |            |   |            | 8,680,395  |           
|                                                    | Net gains (losses) on investments                                      |                |            | (2,622,411 | )          |      |            | (4,745,403 | )          |   |            | 3,507,127  |           
|                                                    | Net gains on sales of receivables                                      |                |            | 271,588    |            |      |            | 58,232     |            |   |            | 395,134    |           
|                                                    |                                                                        |                |            |            |            |      |            |            |            |   |            |           
|                                                    |                                                                        | Total revenues |            |            | 72,805,810 |      |            |            | 48,208,501 |   |            |            | 49,577,780 | 
|                                                    |                                                                        |                |            |            |            |      |            |            |            |   |            |           
|Expenses:                                           |                                                                        |                |            |            |            |      |            |            |            |   |            |           
|                                                    | Annuity benefits                                                       |                |            | 19,629,077 |            |      |            | 16,737,395 |            |   |            | 11,907,780 |           
|                                                    | Interest expense                                                       |                |            | 10,563,324 |            |      |            | 9,286,859  |            |   |            | 6,886,427  |           
|                                                    | Cost of real estate sold                                               |                |            | 5,463,841  |            |      |            | 2,452,590  |            |   |            | 6,563,536  |           
|                                                    | Provision for losses                                                   |                |            | 2,304,005  |            |      |            | 3,085,837  |            |   |            | 3,506,156  |           
|                                                    | Salaries and employee benefits                                         |                |            | 5,225,298  |            |      |            | 3,409,387  |            |   |            | 2,914,733  |           
|                                                    | Commissions to agents                                                  |                |            | 22,567,294 |            |      |            | 11,679,399 |            |   |            | 11,203,916 |           
|                                                    | Other operating and underwriting expenses                              |                |            | 4,213,688  |            |      |            | 8,051,512  |            |   |            | 2,574,206  |           
|                                                    | Capitalized deferred policy acquisition costs,
    net of amortization |                |            | (3,571,527 | )          |      |            | (1,398,312 | )          |   |            | (1,523,485 | )         
|                                                    |                                                                        |                |            |            |            |      |            |            |            |   |            |           
|                                                    |                                                                        | Total expenses |            |            | 66,395,000 |      |            |            | 53,304,667 |   |            |            | 44,033,269 | 
|                                                    |                                                                        |                |            |            |            |      |            |            |            |   |            |           
|Income (loss) before income taxes                   |                                                                        |                | 6,410,810  |            |            |      | (5,096,166 | )          |            |   | 5,544,511  |           
|Income tax benefit (provision)                      |                                                                        |                | (2,013,523 | )          |            |      | 2,605,452  |            |            |   | (1,462,272 | )         
|                                                    |                                                                        |                |            |            |            |      |            |            |            |   |            |           
|Net income (loss)                                   |                                                                        |                | 4,397,287  |            |            |      | (2,490,714 | )          |            |   | 4,082,239  |           
|Preferred stock dividends                           |                                                                        |                | (2,687,418 | )          |            |      | (2,549,849 | )          |            |   | (2,025,155 | )         
|                                                    |                                                                        |                |            |            |            |      |            |            |            |   |            |           
|Income (loss) applicable to common
    stockholders |                                                                        | $              | 1,709,869  |            |            | $    | (5,040,563 | )          |            | $ | 2,057,084  |           
|                                                    |                                                                        |                |            |            |            |      |            |            |            |   |            |           

The accompanying notes are an integral part of
the consolidated financial statements.

F-5



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME

For the Years Ended September 30, 2002,
2001 and 2000


|                                                  |                                           |                                                                                    |           |           |           |      |            |           |           |   |           |            |            |  
|------------------------------------------------- | ----------------------------------------- | ---------------------------------------------------------------------------------- | --------- | --------- | --------- | ---- | ---------- | --------- | --------- | - | --------- | ---------- | ---------- | -
|                                                  |                                           | 2002                                                                               |           | 2001      |           | 2000
|                                                  |                                           |                                                                                    |           |           |           |     
|Net income (loss)                                 |                                           | $                                                                                  | 4,397,287 |           |           | $    | (2,490,714 | )         |           | $ | 4,082,239 |           
|                                                  |                                           |                                                                                    |           |           |           |      |            |           |           |   |           |           
|Other comprehensive income (loss) net of
    tax: |                                           |                                                                                    |           |           |           |      |            |           |           |   |           |           
|                                                  | Unrealized gains (losses) on investments: |                                                                                    |           |           |           |      |            |           |           |   |           |            |           
|                                                  |                                           | Unrealized holding gains (losses) arising
    during period(1)                     |           |           | 4,893,115 |      |            |           | 1,294,033 |   |           |            | (3,418,607 | )
|                                                  |                                           | Less: reclassification adjustment for gains
    (losses) included in net income(2) |           |           | (905,488  | )    |            |           | 2,591,258 |   |           |            | 350,332    |  
|                                                  |                                           |                                                                                    |           |           |           |      |            |           |           |   |           |           
|                                                  | Net other comprehensive income (loss)     |                                                                                    |           | 3,987,627 |           |      |            | 3,885,291 |           |   |           | (3,068,275 | )         
|                                                  |                                           |                                                                                    |           |           |           |      |            |           |           |   |           |           
|Comprehensive income                              |                                           | $                                                                                  | 8,384,914 |           |           | $    | 1,394,577  |           |           | $ | 1,013,964 |           
|                                                  |                                           |                                                                                    |           |           |           |      |            |           |           |   |           |           



---

|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|(1) | Net of related tax of $2,520,699, $667,074 and
    ($1,761,101) in 2002, 2001 and 2000, respectively.
|   
|(2) | Net of related tax of ($466,464), $1,334,890 and
    $180,474 in 2002, 2001 and 2000, respectively.  

The accompanying notes are an integral part of
the consolidated financial statements.

F-6



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

For the Years Ended September 30, 2002,
2001 and 2000


|                                                                                                    |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   |            |   |  |   |            |  
|--------------------------------------------------------------------------------------------------- |  | --------- | --------- | ------ |  | ---------- | ------- | ------------- |  | -------- | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                    |  |           |           |        |  |            |         | Other         |  |          |            |      
|                                                                                                    |  |           |           |        |  | Additional |         | Comprehensive |  |          |            |      
|                                                                                                    |  | Preferred |           | Common |  | Paid-in    |         | Income        |  | Retained |            |      
|                                                                                                    |  | Stock     |           | Stock  |  | Capital    |         | (Loss)        |  | Earnings |            | Total
|                                                                                                    |  |           |           |        |  |            |         |               |  |          |            |      
|Balance, October 1, 1999                                                                            |  | $         | 1,557,469 |        |  | $          | 100,000 |               |  | $        | 11,988,926 |       |  | $ | (1,938,750 | ) |  | $ | 7,397,310  |   |  | $ | 19,104,955 |  
|Net income                                                                                          |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   | 4,082,239  |   |  |   | 4,082,239  |  
|Cash dividends on common stock ($100 per share)                                                     |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   | (1,000,000 | ) |  |   | (1,000,000 | )
|Cash dividends on preferred stock (variable rate)                                                   |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   | (2,025,155 | ) |  |   | (2,025,155 | )
|Sale of preferred stock, net of offering costs
    (139,995 shares)                                 |  |           | 1,399,950 |        |  |            |         |               |  |          | 11,928,285 |       |  |   |            |   |  |   |            |   |  |   | 13,328,235 |  
|Redemption and retirement of preferred stock
    (5,926 shares)                                     |  |           | (59,258   | )      |  |            |         |               |  |          | (533,327   | )     |  |   |            |   |  |   |            |   |  |   | (592,585   | )
|Net unrealized gains on investment securities,
    net of income tax benefit of $1,580,627          |  |           |           |        |  |            |         |               |  |          |            |       |  |   | (3,068,275 | ) |  |   |            |   |  |   | (3,068,275 | )
|                                                                                                    |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   |            |   |  |   |            |  
|Balance, September 30, 2000                                                                         |  |           | 2,898,161 |        |  |            | 100,000 |               |  |          | 23,383,884 |       |  |   | (5,007,025 | ) |  |   | 8,454,394  |   |  |   | 29,829,414 |  
|Net loss                                                                                            |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   | (2,490,714 | ) |  |   | (2,490,714 | )
|Cash dividends on common stock ($105 per share)                                                     |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   | (1,050,000 | ) |  |   | (1,050,000 | )
|Cash dividends on preferred stock (variable rate)                                                   |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   | (2,549,849 | ) |  |   | (2,549,849 | )
|Sale of preferred stock, net of offering costs
    (47,122 shares)                                  |  |           | 471,215   |        |  |            |         |               |  |          | 4,034,533  |       |  |   |            |   |  |   |            |   |  |   | 4,505,748  |  
|Redemption and retirement of preferred stock
    (4,425 shares)                                     |  |           | (44,252   | )      |  |            |         |               |  |          | (398,276   | )     |  |   |            |   |  |   |            |   |  |   | (442,528   | )
|Net unrealized gains on investment securities,
    net of income tax expense of $2,001,964          |  |           |           |        |  |            |         |               |  |          |            |       |  |   | 3,885,291  |   |  |   |           |   |  |   | 3,885,291  |  
|                                                                                                    |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   |            |   |  |   |            |  
|Balance, September 30, 2001                                                                         |  |           | 3,325,124 |        |  |            | 100,000 |               |  |          | 27,020,141 |       |  |   | (1,121,734 | ) |  |   | 2,363,831  |   |  |   | 31,687,362 |  
|Net income                                                                                          |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   | 4,397,287  |   |  |   | 4,397,287  |  
|Net unrealized losses on available-for-sale
    securities, net of income tax benefit of $2,054,235 |  |           |           |        |  |            |         |               |  |          |            |       |  |   | 3,987,627  |   |  |   |            |   |  |   | 3,987,627  |  
|Cash dividends on common stock ($164 per share)                                                     |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   | (1,640,000 | ) |  |   | (1,640,000 | )
|Cash dividends on preferred stock (variable rate)                                                   |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   | (2,687,418 | ) |  |   | (2,687,418 | )
|Sale of preferred stock, net of offering costs
    (25,995 shares)                                  |  |           | 144,134   |        |  |            |         |               |  |          | 1,259,160  |       |  |   |            |   |  |   |            |   |  |   | 1,403,294  |  
|Redemption and retirement of preferred stock
    (56,334 shares)                                    |  |           | (163,174  | )      |  |            |         |               |  |          | (1,468,569 | )     |  |   |            |   |  |   |            |   |  |   | (1,631,743 | )
|                                                                                                    |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   |            |   |  |   |            |  
|Balance, September 30, 2002                                                                         |  | $         | 3,306,084 |        |  | $          | 100,000 |               |  | $        | 26,810,732 |       |  | $ | 2,865,893  |   |  | $ | 2,433,700  |   |  | $ | 35,516,409 |  
|                                                                                                    |  |           |           |        |  |            |         |               |  |          |            |       |  |   |            |   |  |   |            |   |  |   |            |  

The accompanying notes are an integral part of
the consolidated financial statements.

F-7



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended September 30, 2002,
2001 and 2000


|                                                         |                                                                                           |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |              |             |            |             |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------------------- | ----------- | ---------- | ------------ | ----------- | ----------- | ---------- | ----------- | ------------ | ----------- | ---------- | ----------- | -
|                                                         |                                                                                           | 2002                                                     |                                                                               | 2001                                                    |             | 2000      
|                                                         |                                                                                           |                                                          |                                                                               |                                                         |             |           
|Cash flows from operating
    activities:                |                                                                                           |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |             
|                                                         | Net income (loss)                                                                         |                                                          | $                                                                             | 4,397,287                                               |             |            | $            | (2,490,714  | )           |            | $           | 4,082,239    |            
|                                                         | Adjustments to reconcile net income to net cash
    from operating activities:            |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |              |            
|                                                         |                                                                                           | Acquisition of trading securities, net of
    maturities |                                                                               |                                                         | (1,789,429  | )          |              |             | (26,101,549 | )          |             |              | (22,758,828 | )         
|                                                         |                                                                                           | Proceeds from sales of trading securities                |                                                                               |                                                         | 7,729,039   |            |              |             | 22,526,137  |            |             |              | 11,696,511  |           
|                                                         |                                                                                           | Earned discount on receivables                           |                                                                               |                                                         | (13,668,824 | )          |              |             | (7,461,573  | )          |             |              | (4,302,232  | )         
|                                                         |                                                                                           | Losses (gains) on investments, net                       |                                                                               |                                                         | 2,622,411   |            |              |             | 4,745,403   |            |             |              | (3,507,127  | )         
|                                                         |                                                                                           | Gains on sales of receivables, net                       |                                                                               |                                                         | (271,588    | )          |              |             | (58,232     | )          |             |              | (395,134    | )         
|                                                         |                                                                                           | Losses (gains) on sales of real estate                   |                                                                               |                                                         | (43,491     | )          |              |             | (12,213     | )          |             |              | 43,755      |           
|                                                         |                                                                                           | Provision for losses                                     |                                                                               |                                                         | 2,304,005   |            |              |             | 3,085,837   |            |             |              | 3,506,156   |           
|                                                         |                                                                                           | Depreciation and amortization                            |                                                                               |                                                         | 72,577      |            |              |             | 39,357      |            |             |              | 53,261      |           
|                                                         |                                                                                           | Deferred income tax provision (benefit)                  |                                                                               |                                                         | 2,054,235   |            |              |             | (4,700,157  | )          |             |              | 1,543,112   |           
|                                                         |                                                                                           | Changes in assets and liabilities:                       |                                                                               |                                                         |             |            |              |             |             |            |             |              |             |           
|                                                         |                                                                                           |                                                          | Annuity reserves                                                              |                                                         |             | 20,661,957 |              |             |             | 16,563,185 |             |              |             | 11,659,707 |            
|                                                         |                                                                                           |                                                          | Compound and accrued interest on investment
    certificates and debt payable |                                                         |             | 975,572    |              |             |             | (392,139   | )           |              |             | 1,049,638  |            
|                                                         |                                                                                           |                                                          | Accrued interest on real estate contracts and
    mortgage notes receivable   |                                                         |             | (9,013,973 | )            |             |             | (8,078,970 | )           |              |             | (720,893   | )          
|                                                         |                                                                                           |                                                          | Deferred cost, net                                                            |                                                         |             | (3,942,390 | )            |             |             | (2,284,176 | )           |              |             | (1,315,323 | )          
|                                                         |                                                                                           |                                                          | Accounts payable including affiliates                                         |                                                         |             | 7,346,165  |              |             |             | 2,938,980  |             |              |             | (518,017   | )          
|                                                         |                                                                                           |                                                          | Other assets including receivable from affiliates                             |                                                         |             | 1,139,827  |              |             |             | (2,355,277 | )           |              |             | 45,546     |            
|                                                         |                                                                                           |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |             
|                                                         |                                                                                           |                                                          |                                                                               | Net cash provided by (used in) operating
    activities |             |            | 20,573,380   |             |             |            | (4,036,101  | )            |             |            | 162,371     |  
|                                                         |                                                                                           |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |             
|Cash flow from investing activities:                     |                                                                                           |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |             
|                                                         | Proceeds from sales of available-for-sale
    investments                                 |                                                          |                                                                               | 72,336,696                                              |             |            |              | 41,565,815  |             |            |             | 14,612,748   |            
|                                                         | Proceeds from maturities of available-for-sale
    investments                            |                                                          |                                                                               | 5,098,850                                               |             |            |              |            |             |            |             |             |            
|                                                         | Purchase of available-for-sale investments                                                |                                                          |                                                                               | (141,120,186                                            | )           |            |              | (36,148,773 | )           |            |             | (21,888,627  | )          
|                                                         | Proceeds from maturities of held-to-maturity
    investments                              |                                                          |                                                                               | 80,138                                                  |             |            |              | 2,307,144   |             |            |             | 7,652,867    |            
|                                                         | Purchase of held-to-maturity investments                                                  |                                                          |                                                                               | (5,963,245                                              | )           |            |              |            |             |            |             | (3,105,250   | )          
|                                                         | Principal payments received on real estate
    contracts and other receivable investments |                                                          |                                                                               | 86,454,217                                              |             |            |              | 49,622,193  |             |            |             | 66,760,821   |            
|                                                         | Proceeds from sale of real estate contracts and
    mortgage notes receivable             |                                                          |                                                                               | 911,600                                                 |             |            |              | 546,575     |             |            |             | 9,703,506    |            
|                                                         | Purchases and originations of real estate
    contracts and mortgage notes receivable     |                                                          |                                                                               | (143,046,857                                            | )           |            |              | (97,415,309 | )           |            |             | (131,033,562 | )          
|                                                         | Proceeds from sales of other receivable
    investments                                   |                                                          |                                                                               | 14,543,442                                              |             |            |              | 4,284,743   |             |            |             | 1,700,843    |            
|                                                         | Purchase of other receivable investments                                                  |                                                          |                                                                               | (58,533,814                                             | )           |            |              | (1,563,702  | )           |            |             | (6,971,812   | )          
|                                                         | Proceeds from real estate sales                                                           |                                                          |                                                                               | 5,508,268                                               |             |            |              | 2,464,803   |             |            |             | 6,519,781    |            
|                                                         | Additions to real estate held for sale                                                    |                                                          |                                                                               | (12,783,639                                             | )           |            |              | (1,430,832  | )           |            |             | (1,071,894   | )          
|                                                         |                                                                                           |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |             
|                                                         |                                                                                           |                                                          |                                                                               | Net cash used in investing activities                   |             | $          | (176,514,530 | )           |             | $          | (35,767,343 | )            |             | $          | (57,120,579 | )
|                                                         |                                                                                           |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |             
|Cash flow from financing activities:                     |                                                                                           |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |             
|                                                         | Receipts from annuity products                                                            |                                                          | $                                                                             | 100,748,321                                             |             |            | $            | 64,317,635  |             |            | $           | 43,308,627   |            
|                                                         | Withdrawals annuity products                                                              |                                                          |                                                                               | (25,203,269                                             | )           |            |              | (19,092,366 | )           |            |             | (27,259,295  | )          
|                                                         | Reinsurance of annuity products to reinsurers                                             |                                                          |                                                                               | 56,527,704                                              |             |            |              | 694,544     |             |            |             | 27,434,957   |            
|                                                         | Reinsurance of annuity products from reinsurers                                           |                                                          |                                                                               | (24,884,602                                             | )           |            |              | (9,115,927  | )           |            |             | (18,840,441  | )          
|                                                         | Proceeds from issuance of investment certificates                                         |                                                          |                                                                               | 30,071,423                                              |             |            |              | 42,954,859  |             |            |             | 9,183,528    |            
|                                                         | Increase (decrease) in other debt borrowings                                              |                                                          |                                                                               | 26,865,270                                              |             |            |              | (7,017,790  | )           |            |             | 7,017,788    |            
|                                                         | Repayments of investment certificates                                                     |                                                          |                                                                               | (10,463,199                                             | )           |            |              | (19,885,931 | )           |            |             | (11,605,055  | )          
|                                                         | Repayments to banks and others                                                            |                                                          |                                                                               | (46,262                                                 | )           |            |              | (136,944    | )           |            |             | (5,676       | )          
|                                                         | Issuance of preferred stock                                                               |                                                          |                                                                               | 1,403,294                                               |             |            |              | 4,505,748   |             |            |             | 13,328,235   |            
|                                                         | Redemption and retirement of preferred stock                                              |                                                          |                                                                               | (1,631,743                                              | )           |            |              | (442,529    | )           |            |             | (592,585     | )          
|                                                         | Cash dividends                                                                            |                                                          |                                                                               | (4,327,418                                              | )           |            |              | (3,599,849  | )           |            |             | (3,025,155   | )          
|                                                         |                                                                                           |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |             
|                                                         |                                                                                           |                                                          |                                                                               | Net cash provided by financing activities               |             |            | 149,059,519  |             |             |            | 53,181,450  |              |             |            | 38,944,928  |  
|                                                         |                                                                                           |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |             
|Net increase (decrease) in cash and cash
    equivalents |                                                                                           |                                                          | (6,881,631                                                                    | )                                                       |             |            | 13,378,006   |             |             |            | (18,013,280 | )           
|Cash and cash equivalents, beginning of year             |                                                                                           |                                                          | 37,606,887                                                                    |                                                         |             |            | 24,228,881   |             |             |            | 42,242,161  |             
|                                                         |                                                                                           |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |             
|Cash and cash equivalents, end of year                   |                                                                                           | $                                                        | 30,725,256                                                                    |                                                         |             | $          | 37,606,887   |             |             | $          | 24,228,881  |             
|                                                         |                                                                                           |                                                          |                                                                               |                                                         |             |            |              |             |             |            |             |             

See Note 14 for supplemental cash flow
information.

The accompanying notes are an integral part of
the consolidated financial statements.

F-8



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

For the Years Ended September 30, 2002,
2001 and 2000


1.     Summary of
Accounting Policies:



| |                          
| | -------------------------
| | Business and Organization

Summit Securities, Inc., d/b/a National Summit
Securities, Inc. in the states of New York and Ohio (the
Company), was incorporated on July 25, 1990.
The controlling interest in the Company is owned by National
Summit Corp., a Delaware corporation which is wholly owned by
C. Paul Sandifur, Jr. The Company was formerly a
wholly owned subsidiary of Metropolitan Mortgage &
Securities Co., Inc. (Metropolitan). Metropolitan is
controlled by C. Paul Sandifur, Jr. and his immediate
family through his common stock ownership and voting control.

The Companys principal subsidiaries include
Metropolitan Investment Securities, Inc. (MIS), a
securities broker/dealer; Summit Property Development, Inc., a
real estate development company; Metropolitan Financial
Services, Inc., an investment advisory company; Old Standard
Life Insurance Company (Old Standard), a life
insurance company; and its wholly owned subsidiary, Old West
Annuity & Life Insurance Company (Old
West), also a life insurance company.

The Companys principal business activity is
investing in cash flowing assets, consisting of obligations
collateralized by real estate, structured settlements,
annuities, lottery prizes and other investments
(Receivables). The Company has developed several
funding sources. The primary sources include the issuance of
annuity products; the issuance of debt and equity securities;
and a collateralized line of credit. In addition to receivables,
the Company invests in U.S. Treasury obligations, mortgage-
and asset-backed securities corporate bonds, equity securities,
venture capital, and other securities.

The Companys annuity products are issued by
Old Standard and Old West. Old Standard is domiciled in the
state of Idaho and Old West is domiciled in Arizona.

The Company receives services from certain
affiliated entities (the Affiliated Companies) for a
fee and engages in various business transactions with these
entities. The Affiliated Companies are Metropolitan Mortgage
& Securities Co., Inc. (Metropolitan) and its
principal subsidiaries which include Western United Holding
Company (Western Holding), Western United Life
Assurance Company (Western Life), Consumers Group
Holding Co., Inc., Consumers Insurance Co., Inc.
(Consumers) and Metwest Mortgage Services, Inc.,
(Metwest). The Affiliated Companies are affiliated
with the Consolidated Group because of the common control of the
Company and the Affiliated Companies by C. Paul
Sandifur, Jr.



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, MIS,
Summit Property Development Inc., Metropolitan Financial
Services Inc., Old Standard and Old West. All significant
intercompany transactions and balances have been eliminated in
consolidation.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash includes all balances on deposit in banks
and financial institutions. The Company considers all highly
liquid debt instruments purchased with a remaining maturity of
three months or less to be cash equivalents. Substantially all
cash and cash equivalents are on deposit with one financial
institution and balances often exceed the federal insurance
limit. The Company periodically evaluates the credit quality of
these banks and financial institutions.

F-9



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



1.     Summary of
Accounting Policies (continued)




| |                                        
| | ---------------------------------------
| | Investments in Affiliated
    Companies

Investments in equity securities of affiliated
companies are carried at the lower of cost or estimated net
realizable value.



| |            
| | -----------
| | Investments

The Company has classified its investments in
debt and equity securities, other than those of affiliated
companies, as trading,
available-for-sale or held-to-maturity.
The accounting policies related to these investments are as
follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Trading Securities:Trading securities, consisting
    primarily of equity and mortgage- and asset-backed securities,
    are recorded at market value. Trading securities are recorded at
    fair value based upon independent market quotes. Realized and
    unrealized gains and losses on these securities are included in
    the consolidated statements of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Available-for-Sale Securities.Available-for-sale securities,
    consisting primarily of mortgage- and asset-backed securities,
    government-backed bonds, corporate bonds, equity securities and
    venture capital investments, are carried at quoted and estimated
    fair values. Unrealized gains and losses on available-for-sale
    securities are excluded from earnings and presented as
    accumulated other comprehensive income or loss, net of related
    deferred income taxes. The Company continually monitors its
    investment portfolio for other than temporary impairment of
    securities. When an other than a temporary decline in the value
    below cost or amortized cost is identified, the investment is
    reduced to its fair value, which becomes the new cost basis of
    the investment. The amount of the reduction is reported as a
    realized loss in the statement of income. Any recovery of value
    in excess of the investments new cost basis is recognized
    as a realized gain only on sale, maturity or other disposition
    of the investment. Factors that the Company evaluates in
    determining the existence of an other than temporary decline in
    value include (1) the length of time and extent to which
    the fair value has been less than cost or carrying value,
    (2) the circumstances contributing to the decline in fair
    value (including a change in interest rates or spreads to
    benchmarks), (3) recent performance of the security,
    (4) the financial strength of the issuer, and (5) the
    intent and ability of the Company to retain the investment for a
    period of time sufficient to allow for anticipated recovery.
    Additionally, for asset-backed securities the Company considers
    the security rating and the amount of credit support available
    for the security.
|
| | Equity securities include the Companys
    investment in the common stock of the Federal Home Loan Bank of
    Seattle (FHLB Seattle). This stock may only be sold
    to FHLB Seattle or to another member institution; therefore, it
    is restricted and is carried at cost. The carrying value of the
    restricted stock was approximately $1.1 million and
    $0.7 million at September 30, 2002 and 2001,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Held-to-Maturity Securities:Held-to-maturity securities are
    carried at amortized cost. Premiums and discounts on these
    securities are amortized on a specific-identification basis
    using the interest method. The Company has the ability and
    intent to hold these investments until maturity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Realized gains and losses on investments are
calculated on the specific-identification method and are
recognized in the consolidated statements of operations in the
period in which the investment is sold.



| |                                                        
| | -------------------------------------------------------
| | Real Estate Contracts and Mortgage Notes
    Receivable

Real estate contracts and mortgage notes
receivable are carried at amortized cost. Discounts originating
at the time of purchase, net of capitalized acquisition costs,
are amortized on an individual contract basis using the level
yield (interest) method over the remaining contractual term of
the receivable. Origination fees, net

F-10



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



1.     Summary of
Accounting Policies (continued)


of direct origination costs, are deferred and
recognized as interest income using the level yield (interest)
method over the contractual term of the receivable.

For commercial development loans, the Company
occasionally negotiates exit fee agreements with the borrower.
To the extent the exit fees do not result in an overall yield to
the Company that is greater than prevailing market rates after
adjusting for the risk, the transaction is accounted for as a
loan. If the transaction results in a yield that is greater than
the prevailing market rates after adjusting for the risk, the
transaction is treated as a loan if the exit fee is less than
50% of the expected residual profits from the development and if
the borrower has an equity investment, substantial to the
project, that is not funded by the Company. If the transaction
meets the requirements to be accounted for as a loan, the exit
fee is amortized into income over the estimated life of the loan
using the level yield method. If the transaction does not meet
the requirements to be treated as a loan, it is accounted for as
an investment in real estate.



| |                             
| | ----------------------------
| | Other Receivable Investments

Other receivable investments (primarily lottery
prizes, annuities and structured settlements) are carried at
lower of amortized cost or net realizable value. Discounts
originating at the time of purchase, net of capitalized
acquisition costs, are amortized using the level yield
(interest) method on an individual receivable basis over the
remaining contractual term of the receivable.



| |                                              
| | ---------------------------------------------
| | Real Estate Held for Sale and
    Development

Real estate held for sale and development is
stated at the lower of cost or fair value less estimated costs
to sell. The Company principally acquires real estate through
foreclosure and acquisition. Cost is determined by the purchase
price of the real estate or, for real estate acquired by
foreclosure, at the lower of the fair value of the property at
the date of foreclosure less estimated selling costs, or
carrying value at the date of foreclosure.

Project costs, including interest, associated
with the development of real estate are capitalized and included
in the cost basis of the real estate. During the year ended
September 30, 2002, the Company capitalized interest of
approximately $0.1 million. The Company did not capitalized
any interest related to development of real estate during the
years ended September 30, 2001 and 2000.

Occasionally, real estate properties are rented,
with the revenue being included in other income and related
costs being charged to expense.

Profit on sales of real estate is recognized when
the buyers initial and continuing investment is adequate
to demonstrate that (1) a commitment to fulfill the terms
of the transaction exists, (2) collectibility of the
remaining sales price is reasonably assured, and (3) the
Company maintains no continuing involvement or obligation in
relation to the property sold and transfers all the risks and
rewards of ownership to the buyer.



| |                      
| | ---------------------
| | Allowances for Losses

Allowance for Losses on Receivables.Commercial loans are individually
monitored for impairment. A loan is impaired when, based on
current information and events, it is probable that a creditor
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Probable is defined as
future events are likely to occur. When a loan has
been identified as impaired, the Company determines the
allowance for loss based on the estimated fair value, less
estimated liquidation expenses, of the collateral compared to
the carrying value of the receivable. The estimated fair value
is based on the most recent appraisal of the collateral. If the
most recent appraisal is more than one year old, a new appraisal
is ordered. In the interim, estimated fair value is established
through a review of the most recent appraisal in addition to a
review of other relevant market information. When reviewing the
most recent appraisal, the Company

F-11



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



1.     Summary of
Accounting Policies (continued)


considers the type of property, changes in the
economic factors of the region and the underlying appraisal
assumptions. If the estimated fair value of the collateral is
less than the carrying value, an allowance for loss is
recognized.

The remaining real estate contracts and mortgage
notes receivable portfolio is comprised of a large group of
smaller-balance homogenous loans that are collectively evaluated
for impairment. The Company establishes an allowance for
inherent losses on the receivables based primarily on current
delinquencies and historical foreclosure and loss experience. To
the extent actual experience differs from assumptions, such
adjustments would be included in the statement of operations.

Allowances for losses on real estate contracts
and mortgage notes receivable are based on the carrying value of
the receivable, including accrued interest. Accordingly, the
Company accrues interest on delinquent receivables until
foreclosure.

Allowance for Losses on Real Estate Held for
Sale and Development.The allowance
for losses on real estate held for sale and development includes
amounts for estimated losses as a result of impairment in value.
The Company reviews its real estate properties for impairment in
value whenever events or circumstances indicate that the
carrying value of the asset may exceed its fair value. The
carrying value of a repossessed property is determined as of the
date of repossession of the property and is based on the lower
of fair value less selling costs or carrying value at the time
the property was repossessed. For non-commercial properties, an
appraisal is obtained on the foreclosed property to determine
its fair value at time of repossession. For commercial
properties, an appraisal is obtained on the foreclosed property
to determine the fair value only if the most recent appraisal is
more than one year old, otherwise the existing appraisal is
used. Periodically, the Company may not order an updated
appraisal in accordance with its established policies if current
negotiations with a potential purchaser establishes an
indication of value.

Subsequent to repossession (or acquisition in the
case of development properties), if the value of the property
declines such that the expected fair value, less selling costs,
from the disposition of the asset is less than its carrying
value, an impairment is recognized in the statement of
operations.



| |               
| | --------------
| | Deferred Costs

Deferred policy acquisition costs, consisting of
commissions and other annuity policy costs, are deferred and
amortized over the lives of the contracts in proportion to the
present value of estimated future gross profits. To the extent
actual experience differs from assumptions, and to the extent
estimates of future gross profits require revision, the
unamortized balance of deferred acquisition costs is adjusted
accordingly; such adjustments would be included in current
operations.

Since the amortization of deferred policy
acquisition costs is based on the estimated gross profits of the
underlying annuity products using current effective crediting
rates, increases in the crediting rate environment may
accelerate the amortization of these costs in the future.

Debenture issuance costs, including commissions
and other issuance costs, are deferred. Commission costs are
amortized over the expected average term of the related
debenture bond, which ranges from six months to five years,
using the interest method. Other debenture issuance costs are
amortized over an average four year average term of the related
debenture bond using a straight-line method.



| |                 
| | ----------------
| | Annuity Reserves

Premiums for annuities are recorded as annuity
reserves under the deposit method of accounting. An obligation
is recorded for the premiums assumed under reinsurance
transactions with other insurers in annuity reserves.

F-12



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



1.     Summary of
Accounting Policies (continued)


Reserves for annuities are equal to the sum of
the account balances including credited interest and deferred
service charges. Based on past experience, consideration is
given in actuarial calculations to the number of policyholder
and annuitant deaths that might be expected, policy lapses,
surrenders and terminations. As a result in changes in the
factors included in the actuarial calculations, it is reasonably
possible that the reserves for annuities could change in the
near term.



| |                          
| | -------------------------
| | Guaranty Fund Assessments

The Companys insurance subsidiaries are
subject to insurance guaranty laws in the states in which they
write premiums. These laws provide for assessments against
insurance companies for the benefit of policyholders and
claimants of insolvent life insurance companies. A portion of
these assessments can be offset against the payment of future
premium taxes. However, future changes in state laws could
decrease the amount available for offset. The Company had
accrued an estimated liability of approximately
$0.5 million, at September 30, 2002 and 2001, for
guaranty fund assessments for known insolvencies, net of
estimated recoveries through premium tax offsets. As a result of
future insolvencies or changes in the assessments of known
insolvencies, the guaranty fund liability could change in the
near term.



| |             
| | ------------
| | Income Taxes

The Company accounts for income taxes using the
liability method, which requires that deferred tax assets and
liabilities be determined based on the expected future income
tax consequences of events that have been recognized in the
financial statements. Deferred tax assets and liabilities are
recognized based on the temporary differences between the
financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in
which the temporary differences are expected to reverse.

The Company is included in the consolidated
income tax return with National Summit Corp., its parent. The
consolidating companies have executed a tax allocation
agreement, under which income tax provision is computed on a
separate return basis. The Company is allocated a current and
deferred tax provision from National Summit Corp. as if the
Company filed a separate tax return.



| |                   
| | ------------------
| | Hedging Activities

The Company is authorized by its investment
policies to use financial futures instruments for the purpose of
hedging interest rate risk relative to the securities portfolio,
potential trading situations and in anticipation of sales of
real estate contracts and other receivable investments. Future
transactions are intended to reduce the risk associated with
price movements for a balance sheet asset. Securities may be
sold short (the sale of securities that are not
currently in the portfolio and therefore must be purchased to
close out the sale agreement) as another means of hedging
interest rate risk to benefit from an anticipated movement in
the financial markets. At September 30, 2002 and 2001, the
Company had no open hedging positions.



| |                              
| | -----------------------------
| | Off-Balance-Sheet Instruments

The Company has outstanding commitments to extend
credit to commercial borrowers. Such financial instruments are
recorded in the financial statements when they are funded or
related fees are incurred. Outstanding commitments to extend
credit to commercial borrowers were approximately
$10.1 million and $11.6 million at September 30,
2002 and 2001, respectively.



| |          
| | ---------
| | Estimates

The preparation of consolidated financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and assumptions that affect the

F-13



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



1.     Summary of
Accounting Policies (continued)


reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.



| |                  
| | -----------------
| | Reclassifications

Certain amounts in the prior years consolidated
financial statements have been reclassified to conform with the
current years presentation. These reclassifications had no
effect on net income or retained earnings as previously reported.



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In July 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets. The statement will require
discontinuing the amortization of goodwill and other intangible
assets with indefinite useful lives. Instead, these assets will
be tested periodically for impairment and written down to their
fair market values as necessary. This statement is effective for
fiscal years beginning after December 15, 2001. The
implementation of this statement on October 1, 2002 did not
have a material impact on the consolidated financial statements.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which is effective for fiscal years beginning
after December 15, 2001. SFAS No. 144 addresses
accounting and reporting of ling-lived assets, except goodwill,
that are either held and used or disposed of through sale or
other means. The implementation of this statement on
October 1, 2002 did not have a material impact on the
consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections. This
statement amends FASB Statement No. 13, Accounting for
Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This
statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed
conditions. The provisions of this statement are effective for
financial statements issued on or after May 15, 2002. The
implementation of this statement did not have a material impact
on the consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which is effective for exit or disposal activities
initiated after December 31, 2002. This statement requires
companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. The provisions of this
statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application
encouraged. The Company has completed an evaluation of the
effects of this statement and does not believe it will have a
material impact on the Companys financial statements.

F-14



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                     
|-- | ------------------------------------
|2. | Investments in Affiliated Companies:

At September 30, 2002 and 2001, investments
in affiliated companies consisted of:

|                                                  |                                    |            |  |                         |         |      |           |         |           |   |           |         |           | 
|------------------------------------------------- | ---------------------------------- | ---------- |  | ----------------------- | ------- | ---- | --------- | ------- | --------- | - | --------- | ------- | --------- | 
|                                                  |                                    |            |  |                        
|                                                  |                                    |            |  | Cost and Carrying Value
|                                                  |                                    | Number     |  |                        
|Type of Shares                                    |                                    | of Shares  |  | 2002                    |         | 2001
|                                                  |                                    |            |  |                         |         |     
|Metropolitan Mortgage & Securities Co.,
    Inc.: |                                    |            |  |                         |         |      |           |         |           |   |           |        
|                                                  | Class A common                     |            |  | 9                       |         |      | $         | 420,205 |           |   | $         | 420,205 |          
|                                                  | Preferred                          |            |  |                         |         |      |           |         |           |   |           |         |          
|                                                  |                                    | Series C   |  |                         | 116,094 |      |           |         | 1,160,942 |   |           |         | 1,160,942 | 
|                                                  |                                    | Series D   |  |                         | 24,328  |      |           |         | 243,278   |   |           |         | 243,278   | 
|                                                  |                                    | Series E-1 |  |                         | 105,800 |      |           |         | 1,058,000 |   |           |         | 1,058,000 | 
|                                                  |                                    | Series E-2 |  |                         | 1,400   |      |           |         | 140,000   |   |           |         | 140,000   | 
|                                                  | Consumers Group Holding Co., Inc.: |            |  |                         |         |      |           |         |           |   |           |         |          
|                                                  |                                    | Common     |  |                         | 19      |      |           |         |          |   |           |         | 1,500,000 | 
|                                                  |                                    |            |  |                         |         |      |           |         |           |   |           |        
|                                                  |                                    |            |  |                         |         | $    | 3,022,425 |         |           | $ | 4,522,425 |        
|                                                  |                                    |            |  |                         |         |      |           |         |           |   |           |        

Class A common stock is the only voting
class of Metropolitans stock. Class A common stock is
junior to Class B common stock as to liquidation
preference. At September 30, 2002 and 2001, no Class B
common stock was outstanding. At September 30, 2002 and
2001, the 9 shares of stock the Company owned represented
9.28% of Metropolitans outstanding Class A common
stock. Metropolitan had total consolidated assets of
approximately $1.8 billion at September 30, 2002.

The preferred stock of Metropolitan has a par
value of $10 per share and has liquidation preferences equal to
its issue price. The shares are non-voting and are senior to the
common shares as to dividends. Dividends are cumulative at
variable rates; however, dividends shall be no less than 6% or
greater than 14% per annum. At September 30, 2002, the
preferred Series C, D, E-1 and E-2 had dividend rates of
7.0%. Neither the common or preferred shares are traded in a
public market.

During the year ended September 30, 2002,
the Company sold to Metropolitan its minority interest
investment in Consumers Group Holding Company, a subsidiary of
Metropolitan. The sale price of approximately $2.3 million
was based on an estimated fair value of Consumers Group Holding
of approximately two times the adjusted book value, discounted
to approximately the adjusted book value due to the minority
interest nature of the investment. The sale resulted in a gain
of approximately $0.8 million.

F-15



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |             
|-- | ------------
|3. | Investments:

A summary of carrying and estimated fair values
of investments at September 30, 2002 and 2001 is as follows:

|                                      |  |                |             |            |  |            |           |            |  |   |          |   |  |   |             | 
|------------------------------------- |  | -------------- | ----------- | ---------- |  | ---------- | --------- | ---------- |  | - | -------- | - |  | - | ----------- | 
|                                      |  |               
|                                      |  | 2002          
|                                      |  |               
|                                      |  |                |             | Gross      |  | Gross      |           |           
|                                      |  | Cost or        |             | Unrealized |  | Unrealized |           | Estimated 
|                                      |  | Amortized Cost |             | Gains      |  | Losses     |           | Fair Value
|                                      |  |                |             |            |  |            |           |           
|Available-for-Sale                    |  |                |             |            |  |            |           |            |  |   |          |   |  |   |             | 
|Government-backed bonds               |  | $              | 46,879,254  |            |  | $          | 1,585,123 |            |  | $ |         |   |  | $ | 48,464,377  | 
|Corporate bonds                       |  |                | 1,855,580   |            |  |            | 9,830     |            |  |   | (1,375   | ) |  |   | 1,864,035   | 
|Mortgage- and asset-backed securities |  |                | 97,889,876  |            |  |            | 2,945,484 |            |  |   | (331,946 | ) |  |   | 100,503,414 | 
|                                      |  |                |             |            |  |            |           |            |  |   |          |   |  |   |             | 
|Total fixed maturities                |  |                | 146,624,710 |            |  |            | 4,540,437 |            |  |   | (333,321 | ) |  |   | 150,831,826 | 
|Equity securities                     |  |                | 11,723,400  |            |  |            | 536,861   |            |  |   | (401,713 | ) |  |   | 11,858,548  | 
|Venture Capital/ Limited Partnership  |  |                | 809,999     |            |  |            |          |            |  |   |         |   |  |   | 809,999     | 
|                                      |  |                |             |            |  |            |           |            |  |   |          |   |  |   |             | 
|Totals                                |  | $              | 159,158,109 |            |  | $          | 5,077,298 |            |  | $ | (735,034 | ) |  | $ | 163,500,373 | 
|                                      |  |                |             |            |  |            |           |            |  |   |          |   |  |   |             | 
|Held-to-Maturity                      |  |                |             |            |  |            |           |            |  |   |          |   |  |   |             | 
|Government-backed bonds               |  | $              | 3,897,280   |            |  | $          | 39,734    |            |  | $ |         |   |  | $ | 3,937,014   | 
|Mortgage- and asset-backed securities |  |                | 1,985,741   |            |  |            | 166,134   |            |  |   |         |   |  |   | 2,151,875   | 
|                                      |  |                |             |            |  |            |           |            |  |   |          |   |  |   |             | 
|Totals                                |  | $              | 5,883,021   |            |  | $          | 205,868   |            |  | $ |         |   |  | $ | 6,088,889   | 
|                                      |  |                |             |            |  |            |           |            |  |   |          |   |  |   |             | 

|                                      |  |           |            |            |  |            |           |            |  |   |            |   |  |   |            | 
|------------------------------------- |  | --------- | ---------- | ---------- |  | ---------- | --------- | ---------- |  | - | ---------- | - |  | - | ---------- | 
|                                      |  |          
|                                      |  | 2001     
|                                      |  |          
|                                      |  | Cost or   |            | Gross      |  | Gross      |           |           
|                                      |  | Amortized |            | Unrealized |  | Unrealized |           | Estimated 
|                                      |  | Cost      |            | Gains      |  | Losses     |           | Fair Value
|                                      |  |           |            |            |  |            |           |           
|Trading                               |  |           |            |            |  |            |           |            |  |   |            |   |  |   |            | 
|Mortgage- and asset-backed securities |  | $         | 16,098,963 |            |  | $          | 677,421   |            |  | $ | (435,077   | ) |  | $ | 16,341,307 | 
|Equity securities                     |  |           | 5,529,874  |            |  |            | 355,742   |            |  |   |           |   |  |   | 5,885,616  | 
|                                      |  |           |            |            |  |            |           |            |  |   |            |   |  |   |            | 
|Totals                                |  | $         | 21,628,837 |            |  | $          | 1,033,162 |            |  | $ | (435,077   | ) |  | $ | 22,226,923 | 
|                                      |  |           |            |            |  |            |           |            |  |   |            |   |  |   |            | 
|Available-for-Sale                    |  |           |            |            |  |            |           |            |  |   |            |   |  |   |            | 
|Government-backed bonds               |  | $         | 8,532,778  |            |  | $          | 223,111   |            |  | $ |           |   |  | $ | 8,755,888  | 
|Corporate bonds                       |  |           | 250,000    |            |  |            | 250       |            |  |   |           |   |  |   | 250,250    | 
|Mortgage- and asset-backed securities |  |           | 58,422,991 |            |  |            | 984,790   |            |  |   | (1,340,854 | ) |  |   | 58,066,926 | 
|                                      |  |           |            |            |  |            |           |            |  |   |            |   |  |   |            | 
|Total fixed maturities                |  |           | 67,205,768 |            |  |            | 1,208,151 |            |  |   | (1,340,854 | ) |  |   | 67,073,065 | 
|Equity securities                     |  |           | 2,247,296  |            |  |            | 268,877   |            |  |   | (580,985   | ) |  |   | 1,935,188  | 
|Venture Capital/ Limited Partnership  |  |           | 5,876,669  |            |  |            |          |            |  |   | (1,254,785 | ) |  |   | 4,621,884  | 
|                                      |  |           |            |            |  |            |           |            |  |   |            |   |  |   |            | 
|Totals                                |  | $         | 75,329,734 |            |  | $          | 1,477,028 |            |  | $ | (3,176,625 | ) |  | $ | 73,630,137 | 
|                                      |  |           |            |            |  |            |           |            |  |   |            |   |  |   |            | 

The principal amount of mortgage- and
asset-backed securities with required principal or interest
payments being in arrears for more than 90 days was
approximately $2.0 million and $2.0 million at
September 30, 2002 and September 30, 2001,
respectively.

Approximately $36.0 million in
available-for-sale securities were pledged to collateralize the
note payable to Federal Home Loan Bank at September 30,
2002. Additionally, all held-to-maturity securities at
September 30, 2002 were also pledged to collateralize the
note payable to Federal Home Loan Bank. At

F-16



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                        
|-- | -----------------------
|3. | Investments (continued)

September 30, 2001, no securities were
pledged to collateralize the note payable to Federal Home Loan
Bank as there were no outstanding borrowings.

Proceeds from sales of available-for-sale
securities during the year ended September 30, 2002 were
approximately $63.6 million, which resulted in gross
realized gains of approximately $2.3 million and gross
realized losses of approximately $0.9 million. Proceeds
from sales of available-for-sale securities during the year
ended September 30, 2001 were approximately
$41.6 million, which resulted in gross realized gains of
approximately $2.2 million and gross realized losses of
approximately $3.3 million. Proceeds from sales of
available-for-sale securities during the year ended
September 30, 2000 were approximately $14.6 million,
which resulted in gross realized losses of approximately
$0.5 million.

The change in net unrealized gains
(losses) on trading securities, recorded in the statements
of operations, were approximately ($0.2 million),
$0.4 million and $4.2 million during the years ended
September 30, 2002, 2001 and 2000, respectively.

During the years ended September 30, 2002,
2001 and 2000, the Company determined that certain
available-for-sale investments, had an other than temporary
impairment in value. Accordingly, the carrying value of the
investments was decreased by approximately $4.3 million,
$3.2 million and $1.4 million, respectively, through a
charge to operations.

The following aggregate investments with
individual issuers (excluding U.S. government bonds) held
by the Company at September 30, 2002 and 2001 were in
excess of ten percent of stockholders equity:

|       |                                        |                                              |  |   |            | 
|------ | -------------------------------------- | -------------------------------------------- |  | - | ---------- | 
|       |                                        | Aggregate                                   
|       |                                        | Carrying                                    
|Issuer |                                        | Amount                                      
|       |                                        |                                             
|2002:  |                                        |                                              |  |  
|       | Mortgage- and asset-backed securities: |                                              |  |   |           
|       |                                        | Fannie Mae                                   |  | $ | 31,497,841 | 
|       |                                        | Metropolitan Asset Funding, Inc.             |  |   | 24,321,195 | 
|       |                                        | Freddie Mac                                  |  |   | 19,747,144 | 
|       |                                        | First Horizon Asset Securities               |  |   | 7,710,375  | 
|       |                                        | Citicorp Mtg Sec, Inc.                       |  |   | 7,163,220  | 
|       |                                        | Countrywide Home Loan                        |  |   | 5,203,400  | 
|       |                                        | Metropolitan Trust I Class Notes F           |  |   | 4,838,321  | 
|       |                                        | Master Asset Securitizations                 |  |   | 4,550,526  | 
|       |                                        | Oakwood Mortgage Investors, Inc.             |  |   | 4,265,000  | 
|       |                                        | Contimortgage Home Equity                    |  |   | 3,967,500  | 
|       |                                        | Chicago Ill O Hare Intl Airport Revenue Bond |  |   | 3,856,193  | 
|       |                                        | Bank of America Mtg Securities               |  |   | 3,553,844  | 

F-17



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                        
|-- | -----------------------
|3. | Investments (continued)

|       |                                        |                                       |  |   |            | 
|------ | -------------------------------------- | ------------------------------------- |  | - | ---------- | 
|       |                                        | Aggregate                            
|       |                                        | Carrying                             
|Issuer |                                        | Amount                               
|       |                                        |                                      
|2001:  |                                        |                                       |  |  
|       | Mortgage- and asset-backed securities: |                                       |  |   |           
|       |                                        | Metropolitan Asset Funding, Inc.      |  | $ | 33,273,768 | 
|       |                                        | Washington Mutual Mtg. Security Corp. |  |   | 6,078,750  | 
|       |                                        | GreenTree Home Improvement            |  |   | 4,180,763  | 
|       |                                        | Metropolitan Trust                    |  |   | 4,018,452  | 
|       |                                        | Oakwood Mortgage Investors, Inc.      |  |   | 3,936,875  | 
|       |                                        | Contimortgage Home Equity             |  |   | 3,345,116  | 
|       | Equity securities:                     |                                       |  |   |           
|       |                                        | SPDR Trust Series                     |  |   | 4,010,496  | 
|       | Venture capital:                       |                                       |  |   |           
|       |                                        | Koyah                                 |  |   | 4,047,884  | 

The amortized cost and estimated fair values of
fixed maturity available-for-sale and held-to-maturity
securities at September 30, 2002, by contractual maturity,
are shown below. Expected maturities can differ from contractual
maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.

|                                       |                                                 |                |             |            |  |   |             |            | 
|-------------------------------------- | ----------------------------------------------- | -------------- | ----------- | ---------- |  | - | ----------- | ---------- | 
|                                       |                                                 |                |             | Estimated 
|                                       |                                                 | Amortized Cost |             | Fair Value
|                                       |                                                 |                |             |           
|Available-for-Sale Securities          |                                                 |                |             |            |  |   |             |           
|Due after one year through five years  |                                                 | $              | 1,855,580   |            |  | $ | 1,864,035   |           
|Due after five years through ten years |                                                 |                | 1,054,028   |            |  |   | 1,156,406   |           
|Due after ten years                    |                                                 |                | 45,825,226  |            |  |   | 47,307,971  |           
|                                       |                                                 |                |             |            |  |   |             |           
|                                       | Total non mortgage- and asset-backed securities |                |             | 48,734,834 |  |   |             | 50,328,412 | 
|Mortgage- and asset-backed securities  |                                                 |                | 97,889,876  |            |  |   | 100,503,414 |           
|                                       |                                                 |                |             |            |  |   |             |           
|                                       |                                                 | $              | 146,624,710 |            |  | $ | 150,831,826 |           
|                                       |                                                 |                |             |            |  |   |             |           
|Held-to-Maturity Securities            |                                                 |                |             |            |  |   |             |           
|Due after ten years                    |                                                 | $              | 3,897,280   |            |  | $ | 3,937,014   |           
|                                       |                                                 |                |             |            |  |   |             |           
|                                       | Total non mortgage- and asset-backed securities |                |             | 3,897,280  |  |   |             | 3,937,014  | 
|Mortgage- and asset-backed securities  |                                                 |                | 1,985,741   |            |  |   | 2,151,875   |           
|                                       |                                                 |                |             |            |  |   |             |           
|                                       |                                                 | $              | 5,883,021   |            |  | $ | 6,088,889   |           
|                                       |                                                 |                |             |            |  |   |             |           

F-18



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                                               
|-- | ------------------------------------------------------------------------------
|4. | Real Estate Contracts and Mortgage Notes and
    Other Receivable Investments:

Real estate contracts and mortgage notes and
other receivable investments are comprised of the following at
September 30, 2002 and 2001:

|                                                                              |  |      |             |      |  |   |             | 
|----------------------------------------------------------------------------- |  | ---- | ----------- | ---- |  | - | ----------- | 
|                                                                              |  | 2002 |             | 2001
|                                                                              |  |      |             |     
|Real estate contracts and mortgage notes
    receivable                       |  | $    | 264,822,603 |      |  | $ | 220,281,692 | 
|Other receivable investments                                                  |  |      | 90,060,257  |      |  |   | 44,317,237  | 
|                                                                              |  |      |             |      |  |   |             | 
|Real estate contracts and mortgage notes and
    other receivable investments |  | $    | 354,882,860 |      |  | $ | 264,598,929 | 
|                                                                              |  |      |             |      |  |   |             | 

Real Estate Contracts and Mortgage Notes
Receivable

Real estate contracts and mortgage notes
receivable consisted of the following at September 30, 2002
and 2001.

|                                                               |                                        |      |             |             |  |   |             |             | 
|-------------------------------------------------------------- | -------------------------------------- | ---- | ----------- | ----------- |  | - | ----------- | ----------- | 
|                                                               |                                        | 2002 |             | 2001       
|                                                               |                                        |      |             |            
|Commercial(1), face value                                      |                                        | $    | 231,340,440 |             |  | $ | 199,504,892 |            
|Undisbursed portion of commercial                              |                                        |      | (10,093,506 | )           |  |   | (11,645,444 | )          
|                                                               |                                        |      |             |             |  |   |             |            
|                                                               | Commercial, net of undisbursed portion |      |             | 221,246,934 |  |   |             | 187,859,448 | 
|Residential, face value                                        |                                        |      | 20,184,476  |             |  |   | 19,407,841  |            
|Other, face value                                              |                                        |      | 10,942,493  |             |  |   | 9,464,495   |            
|Unrealized discounts, net of unamortized
    acquisition costs |                                        |      | (1,083,404  | )           |  |   | (4,766,368  | )          
|Accrued interest receivable                                    |                                        |      | 13,532,104  |             |  |   | 8,316,276   |            
|                                                               |                                        |      |             |             |  |   |             |            
|                                                               |                                        | $    | 264,822,603 |             |  | $ | 220,281,692 |            
|                                                               |                                        |      |             |             |  |   |             |            



---



|    |                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------
|(1) | The commercial real estate Receivables are
    defined as those generated through the Companys commercial
    lending source.

The weighted average interest rates and yields on
the Companys real estate contracts and mortgage notes
receivable as of September 30, 2002 and 2001 are as follows:

|            |  |                  |      |          |  |                  |      |                  |  |          |            |                  |  |  |      |   |  |  |      |   |  |   |            | 
|----------- |  | ---------------- | ---- | -------- |  | ---------------- | ---- | ---------------- |  | -------- | ---------- | ---------------- |  |  | ---- | - |  |  | ---- | - |  | - | ---------- | 
|            |  |                  |      |         
|            |  | 2002             |      | 2001    
|            |  |                  |      |         
|            |  | Weighted         |      | Weighted |  |                  |      | Weighted         |  | Weighted |            |                 
|            |  | Average          |      | Average  |  |                  |      | Average          |  | Average  |            |                 
|            |  | Interest Rate(1) |      | Yield    |  | Delinquencies(2) |      | Interest Rate(1) |  | Yield    |            | Delinquencies(2)
|            |  |                  |      |          |  |                  |      |                  |  |          |            |                 
|Commercial  |  |                  | 13.0 | %        |  |                  | 15.3 | %                |  | $        | 62,679,596 |                  |  |  | 13.3 | % |  |  | 14.7 | % |  | $ | 32,162,791 | 
|Residential |  |                  | 8.2  | %        |  |                  | 10.5 | %                |  | $        | 810,869    |                  |  |  | 9.0  | % |  |  | 11.2 | % |  | $ | 1,098,402  | 
|Other       |  |                  | 9.7  | %        |  |                  | 11.7 | %                |  | $        | 494,165    |                  |  |  | 8.6  | % |  |  | 11.9 | % |  | $ | 756,727    | 



---



|    |                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Less than 1% of the receivables are subject to
    variable interest rates.                                                                                
|   
|(2) | The principal amount of delinquent receivables
    are receivables with required principal or interest payments
    being in arrears for more than 90 days.

F-19



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                                                          
|-- | -----------------------------------------------------------------------------------------
|4. | Real Estate Contracts and Mortgage Notes and Other Receivable
    Investments (continued)

Aggregate amounts of receivable maturities at
their face value based on estimated prepayment rates are as
follows:

|                                 |      |            |             |             |  |       |            |           |  |   |             |            | 
|-------------------------------- | ---- | ---------- | ----------- | ----------- |  | ----- | ---------- | --------- |  | - | ----------- | ---------- | 
|                                 |      |            |             | Residential |  |      
|Fiscal Year Ending September 30, |      | Commercial |             | and Other   |  | Total
|                                 |      |            |             |             |  |      
|                                 | 2003 |            | $           | 88,209,447  |  |       | $          | 7,382,800 |  |   | $           | 95,592,247 | 
|                                 | 2004 |            |             | 42,180,807  |  |       |            | 7,240,969 |  |   |             | 49,421,776 | 
|                                 | 2005 |            |             | 24,977,167  |  |       |            | 7,305,606 |  |   |             | 32,282,773 | 
|                                 | 2006 |            |             | 2,275,754   |  |       |            | 3,378,690 |  |   |             | 5,654,444  | 
|                                 | 2007 |            |             | 5,086,685   |  |       |            | 2,145,679 |  |   |             | 7,232,364  | 
|Thereafter                       |      |            | 58,517,074  |             |  |       | 3,673,225  |           |  |   | 62,190,299  |           
|                                 |      |            |             |             |  |       |            |           |  |   |             |           
|                                 |      | $          | 221,246,934 |             |  | $     | 31,126,969 |           |  | $ | 252,373,903 |           
|                                 |      |            |             |             |  |       |            |           |  |   |             |           

The principal balance of receivables by state
that were in excess of ten percent of stockholders equity
as of September 30, 2002 are as follows:

|           |  |      |            | 
|---------- |  | ---- | ---------- | 
|State      |  | 2002
|           |  |     
|Texas      |  | $    | 15,423,383 | 
|Florida    |  |      | 8,219,009  | 
|Washington |  |      | 6,944,730  | 
|Hawaii     |  |      | 6,884,026  | 
|Washington |  |      | 6,876,792  | 
|Hawaii     |  |      | 5,850,000  | 
|Arizona    |  |      | 5,500,000  | 
|California |  |      | 4,620,000  | 
|California |  |      | 4,605,000  | 
|Colorado   |  |      | 4,459,352  | 
|Arizona    |  |      | 3,995,667  | 
|Utah       |  |      | 3,905,000  | 
|California |  |      | 3,835,000  | 
|Colorado   |  |      | 3,823,854  | 
|Ohio       |  |      | 3,728,932  | 
|Florida    |  |      | 3,659,980  | 
|Hawaii     |  |      | 3,578,440  | 

F-20



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                                                          
|-- | -----------------------------------------------------------------------------------------
|4. | Real Estate Contracts and Mortgage Notes and Other Receivable
    Investments (continued)

At September 30, 2002, the principal
balances of the Companys real estate contracts and
mortgage notes receivable are collateralized by real estate in
the following regions:

|                  |  |            |        |             |  |  |        |  
|----------------- |  | ---------- | ------ | ----------- |  |  | ------ | -
|                  |  |            |        | Residential
|                  |  | Commercial |        | and Other  
|                  |  |            |        |            
|Pacific Southwest |  |            | 48.08  | %           |  |  | 30.66  | %
|Southwest         |  |            | 19.63  | %           |  |  | 17.44  | %
|Pacific Northwest |  |            | 15.87  | %           |  |  | 29.43  | %
|Southeast         |  |            | 10.50  | %           |  |  | 12.70  | %
|Northeast         |  |            | 3.72   | %           |  |  | 5.46   | %
|Midwest           |  |            | 2.20   | %           |  |  | 4.31   | %
|                  |  |            |        |             |  |  |        |  
|                  |  |            | 100.00 | %           |  |  | 100.00 | %
|                  |  |            |        |             |  |  |        |  

The value of real estate properties in these
geographic regions can be affected by changes in the economic
environment of the specific regions. It is reasonably possible
that these values could change in the near term, which would
affect the Companys estimate of its allowance for losses
associated with these receivables.

Other Receivable Investments

Other receivable investments include various cash
flow investments, primarily annuities and lottery prizes.
Annuities are general obligations of the payor, which is
generally an insurance company. Lottery prizes are general
obligations of the insurance company or other entity making the
lottery prize payments. Additionally, when the lottery prizes
are from a state-run lottery, the lottery prizes are often
backed by the general credit of the respective state.

These investments normally are non-interest
bearing and are purchased at a discount sufficient to meet the
Companys investment yield requirements. The weighted
average yield on these receivables at September 30, 2002
and 2001 was approximately 7.68% and 10.81%, respectively.
Contractual maturities range from 2002 to 2035.

The following is a reconciliation of the face
value of the other receivable investments to the Companys
carrying value at September 30, 2002 and 2001.

|                                                               |  |      |             |      |  |   |             |  
|-------------------------------------------------------------- |  | ---- | ----------- | ---- |  | - | ----------- | -
|                                                               |  | 2002 |             | 2001
|                                                               |  |      |             |     
|Face value of receivables                                      |  | $    | 119,874,778 |      |  | $ | 62,135,436  |  
|Unrealized discounts, net of unamortized
    acquisition costs |  |      | (29,814,521 | )    |  |   | (17,818,199 | )
|                                                               |  |      |             |      |  |   |             |  
|                                                               |  | $    | 90,060,257  |      |  | $ | 44,317,237  |  
|                                                               |  |      |             |      |  |   |             |  

The carrying value of other receivable
investments that were more than 90 days delinquent as of
September 30, 2002 and September 30, 2001 were
approximately $16.6 million and $16.7 million,
respectively.

During the years ended September 30, 2002,
2001 and 2000, the Company sold other receivables with a
carrying value of approximately $14.2 million,
$4.5 million and $1.6 million, respectively, without
recourse and recognized gains of approximately
$0.3 million, $50,000 and $56,000, respectively.

The following other receivable investments, by
issuer, were in excess of ten percent of stockholders
equity at September 30, 2002 and 2001.

F-21



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                                                          
|-- | -----------------------------------------------------------------------------------------
|4. | Real Estate Contracts and Mortgage Notes and Other Receivable
    Investments (continued)

|                               |  |           |            | 
|------------------------------ |  | --------- | ---------- | 
|                               |  | Aggregate
|                               |  | Carrying 
|Issuer                         |  | Amount   
|                               |  |          
|2002:                          |  |           |            | 
|Palouse Trust 2002-1           |  | $         | 28,920,197 | 
|Mirabeau Trust 2001-1          |  |           | 17,212,991 | 
|Hawaii Forest Preservation LLC |  |           | 14,525,601 | 
|2001:                          |  |           |            | 
|Hawaii Forest Preservation LLC |  | $         | 13,946,601 | 

Aggregate amounts of contractual maturities of
other receivables investments at their face amounts are
approximately as follows:

|                   |      |   |             |            | 
|------------------ | ---- | - | ----------- | ---------- | 
|Fiscal Year Ending |      |  
|September 30,      |      |  
|                   |      |  
|                   | 2003 |   | $           | 16,593,965 | 
|                   | 2004 |   |             | 14,174,290 | 
|                   | 2005 |   |             | 30,160,992 | 
|                   | 2006 |   |             | 10,758,115 | 
|                   | 2007 |   |             | 9,101,184  | 
|Thereafter         |      |   | 39,086,232  |           
|                   |      |   |             |           
|                   |      | $ | 119,874,778 |           
|                   |      |   |             |           

5.     Allowance for
Losses on Receivables:

The following is a summary of the changes in the
allowance for losses on receivables for the years ended
September 30, 2002, 2001 and 2000:

|                  |                                         |      |           |          |   |      |           |            |   |   |           |          |  
|----------------- | --------------------------------------- | ---- | --------- | -------- | - | ---- | --------- | ---------- | - | - | --------- | -------- | -
|                  |                                         | 2002 |           | 2001     |   | 2000
|                  |                                         |      |           |          |   |     
|Beginning balance |                                         | $    | 5,146,119 |          |   | $    | 6,512,642 |            |   | $ | 3,082,918 |         
|Provisions        |                                         |      | 939,905   |          |   |      | 687,218   |            |   |   | 3,886,086 |         
|Charge offs:      |                                         |      |           |          |   |      |           |            |   |   |           |         
|                  | Commercial Loans                        |      |           | (925,385 | ) |      |           | (1,685,424 | ) |   |           |         |  
|                  | Residential and other real estate loans |      |           | (292,572 | ) |      |           | (228,116   | ) |   |           | (440,612 | )
|                  | Other receivable investments            |      |           | (152,578 | ) |      |           | (140,201   | ) |   |           | (15,750  | )
|                  |                                         |      |           |          |   |      |           |            |   |   |           |         
|Ending balance    |                                         | $    | 4,715,489 |          |   | $    | 5,146,119 |            |   | $ | 6,512,642 |         
|                  |                                         |      |           |          |   |      |           |            |   |   |           |         

Commercial Loans are individually monitored for
impairment. Commercial Loans in arrears for more than
90 days and other loans that the Company considered
impaired total approximately $70.5 million and
$32.2 million at September 30, 2002 and 2001,
respectively, with approximately $3.5 million and
$3.0 million established as allowance for losses.

Residential and other real estate receivables are
comprised of a large group of smaller-balance homogeneous loans
that are collectively evaluated for impairment. The Company
establishes its loss on residential and other real estate
receivables, including accrued interest, inherent in the
portfolio at the balance sheet date based primarily on current
delinquencies and historical foreclosure and loss experience.

F-22



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                    
|-- | ---------------------------------------------------
|4. | Allowance for Losses on Receivables
    (continued)

During the year ended September 30, 2000,
the Company established an allowance on its investments in
annuity and structured settlement cashflows as the industry
began to focus on state and federal collection laws and their
applicability to annuity and structured settlement payments.
Additionally, during the year ended September 30, 2000, the
Company established an allowance against a participation in
finance leases purchased from an affiliate.

6.     Real Estate
Held for Sale and Development:

Real estate held for sale and development by
region as of September 30, 2002 is as follows:

|                               |  |             |            |             |  |       |            |  |  |   |            | 
|------------------------------ |  | ----------- | ---------- | ----------- |  | ----- | ---------- |  |  | - | ---------- | 
|                               |  | Development |            | Repossessed |  |      
|Region                         |  | Property    |            | Property    |  | Total
|                               |  |             |            |             |  |      
|Pacific Southwest              |  | $           | 6,982,904  |             |  | $     | 18,225,423 |  |  | $ | 25,208,327 | 
|Pacific Northwest              |  |             | 3,439,194  |             |  |       | 4,658,156  |  |  |   | 8,097,350  | 
|Southeast                      |  |             |           |             |  |       | 6,452,317  |  |  |   | 6,452,317  | 
|Southwest                      |  |             | 1,026,481  |             |  |       | 4,097,733  |  |  |   | 5,124,214  | 
|Northeast                      |  |             |           |             |  |       | 3,391,643  |  |  |   | 3,391,643  | 
|                               |  |             |            |             |  |       |            |  |  |   |            | 
|Balances at September 30, 2002 |  | $           | 11,448,579 |             |  | $     | 36,825,272 |  |  | $ | 48,273,851 | 
|                               |  |             |            |             |  |       |            |  |  |   |            | 
|Balances at September 30, 2001 |  | $           | 444,443    |             |  | $     | 9,146,120  |  |  | $ | 9,590,563  | 
|                               |  |             |            |             |  |       |            |  |  |   |            | 

At September 30, 2002, the Company had no
commitments for construction associated with the development
properties.

The following is a summary of the changes in
allowance for losses on real estate held for sale and
development for the years ended September 30, 2002, 2001,
and 2000.

|                        |  |      |            |      |  |      |           |   |  |   |          |  
|----------------------- |  | ---- | ---------- | ---- |  | ---- | --------- | - |  | - | -------- | -
|                        |  | 2002 |            | 2001 |  | 2000
|                        |  |      |            |      |  |     
|Beginning balance       |  | $    | 2,626,303  |      |  | $    | 242,602   |   |  | $ | 878,102  |  
|Provisions (recoveries) |  |      | 1,364,100  |      |  |      | 2,398,619 |   |  |   | (429,930 | )
|Charge-offs             |  |      | (1,674,310 | )    |  |      | (14,918   | ) |  |   | (205,570 | )
|                        |  |      |            |      |  |      |           |   |  |   |          |  
|Ending balance          |  | $    | 2,316,093  |      |  | $    | 2,626,303 |   |  | $ | 242,602  |  
|                        |  |      |            |      |  |      |           |   |  |   |          |  

Loss provisions are calculated as the difference
between the net realizable value and the carrying value at the
measurement date. Any losses on liquidation or subsequent
reduction in the net realizable value is charged to operations
through provision for losses. The Company periodically evaluates
its allowance for losses to determine their adequacy.

F-23



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

7.     Deferred
Costs:

An analysis of deferred costs related to annuity
acquisition and investment certificate issuance for the years
ended September 30, 2002, 2001 and 2000 is as follows:

|                              |                                |             |            |              |   |       |           |            |   |   |            |            |  
|----------------------------- | ------------------------------ | ----------- | ---------- | ------------ | - | ----- | --------- | ---------- | - | - | ---------- | ---------- | -
|                              |                                | Annuity     |            | Investment   |   |      
|                              |                                | Acquisition |            | Certificates |   | Total
|                              |                                |             |            |              |   |      
|Balance at October 1, 1999    |                                | $           | 9,747,787  |              |   | $     | 1,805,964 |            |   | $ | 11,553,751 |           
|                              | Deferred during the period     |             |            | 4,393,485    |   |       |           | 636,823    |   |   |            | 5,030,308  |  
|                              | Amortization during the period |             |            | (2,870,000   | ) |       |           | (844,985   | ) |   |            | (3,714,985 | )
|                              |                                |             |            |              |   |       |           |            |   |   |            |           
|Balance at September 30, 2000 |                                |             | 11,271,272 |              |   |       | 1,597,802 |            |   |   | 12,869,074 |           
|                              | Deferred during the period     |             |            | 3,520,312    |   |       |           | 1,948,903  |   |   |            | 5,469,215  |  
|                              | Amortization during the period |             |            | (2,122,000   | ) |       |           | (1,063,039 | ) |   |            | (3,185,039 | )
|                              |                                |             |            |              |   |       |           |            |   |   |            |           
|Balance at September 30, 2001 |                                |             | 12,669,584 |              |   |       | 2,483,666 |            |   |   | 15,153,250 |           
|                              | Deferred during the period     |             |            | 7,771,527    |   |       |           | 1,520,484  |   |   |            | 9,292,011  |  
|                              | Amortization during the period |             |            | (4,200,000   | ) |       |           | (1,149,621 | ) |   |            | (5,349,621 | )
|                              |                                |             |            |              |   |       |           |            |   |   |            |           
|Balance at September 30, 2002 |                                | $           | 16,241,111 |              |   | $     | 2,854,529 |            |   | $ | 19,095,640 |           
|                              |                                |             |            |              |   |       |           |            |   |   |            |           

During the year ended September 30, 2001,
the Company revised its gross profit estimate to reflect the
higher stated yield on its commercial loan portfolio. This
resulted in approximately $1.6 million increase in deferred
acquisition costs with a corresponding decrease in the
amortization of deferred acquisition costs. There were no
significant adjustments to the gross profit estimates in the
fiscal years ended September 30, 2002 or 2000.

8.     Annuity
Reserves:

Annuity reserves are based upon contractual
amounts due the annuity holder including credited interest.
Annuity contract interest rates ranged from 3.0% to 7.40% during
the year ended September 30, 2002, 3.75% to 7.5% during the
year ended September 30, 2001 and 4.7% to 7.9% during the
year ended September 30, 2000.

F-24



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Old Standard reinsures certain single premium
deferred annuity contracts underwritten by Western Life. The
following is a summary of direct business and reinsurance
transactions assumed from Western Life as of and for the years
ended September 30, 2002, 2001 and 2000:

|                            |                                    |               |   |              |  |       |   |             |  |  |   |             | 
|--------------------------- | ---------------------------------- | ------------- | - | ------------ |  | ----- | - | ----------- |  |  | - | ----------- | 
|                            |                                    |               |   | Assumed from |  |      
|                            |                                    | Direct Amount |   | Western Life |  | Total
|                            |                                    |               |   |              |  |      
|Balance September 30, 2002: |                                    |               |   |              |  |       |   |             |  |  |   |            
|                            | Premium and annuity considerations |               | $ | 107,213,977  |  |       | $ | 56,527,704  |  |  | $ | 163,741,681 | 
|                            |                                    |               |   |              |  |       |   |             |  |  |   |            
|                            | Annuity benefits                   |               | $ | 31,852,491   |  |       | $ | 24,884,602  |  |  | $ | 56,737,093  | 
|                            |                                    |               |   |              |  |       |   |             |  |  |   |            
|                            | Annuity reserves                   |               | $ | 272,026,672  |  |       | $ | 148,258,177 |  |  | $ | 420,284,849 | 
|                            |                                    |               |   |              |  |       |   |             |  |  |   |            
|Balance September 30, 2001: |                                    |               |   |              |  |       |   |             |  |  |   |            
|                            | Premium and annuity considerations |               | $ | 71,063,030   |  |       | $ | 694,544     |  |  | $ | 71,757,574  | 
|                            |                                    |               |   |              |  |       |   |             |  |  |   |            
|                            | Annuity benefits                   |               | $ | 25,997,370   |  |       | $ | 9,115,927   |  |  | $ | 35,113,297  | 
|                            |                                    |               |   |              |  |       |   |             |  |  |   |            
|                            | Annuity reserves                   |               | $ | 182,975,651  |  |       | $ | 109,459,087 |  |  | $ | 292,434,738 | 
|                            |                                    |               |   |              |  |       |   |             |  |  |   |            
|Balance September 30, 2000: |                                    |               |   |              |  |       |   |             |  |  |   |            
|                            | Premium and annuity considerations |               | $ | 49,424,210   |  |       | $ | 27,434,956  |  |  | $ | 76,859,166  | 
|                            |                                    |               |   |              |  |       |   |             |  |  |   |            
|                            | Annuity benefits                   |               | $ | 33,484,357   |  |       | $ | 18,743,525  |  |  | $ | 52,227,882  | 
|                            |                                    |               |   |              |  |       |   |             |  |  |   |            
|                            | Annuity reserves                   |               | $ | 128,040,712  |  |       | $ | 111,217,445 |  |  | $ | 239,258,157 | 
|                            |                                    |               |   |              |  |       |   |             |  |  |   |            

9.     Investment
Certificates:

At September 30, 2002 and 2001, investment
certificates consist of the following:

|                              |  |      |             |      |  |   |            | 
|----------------------------- |  | ---- | ----------- | ---- |  | - | ---------- | 
|Annual Interest Rates         |  | 2002 |             | 2001
|                              |  |      |             |     
|5% to 6%                      |  | $    | 2,578,366   |      |  | $ |           | 
|6% to 7%                      |  |      | 2,760,231   |      |  |   | 2,745,912  | 
|7% to 8%                      |  |      | 9,642,836   |      |  |   | 5,079,000  | 
|8% to 9%                      |  |      | 64,628,754  |      |  |   | 48,615,000 | 
|9% to 10%                     |  |      | 24,394,235  |      |  |   | 28,712,000 | 
|                              |  |      |             |      |  |   |            | 
|                              |  |      | 104,004,422 |      |  |   | 85,151,912 | 
|Compound and accrued interest |  |      | 9,673,203   |      |  |   | 7,949,361  | 
|                              |  |      |             |      |  |   |            | 
|                              |  | $    | 113,677,625 |      |  | $ | 93,101,273 | 
|                              |  |      |             |      |  |   |            | 

The weighted average interest rate on outstanding
investment certificates was approximately 8.4% and 8.6% at
September 30, 2002 and 2001, respectively.

F-25



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Investment certificates (including principal and
compound and accrued interest) mature as follows:

|                   |      |   |             |            | 
|------------------ | ---- | - | ----------- | ---------- | 
|Fiscal Year Ending |      |  
|September 30,      |      |  
|                   |      |  
|                   | 2003 |   | $           | 14,855,871 | 
|                   | 2004 |   |             | 15,783,365 | 
|                   | 2005 |   |             | 32,276,353 | 
|                   | 2006 |   |             | 18,769,452 | 
|                   | 2007 |   |             | 25,666,226 | 
|Thereafter         |      |   | 6,326,358   |           
|                   |      |   |             |           
|                   |      | $ | 113,677,625 |           
|                   |      |   |             |           

The Company has a current registration
$50.0 million of Investment Certificates, Series B and
B-1, of which a face amount of approximately $29.1 million
was remained unissued at September 30, 2002. The current
registration expires on January 31, 2003.

10.     Debt
Payable:

At September 30, 2002 and 2001, debt payable
consists of the following:

|                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      |            |      |  |   |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | ---- |  | - | ---------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                   |  | 2002 |            | 2001
|                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      |            |     
|Real estate contracts and mortgage notes payable,
    interest rates ranging from 5.25% to 8.0%, due in installments
    through 2010, collateralized by senior liens on certain of the
    Companys real estate contracts, mortgage notes receivable
    and real estate held for sale                                                                                                                           |  | $    | 121,763    |      |  | $ | 160,376    | 
|Notes payable to Federal Home Loan Bank of
    Seattle (FHLB), interest rates ranging from 1.95% to 4.29%,
    maturity dates ranging from October 2002 to September 2009,
    collateralized by $42.1 million of various pledged
    securities                                                                                                                                                                   |  |      | 27,500,000 |      |  |   |           | 
|Note payable to Metropolitan Mortgage &
    Securities Co., Inc., interest at 9.38% and 10% per annum, due
    in annual installments through 9/30/2012 and 9/30/2011, for 2002
    and 2001, respectively; collateralized by other receivable
    investments with face values of $17.9 million and
    $15.7 million and carrying values of $13.3 million and
    $10.7 million, for 2002 and 2001, respectively |  |      | 13,246,825 |      |  |   | 10,900,800 | 
|Accrued interest payable                                                                                                                                                                                                                                                                                                                                                                                           |  |      | 20,003     |      |  |   | 963        | 
|                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      |            |      |  |   |            | 
|                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $    | 40,888,591 |      |  | $ | 11,062,139 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      |            |      |  |   |            | 

F-26



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Aggregate amounts of principal and accrued
interest payments due on debt payable are as follows:

|                   |      |   |            |            | 
|------------------ | ---- | - | ---------- | ---------- | 
|Fiscal Year Ending |      |  
|September 30,      |      |  
|                   |      |  
|                   | 2003 |   | $          | 21,869,753 | 
|                   | 2004 |   |            | 937,204    | 
|                   | 2005 |   |            | 1,097,118  | 
|                   | 2006 |   |            | 1,146,887  | 
|                   | 2007 |   |            | 1,226,468  | 
|Thereafter         |      |   | 14,611,161 |           
|                   |      |   |            |           
|                   |      | $ | 40,888,591 |           
|                   |      |   |            |           

11.     Income
Taxes:

The Company has recorded net deferred tax assets
of $619,811 and $3,836,841 at September 30, 2002 and 2001,
respectively. The tax effect of the temporary differences giving
rise to the Companys deferred tax assets and liabilities
as of September 30, 2002 and 2001 is as follows:

|                                                  |                             |        |           |             |  |   |           |           | 
|------------------------------------------------- | --------------------------- | ------ | --------- | ----------- |  | - | --------- | --------- | 
|                                                  |                             |       
|                                                  |                             | 2002  
|                                                  |                             |       
|                                                  |                             | Assets |           | Liabilities
|                                                  |                             |        |           |            
|Net operating loss carryforwards                  |                             | $      | 2,637,511 |             |  | $ |           |          
|Allowance for losses on receivables               |                             |        | 461,157   |             |  |   |           |          
|Allowance on real estate                          |                             |        | 1,379,290 |             |  |   |           |          
|Annuity reserves, net of policy claims            |                             |        | 301,352   |             |  |   |           |          
|Contributions carryover                           |                             |        | 32,764    |             |  |   |           |          
|Accrued vacation                                  |                             |        | 72,268    |             |  |   |           |          
|Other than temporary impairments of investments   |                             |        | 660,268   |             |  |   |           |          
|Guaranty fund assessments                         |                             |        | 165,810   |             |  |   |           |          
|Partnership investments                           |                             |        | 753,324   |             |  |   |           |          
|Deferred annuity acquisition costs                |                             |        |           |             |  |   | 4,276,917 |          
|Unrealized gains on available for sale securities |                             |        |           |             |  |   | 1,452,541 |          
|Office properties and equipment                   |                             |        |           |             |  |   | 27,941    |          
|Other                                             |                             |        |           |             |  |   | 86,534    |          
|                                                  |                             |        |           |             |  |   |           |          
|                                                  | Total deferred income taxes |        | $         | 6,463,744   |  |   | $         | 5,843,933 | 
|                                                  |                             |        |           |             |  |   |           |          

F-27



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                        |                             |        |           |             |  |   |           |           | 
|------------------------------------------------------- | --------------------------- | ------ | --------- | ----------- |  | - | --------- | --------- | 
|                                                        |                             |       
|                                                        |                             | 2001  
|                                                        |                             |       
|                                                        |                             | Assets |           | Liabilities
|                                                        |                             |        |           |            
|Allowance for losses on real estate and
    receivables |                             | $      | 1,669,822 |             |  | $ |           |          
|Allowance on real estate                                |                             |        | 1,481,111 |             |  |   |           |          
|Annuity reserves, net of policy claims                  |                             |        | 477,385   |             |  |   |           |          
|Unrealized losses on available for sale securities      |                             |        | 577,862   |             |  |   |           |          
|Contributions carryover                                 |                             |        | 32,645    |             |  |   |           |          
|Accrued vacation                                        |                             |        | 33,706    |             |  |   |           |          
|Net operating loss carryforwards                        |                             |        | 2,989,136 |             |  |   |           |          
|Guaranty fund assessments                               |                             |        | 163,236   |             |  |   |           |          
|Deferred annuity acquisition costs                      |                             |        |           |             |  |   | 3,527,314 |          
|Partnership investments                                 |                             |        |           |             |  |   | 164,859   |          
|Management fee payment                                  |                             |        |           |             |  |   | 7,372     |          
|Office properties and equipment                         |                             |        |           |             |  |   | 7,857     |          
|Other                                                   |                             |        | 152,415   |             |  |   | 33,075    |          
|                                                        |                             |        |           |             |  |   |           |          
|                                                        | Total deferred income taxes |        | $         | 7,577,318   |  |   | $         | 3,740,477 | 
|                                                        |                             |        |           |             |  |   |           |          

The Company has not established a valuation
allowance against any deferred tax assets, as it is more likely
than not that these assets will be realized due to the future
reversals of existing taxable temporary differences, sale of
appreciated assets and the probability of the generation of
future taxable income. Realization is dependent on the
generation of sufficient taxable income prior to expiration of
the net operating loss carryforwards. The amount of the deferred
tax asset considered realizable, however, could be reduced in
the future if estimates of future taxable income during the
carryforward period are reduced.

At September 30, 2002, the Companys
remaining net operating loss carryforwards of approximately
$7.8 million, which if not utilized, expire in years 2006
through 2022.

The components of the provision
(benefit) for income taxes for the years ended
September 30, 2002, 2001 and 2000 are as follows:

|         |  |      |           |      |  |      |            |   |  |   |           |  
|-------- |  | ---- | --------- | ---- |  | ---- | ---------- | - |  | - | --------- | -
|         |  | 2002 |           | 2001 |  | 2000
|         |  |      |           |      |  |     
|Current  |  | $    | 695,937   |      |  | $    | 2,094,705  |   |  | $ | (80,840   | )
|Deferred |  |      | 1,317,586 |      |  |      | (4,700,157 | ) |  |   | 1,543,112 |  
|         |  |      |           |      |  |      |            |   |  |   |           |  
|         |  | $    | 2,013,523 |      |  | $    | (2,605,452 | ) |  | $ | 1,462,272 |  
|         |  |      |           |      |  |      |            |   |  |   |           |  

The following is a reconciliation of the
provision for income taxes to an amount computed by applying the
statutory federal income tax rate to income before income taxes
for the years ended September 30, 2002, 2001 and 2000.

|                                                |  |      |           |      |  |      |    |   |  |   |            |   |  |  |    |   |  |   |           |   |  |  |    |  
|----------------------------------------------- |  | ---- | --------- | ---- |  | ---- | -- | - |  | - | ---------- | - |  |  | -- | - |  | - | --------- | - |  |  | -- | -
|                                                |  |      |           |      |  |     
|                                                |  | 2002 |           | 2001 |  | 2000
|                                                |  |      |           |      |  |     
|                                                |  |      |           |      |  |      |    |   |  |  
|Federal income tax at statutory rate            |  | $    | 2,179,676 |      |  |      | 34 | % |  | $ | (1,732,696 | ) |  |  | 34 | % |  | $ | 1,885,134 |   |  |  | 34 | %
|Affiliate corporate dividend received deduction |  |      | (98,397   | )    |  |      | (2 | ) |  |   | (52,479    | ) |  |  | 1  |   |  |   | (49,406   | ) |  |  | (1 | )
|Small life insurance company deduction          |  |      |          |      |  |      |   |   |  |   | (309,135   | ) |  |  | 7  |   |  |   | (376,732  | ) |  |  | (7 | )
|Other                                           |  |      | (67,756   | )    |  |      | (1 | ) |  |   | (511,142   | ) |  |  | 12 |   |  |   | 3,276     |   |  |  |   |  
|                                                |  |      |           |      |  |      |    |   |  |   |            |   |  |  |    |   |  |   |           |   |  |  |    |  
|Income tax (benefit) provision                  |  | $    | 2,013,523 |      |  |      | 31 | % |  | $ | (2,605,452 | ) |  |  | 54 | % |  | $ | 1,462,272 |   |  |  | 26 | %
|                                                |  |      |           |      |  |      |    |   |  |   |            |   |  |  |    |   |  |   |           |   |  |  |    |  

F-28



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

12.     Stockholders
Equity:

A summary of preferred and common shares at
September 30, 2002 and 2001 is as follows:

|                            |             |       |       |                   |  |      |           |                               |  |        |           |           |  |        |           |         |  |   |           |           |  |  |           |           |  |   |           |           | 
|--------------------------- | ----------- | ----- | ----- | ----------------- |  | ---- | --------- | ----------------------------- |  | ------ | --------- | --------- |  | ------ | --------- | ------- |  | - | --------- | --------- |  |  | --------- | --------- |  | - | --------- | --------- | 
|                            |             |       |       |                   |  |      |           |                              
|                            |             |       |       |                   |  |      |           | Issued and Outstanding Shares
|                            |             |       |       |                   |  |      |           |                              
|                            |             |       |       |                   |  |      |           |                              
|                            |             |       |       | Authorized Shares |  | 2002 |           | 2001                         
|                            |             | Par   |       |                   |  |      |           |                              
|                            |             | Value |       | 2002              |  | 2001 |           | Shares                        |  | Amount |           | Shares    |  | Amount
|                            |             |       |       |                   |  |      |           |                               |  |        |           |           |  |       
|Registered preferred stock: |             |       |       |                   |  |      |           |                               |  |        |           |           |  |        |           |         |  |   |           |           |  |  |           |           |  |   |           |          
|                            | Series S-1  |       | $     | 10.00             |  |      |           | 185,000                       |  |        |           | 185,000   |  |        |           | 35,437  |  |   | $         | 354,367   |  |  |           | 36,231    |  |   | $         | 362,312   | 
|                            | Series S-2  |       |       | 10.00             |  |      |           | 150,000                       |  |        |           | 150,000   |  |        |           | 7,980   |  |   |           | 79,802    |  |  |           | 8,464     |  |   |           | 84,644    | 
|                            | Series S-RP |       |       | 10.00             |  |      |           | 80,000                        |  |        |           | 80,000    |  |        |           |        |  |   |           |          |  |  |           |          |  |   |           |          | 
|                            | Series S-3  |       |       | 2.50              |  |      |           | 3,800,000                     |  |        |           | 1,800,000 |  |        |           | 987,518 |  |   |           | 2,468,796 |  |  |           | 1,025,430 |  |   |           | 2,563,576 | 
|                            | Series R    |       |       | 10.00             |  |      |           | 300,000                       |  |        |           | 300,000   |  |        |           | 32,761  |  |   |           | 327,611   |  |  |           | 23,908    |  |   |           | 239,084   | 
|                            | Series T    |       |       | 10.00             |  |      |           | 200,000                       |  |        |           | 200,000   |  |        |           | 7,551   |  |   |           | 75,508    |  |  |           | 7,551     |  |   |           | 75,508    | 
|                            |             |       |       |                   |  |      |           |                               |  |        |           |           |  |        |           |         |  |   |           |           |  |  |           |           |  |   |           |          
|                            |             |       |       |                   |  |      | 4,715,000 |                               |  |        | 2,715,000 |           |  |        | 1,071,247 |         |  | $ | 3,306,084 |           |  |  | 1,101,584 |           |  | $ | 3,325,124 |          
|                            |             |       |       |                   |  |      |           |                               |  |        |           |           |  |        |           |         |  |   |           |           |  |  |           |           |  |   |           |          
|Common stock                |             | $     | 10.00 |                   |  |      | 2,000,000 |                               |  |        | 2,000,000 |           |  |        | 10,000    |         |  | $ | 100,000   |           |  |  | 10,000    |           |  | $ | 10,000    |          
|                            |             |       |       |                   |  |      |           |                               |  |        |           |           |  |        |           |         |  |   |           |           |  |  |           |           |  |   |           |          

The Company has authorized 10,000,000 total
shares of preferred stock. The Company has the right, without
further stockholder approval, to establish additional series of
preferred stock with provisions different than those described
below for the Series S-1, S-2, S-3 and S-RP preferred stock.

Series S-1, S-2 and S-3 preferred stock is
cumulative and the holders thereof are entitled to receive
monthly dividends at an annual rate equal to (1) the
highest of the three-month U.S. Treasury Bill rate, the ten year
constant maturity rate or the twenty year constant maturity rate
as defined in the offering prospectus determined immediately
prior to declaration date, plus (2) one-half of one
percentage point (0.5%). The board of directors may, at its sole
option, declare a higher dividend rate; however, dividends shall
be no less than 6% or greater than 14% per annum.

Series R and T preferred stock is cumulative
and the holders thereof are entitled to receive monthly
dividends at an annual rate equal to (1) the highest of the
three-month U.S. Treasury Bill Rate, the ten year constant
maturity rate or the twenty year constant maturity rate as
defined in the offering prospectus determined immediately prior
to declaration date, plus (2) one percentage point (1%).
The Companys investment committee may declare a higher
dividend rate; however, dividends shall be no less than 6% or
greater than 14% per annum.

Series S-1, S-2, S-RP, R and T preferred
stock have a par value of $10 per share and were or will be sold
to the public at $100 per share. Series S-1, S-2, R and T
shares are callable at the sole option of the board of directors
at $100 per share.

On April 8, 2002, the Companys Board
of Directors declared a stock split of the Companys
Variable Rate Cumulative Preferred Stock, Series S-3 (the
Series S-3 Preferred Stock). On May 5,
2002, each outstanding share of Series S-3 Preferred Stock
was converted into four shares of Series S-3 Preferred
Stock. Accordingly, the par value and liquidation preference of
each such share was adjusted from $100.00 per share to $25.00
per share to reflect the split. Series S-3 preferred stock
has a par value of $2.50 per share and was or will be sold to
the public at $25 per share. Series S-3 shares are callable
at the sole option of the board of directors at $25 per share.

All preferred shares have liquidation preferences
equal to their issue price, are non-voting and are senior to the
common shares as to dividends. All preferred stock dividends are
based upon the original issue price. Additionally series R
and T are subordinate to series S-1, S-2 and S-3 as to
liquidation preference.

F-29



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                     
|--- | ------------------------------------
|12. | Stockholders Equity
    (continued)

The payment of dividends by the Companys
wholly owned life insurance subsidiaries is subject to certain
restrictions imposed by statute by the respective state of
domicile. Dividends can only be paid out of earned surplus.
Earned surplus includes accumulated statutory basis earnings of
the Companys life insurance subsidiaries, but excludes
surplus arising from unrealized capital gains or the revaluation
of assets. Old Standards amount of surplus available for
dividends at September 30, 2002 was approximately $1.4
million. At September 30, 2002, Old West was restricted
from paying dividends due to lack of surplus funds.

13.     Statutory
Accounting and Regulatory Capital (unaudited):

The life insurance subsidiaries of the Company
are required to file statutory financial statements with state
insurance regulatory authorities in their states of domicile.
Accounting principles used to prepare these statutory financial
statements differ from generally accepted accounting principles
(GAAP). Selected differences between the statutory
and the GAAP financial statements (after eliminating Old
Standards investment in subsidiary earnings of Old West)
for the insurance subsidiaries as of and for the years ended
September 30, 2002, 2001 and 2000 are as follows:

|                                                                                       |      |              |   |            |   |           |   |            |  |  |   |            |   |  |   |            | 
|-------------------------------------------------------------------------------------- | ---- | ------------ | - | ---------- | - | --------- | - | ---------- |  |  | - | ---------- | - |  | - | ---------- | 
|                                                                                       |      |              |   |           
|                                                                                       |      | Old Standard |   | Old West  
|                                                                                       |      |              |   |           
|                                                                                       |      | Statutory    |   | GAAP       |   | Statutory |   | GAAP      
|                                                                                       |      |              |   |            |   |           |   |           
|Capital and surplus/stockholders equity:                                              |      |              |   |            |   |           |   |            |  |  |   |            |   |  |   |           
|                                                                                       | 2002 |              | $ | 44,822,546 |   |           | $ | 66,993,713 |  |  | $ | 31,611,299 |   |  | $ | 38,356,151 | 
|                                                                                       | 2001 |              |   | 34,538,527 |   |           |   | 56,975,553 |  |  |   | 20,672,393 |   |  |   | 27,628,088 | 
|                                                                                       | 2000 |              |   | 17,439,222 |   |           |   | 28,192,310 |  |  |   | 8,025,515  |   |  |   | 11,070,837 | 
|Net income (loss):                                                                     |      |              |   |            |   |           |   |            |  |  |   |            |   |  |   |           
|                                                                                       | 2002 |              | $ | 3,779,107  |   |           | $ | 7,365,143  |  |  | $ | 4,796,194  |   |  | $ | 5,208,548  | 
|                                                                                       | 2001 |              |   | 5,651,456  |   |           |   | 6,944,431  |  |  |   | (411,163   | ) |  |   | 519,528    | 
|                                                                                       | 2000 |              |   | 1,976,505  |   |           |   | 1,595,680  |  |  |   | 851,823    |   |  |   | 1,832,061  | 
|Unassigned statutory surplus (deficit) and
    retained earnings (accumulated deficit) |      |              |   |            |   |           |   |            |  |  |   |            |   |  |   |           
|                                                                                       | 2002 |              | $ | 1,422,546  |   |           | $ | 29,284,620 |  |  | $ | (2,696,101 | ) |  | $ | 8,044,483  | 
|                                                                                       | 2001 |              |   | (861,473   | ) |           |   | 21,598,265 |  |  |   | (4,635,007 | ) |  |   | 2,444,106  | 
|                                                                                       | 2000 |              |   | (360,778   | ) |           |   | 12,067,995 |  |  |   | (3,081,885 | ) |  |   | 1,924,557  | 

State regulatory authorities of Idaho and Arizona
impose minimum risk-based capital requirements on insurance
enterprises that were developed by the NAIC. The formulas for
determining the amount of risk-based capital (RBC) specify
various weighting factors that are applied to financial balances
or various levels of activity based on perceived degree of risk.
Regulatory compliance is determined by a ratio of the
enterprises regulatory total adjusted capital, as defined
by the NAIC, to its authorized control level RBC, as defined by
the NAIC. Enterprises below specific trigger points or ratios
are classified within certain levels, each of which requires
specified corrective action. At December 31, 2001, the life
insurance subsidiaries statutory-basis surplus exceeded
the RBC requirements.

The National Association of Insurance
Commissioners (the NAIC) adopted the Codification of
Statutory Accounting Principles guidance, which replaced the
current Accounting Practices and Procedures manual as the
NAICs primary guidance on statutory accounting. The
adoption of the Codification guidance on January 1, 2001
resulted in a $24,218 charge to the Old Standards
statutory basis capital and surplus and a $43,130 increase to
Old Wests statutory basis capital and surplus.

F-30



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



13.     Statutory
Accounting and Regulatory Capital (unaudited)
(continued)


The life insurance subsidiaries of the Company
are required to file statutory financial statements with state
insurance regulatory authorities in their states of domicile.
Accounting principles used to prepare these statutory financial
statements differ from generally accepted accounting principles
(GAAP). A reconciliation of GAAP net income to
statutory net income for the years ended September 30,
2002, 2001 and 2000, respectively, is as follows:

|                          |                                    |      |            |            |   |      |           |            |   |   |           |            |  
|------------------------- | ---------------------------------- | ---- | ---------- | ---------- | - | ---- | --------- | ---------- | - | - | --------- | ---------- | -
|                          |                                    | 2002 |            | 2001       |   | 2000
|                          |                                    |      |            |            |   |     
|Net IncomeGAAP           |                                    | $    | 12,573,691 |            |   | $    | 7,463,959 |            |   | $ | 3,427,741 |           
|Adjustments to reconcile: |                                    |      |            |            |   |      |           |            |   |   |           |           
|                          | Deferred policy acquisition cost   |      |            | (3,503,173 | ) |      |           | (1,006,490 | ) |   |           | (1,503,689 | )
|                          | State insurance guaranty fund      |      |            | (221,541   | ) |      |           | (255,524   | ) |   |           | (180,615   | )
|                          | Annuity reserves and benefits      |      |            | 258,580    |   |      |           | 2,205,948  |   |   |           | (2,418,256 | )
|                          | Capital gains and IMR amortization |      |            | 853,639    |   |      |           | (1,944,889 | ) |   |           | 2,488,235  |  
|                          | Allowance for losses               |      |            |           |   |      |           |           |   |   |           | 2,227,969  |  
|                          | Federal income taxes               |      |            | 1,934,693  |   |      |           | (1,497,601 | ) |   |           | (204,595   | )
|                          | Net investment income adjustment   |      |            | (3,320,588 | ) |      |           | 274,890    |   |   |           | (1,068,111 | )
|                          | Other                              |      |            |           |   |      |           |           |   |   |           | 59,649     |  
|                          |                                    |      |            |            |   |      |           |            |   |   |           |           
|Net IncomeStatutory      |                                    | $    | 8,575,301  |            |   | $    | 5,240,293 |            |   | $ | 2,828,328 |           
|                          |                                    |      |            |            |   |      |           |            |   |   |           |           

14.     Supplemental
Disclosures for Statements of Cash Flows:

Supplemental information on interest and income
taxes paid during the years ended September 30, 2002, 2001
and 2000 is as follows:

|                  |  |      |           |      |  |      |           |  |  |   |           | 
|----------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                  |  | 2002 |           | 2001 |  | 2000
|                  |  |      |           |      |  |     
|Interest paid     |  | $    | 8,820,442 |      |  | $    | 9,704,419 |  |  | $ | 5,819,172 | 
|Income taxes paid |  |      | 1,035,358 |      |  |      | 1,061,791 |  |  |   | 1,626,760 | 

F-31



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



14.     Supplemental
Disclosures for Statements of Cash Flows (continued)


Non-cash investing and financing activities of
the Company during the years ended September 30, 2002, 2001
and 2000 are as follows:

|                                                                                                                             |  |      |            |      |  |      |           |  |  |   |            | 
|---------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | --------- |  |  | - | ---------- | 
|                                                                                                                             |  | 2002 |            | 2001 |  | 2000
|                                                                                                                             |  |      |            |      |  |     
|Assumption of other debt payable in conjunction
    with purchase of real estate contracts and mortgage notes
    receivable |  | $    |           |      |  | $    |          |  |  | $ | 5,000      | 
|Real estate acquired through foreclosure                                                                                     |  |      | 33,877,800 |      |  |      | 5,593,869 |  |  |   | 7,198,196  | 
|Other receivable investment acquisitions financed
    with a note payable                                                    |  |      | 3,000,000  |      |  |      |          |  |  |   | 10,900,800 | 
|Receivables originated to facilitate the sale of
    real estate                                                             |  |      | 840,000    |      |  |      |          |  |  |   |           | 
|Transfer of securities from trading to
    available-for-sale                                                                |  |      | 16,599,912 |      |  |      | 4,662,396 |  |  |   |           | 
|Transfer of securities from held-to-maturity to
    available-for-sale                                                       |  |      |           |      |  |      | 4,616,744 |  |  |   |           | 
|Transfers between annuity products                                                                                           |  |      | 6,649,222  |      |  |      | 6,905,004 |  |  |   | 6,351,095  | 
|Investment purchases pending settlement                                                                                      |  |      |           |      |  |      | 3,120,821 |  |  |   |           | 
|Investment sales pending settlement                                                                                          |  |      |           |      |  |      | 7,190,730 |  |  |   |           | 

During the fiscal years ended September 30,
2002 and 2001, changes in the Companys investment strategy
affected the classification of trading securities as they no
longer qualified as investments held principally for the purpose
of selling them in the near term. Accordingly, the Company
reclassified approximately $16.6 million and
$4.7 million during the fiscal years ended
September 30, 2002 and 2001, respectively from trading to
available-for-sale. At September 30, 2002, the Company did
not have an active trading portfolio.

At the date of initial application of SFAS
No. 133, this statement provided that an entity may
transfer any held-to-maturity security into the
available-for-sale category or the trading category.
Accordingly, as part of its implementation of SFAS No. 133
on October 1, 2000, the Company reclassified approximately
$4.6 million of investments from held-to-maturity to
available-for-sale. The unrealized gain on the date of transfer
was $0.1 million and was included in other comprehensive income.

15.     Business
Segment Reporting:

The Company principally operates in four industry
segments which encompasses: (1) the investing in real
estate contracts and mortgage notes receivable, other
receivables and investment securities with funds generated from
the issuance of investment certificates and preferred stock;
(2) annuity operations; (3) a property development
division, which provides services related to the selling,
marketing, designing, subdividing and coordinating activities of
real estate development properties; and (4) broker/dealer
activities.

The accounting policies of the Companys
business segments are the same as those described in Note 1. All
transactions between segments are eliminated. The Company
allocates certain overhead and operating expenses amongst its
segments.

F-32



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



15.     Business
Segment Reporting (continued)


Information about the Companys separate
business segments and in total as of and for the years ended
September 30, 2002, 2001 and 2000 is as follows:

|                    |                               |           |   |             |   |             |   |               |  |       |   |           |   |  |   |           |  |  |   |             |  
|------------------- | ----------------------------- | --------- | - | ----------- | - | ----------- | - | ------------- |  | ----- | - | --------- | - |  | - | --------- |  |  | - | ----------- | -
|                    |                               |           |   |             |   | Property    |   |               |  |      
|                    |                               |           |   | Annuity     |   | Development |   |               |  |      
|                    |                               | Investing |   | Operations  |   | Operations  |   | Broker/Dealer |  | Total
|                    |                               |           |   |             |   |             |   |               |  |      
|September 30, 2002: |                               |           |   |             |   |             |   |               |  |       |   |           |   |  |   |           |  |  |   |            
|                    | Revenues                      |           | $ | 4,282,390   |   |             | $ | 57,570,727    |  |       | $ | 3,518,271 |   |  | $ | 7,434,422 |  |  | $ | 72,805,810  |  
|                    | Income (loss) from operations |           |   | (12,607,928 | ) |             |   | 18,865,756    |  |       |   | (179,925  | ) |  |   | 332,907   |  |  |   | 6,410,810   |  
|                    | Identifiable assets, net      |           |   | 44,962,616  |   |             |   | 575,319,908   |  |       |   | 788,336   |   |  |   | 1,368,906 |  |  |   | 622,439,766 |  
|                    | Depreciation and amortization |           |   | 1,948       |   |             |   | 43,366        |  |       |   | 16,422    |   |  |   | 10,841    |  |  |   | 72,577      |  
|                    | Capital expenditures          |           |   | 29,175      |   |             |   | 195,134       |  |       |   | 18,195    |   |  |   | 29,020    |  |  |   | 271,524     |  
|September 30, 2001: |                               |           |   |             |   |             |   |               |  |       |   |           |   |  |   |           |  |  |   |            
|                    | Revenues                      |           | $ | 4,222,937   |   |             | $ | 36,047,871    |  |       | $ | 1,144,281 |   |  | $ | 6,793,412 |  |  | $ | 48,208,501  |  
|                    | Income (loss) from operations |           |   | (14,844,929 | ) |             |   | 9,403,805     |  |       |   | (149,170  | ) |  |   | 494,128   |  |  |   | (5,096,166  | )
|                    | Identifiable assets, net      |           |   | 72,885,598  |   |             |   | 361,990,196   |  |       |   | 288,827   |   |  |   | 1,423,690 |  |  |   | 436,588,311 |  
|                    | Depreciation and amortization |           |   | 184         |   |             |   | 25,433        |  |       |   | 15,414    |   |  |   | 10,842    |  |  |   | 51,872      |  
|                    | Capital expenditures          |           |   |            |   |             |   | 835           |  |       |   | 6,905     |   |  |   | 0         |  |  |   | 7,740       |  
|September 30, 2000: |                               |           |   |             |   |             |   |               |  |       |   |           |   |  |   |           |  |  |   |            
|                    | Revenues                      |           | $ | 16,967,341  |   |             | $ | 24,580,154    |  |       | $ | 1,974,994 |   |  | $ | 6,055,291 |  |  | $ | 49,577,780  |  
|                    | Income (loss) from operations |           |   | 1,093,316   |   |             |   | 4,619,705     |  |       |   | (485,414  | ) |  |   | 316,904   |  |  |   | 5,544,511   |  
|                    | Identifiable assets, net      |           |   | 82,836,352  |   |             |   | 275,511,188   |  |       |   | 83,690    |   |  |   | 894,356   |  |  |   | 359,325,586 |  
|                    | Depreciation and amortization |           |   | 826         |   |             |   | 24,336        |  |       |   | 17,694    |   |  |   | 10,404    |  |  |   | 53,261      |  
|                    | Capital expenditures          |           |   |            |   |             |   | 21,082        |  |       |   | 11,746    |   |  |   | 13,926    |  |  |   | 46,754      |  

16.     Related-Party
Transactions:

The Company had the following related-party
transactions with Metropolitan and its affiliates during the
years ended September 30, 2002, 2001 and 2000:

|                                                                                                                                              |  |      |            |      |  |      |            |  |  |   |            | 
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                                                                                                                                              |  | 2002 |            | 2001 |  | 2000
|                                                                                                                                              |  |      |            |      |  |     
|Real estate contracts and mortgage notes
    receivable and other receivable investments purchased from
    Metropolitan or affiliates        |  | $    | 51,376,208 |      |  | $    | 15,228,343 |  |  | $ | 32,874,576 | 
|Receivable acquisition fees paid to Metropolitan                                                                                              |  |      | 810,998    |      |  |      | 924,751    |  |  |   | 111,090    | 
|Proceeds from real estate contracts mortgage
    notes receivable and other receivable investments sold to
    Metropolitan or its affiliates |  |      | 1,404,024  |      |  |      |           |  |  |   | 8,910,886  | 
|Gains on real estate contracts and mortgage notes
    receivable and other receivable investments sold to Metropolitan
    or its affiliates  |  |      | 79,868     |      |  |      |           |  |  |   | 300,523    | 
|Proceeds from sales of minority interest
    investment to Metropolitan                                                                       |  |      | 2,325,945  |      |  |      |           |  |  |   |           | 
|Gains on sales of minority interest investment to
    Metropolitan                                                                            |  |      | 825,945    |      |  |      |           |  |  |   |           | 
|Purchase of residual interest in securitization
    from Metropolitan                                                                         |  |      |           |      |  |      |           |  |  |   | 1,196,701  | 

F-33



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



16.     Related-Party
Transactions (continued)


|                                                                                                                                     |  |      |            |      |  |      |           |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | ---- |  | ---- | --------- | - |  | - | ---------- | -
|                                                                                                                                     |  | 2002 |            | 2001 |  | 2000
|                                                                                                                                     |  |      |            |      |  |     
|Ceding of annuity premiums from Western Life                                                                                         |  | $    | 56,527,704 |      |  | $    | 694,544   |   |  | $ | 27,434,956 |  
|Policyholder benefits reimbursed to Western Life                                                                                     |  |      | 24,884,602 |      |  |      | 9,115,927 |   |  |   | 18,840,440 |  
|Annuity servicing fees paid to Western Life                                                                                          |  |      | 486,541    |      |  |      | 441,703   |   |  |   | 374,964    |  
|Ceding commissions paid to Western Life                                                                                              |  |      | 3,324,726  |      |  |      | 74,737    |   |  |   | 1,479,000  |  
|Service fees charged to Metropolitan for property
    development assistance                                                         |  |      | 3,519,206  |      |  |      | 1,144,281 |   |  |   | 1,974,994  |  
|Commissions and service fees charged to
    Metropolitan on sale of Metropolitans debentures,
    preferred stock and note offering |  |      | 5,408,006  |      |  |      | 3,022,199 |   |  |   | 4,717,219  |  
|Administrative service paid to Metropolitan                                                                                          |  |      | 5,993,827  |      |  |      | 4,661,305 |   |  |   | 480,682    |  
|Servicing and collection fees paid to
    Metropolitan affiliate                                                                     |  |      | 1,063,763  |      |  |      | 1,113,909 |   |  |   | 403,573    |  
|Net change in note receivable from Metropolitan                                                                                      |  |      | (1,206,161 | )    |  |      | (96,484   | ) |  |   | (8,007,289 | )
|Net change in notes payable to Metropolitan                                                                                          |  |      | 2,346,025  |      |  |      |          |   |  |   | 10,900,800 |  
|Net interest received (paid) on notes
    receivable from and payable to Metropolitan                                                |  |      | (736,477   | )    |  |      | (617,580  | ) |  |   | 1,190,359  |  
|Dividends received on investment in affiliated
    companies preferred stock                                                        |  |      | 204,856    |      |  |      | 205,693   |   |  |   | 217,067    |  

At September 30, 2002 and 2001, the Company
had net payable to affiliates of $8.5 million and
$3.4 million, respectively. At September 30, 2002 and
2001, the outstanding note payable to Metropolitan was
approximately $13.2 million and $10.9 million. At
September 30, 2002 and 2001, the outstanding note
receivable from Metropolitan was approximately $3.2 million
and $4.4 million, respectively.

The Companys receives acquisition services
from Metropolitan for a fee pursuant to the terms of a
Management, Receivable Acquisition and Servicing Agreement. The
fee is based upon yield requirements established by Summit, Old
Standard and Old West. Metropolitan charges, as its receivable
acquisition service fee, the difference between the yield
requirement and the yield Metropolitan actually negotiated when
the receivable was acquired. The agreements are non-exclusive
and may be terminated in whole or part by either party upon
notice.

During the year ended September 30, 2000,
Summit purchased a participation in certain structured
settlement and lease equipment receivables from Metropolitan at
estimated fair value. The purchase price of approximately
$13.6 million was financed in part by a $10.9 million
note receivable with the participated receivables pledged as
collateral. During the fiscal year ended September 30,
2002, Summit purchased the remaining interest in the structured
settlements that they had acquired from Metropolitan during the
fiscal year ended September 30, 2000. The purchase price of
approximately $4.8 million, which was derived from future
expected cash flows discounted at an 8.5% market rate, was
financed in part by increasing the existing note payable to
Metropolitan.

On March 28, 2002, Old Standard and Old West
agreed to purchase a 69.20% undivided beneficial interest in a
certain Lottery Trust owned by Western Life at a fair value of
approximately $11.2 million. The purchase price of was
derived from future expected cash flows discounted at a 6.957%
market rate.

On August 15, 2002, Old Standard and Old
West agreed to purchase the remaining interest in a certain
Lottery Trust owned by Western Life at a fair value of
approximately $6.2 million. The purchase price of was
derived from future expected cash flows discounted at a 5.527%
market rate. Additionally, on August 15, 2002, Old Standard
and Old West agreed to purchase a 95.83% undivided beneficial
interest in a certain Lottery

F-34



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



16.     Related-Party
Transactions (continued)


Trust owned by Western Life at a fair value of
approximately $29.1 million. The purchase price of was
derived from future expected cash flows discounted at a 5.888%
market rate.

Investment diversification was the primary
purpose for entering into the lottery trust and structured
settlement purchase and sale agreements. The market rates on the
above lottery trust sales were calculated as 2.0% basis points
over the Treasury benchmark as of the date of the sale, which is
consistent with corporate bonds with similar credit profiles
along with recent transactions involving large blocks of lottery
receivables.

During the year ended September 30, 2000,
the Company purchased an $18 million non-interest bearing
contract receivable, collateralized by timber rights in Hawaii
from Metropolitan at estimated fair value of approximately $13.1
using a discount rate of 12%. At September 30, 2002, this
receivable is in default.

During the fiscal year ended September 30,
2002, Summit agreed to sell their minority investment in
Consumers Group Holding Company, a subsidiary of Metropolitan,
to Metropolitan. The purchase price of approximately
$2.3 million, which resulted in a gain of approximately
$0.8 million, was based on an estimated fair value of
Consumers Group Holding of approximately two times the adjusted
book value, discounted to approximately the adjusted book value
due to the minority interest nature of the investment.

Old Standard entered into a reinsurance agreement
with Western Life, which became effective July 1, 1998.
Under this agreement, Western Life may reinsure with Old
Standard 75% of the risk on certain annuity products. The
reinsurance agreement is an ongoing arrangement with no stated
expiration or termination date, although each may stop and
restart at their discretion upon providing a 30-day advance
written notice. Ceding allowances are paid by Old Standard to
compensate Western Life for a portion of its annuity issuance
costs. Additionally, Western Life receives a fee from Old
Standard for servicing the reinsured policies of approximately
0.40% annually on the cash value of the reinsured policies.

Summit Property Development provides real estate
development services to Metropolitan and Western Life for a fee.
Such services may include, but are not limited to the following:
sales, marketing, market analysis, architectural services,
design services, subdividing properties and coordination with
regulatory groups to obtain the approvals which are necessary to
develop a particular property.

MIS sells the securities products of Metropolitan
and of Summit. Metropolitan pays commissions to MIS for the sale
of Metropolitans securities pursuant to the terms of a
written Selling Agreement. The commission rate charged by MIS
depends on the type of security sold, its stated term and
whether the security sale involved a reinvestment by a prior
investor or a new investment.

The Company pays Metwest, an affiliate of
Metropolitan, a fee for providing Receivable servicing.
Additionally, the Company pays Metropolitan a fee for providing
accounting, data processing, and other administrative services.
During the year ended September 30, 2001, the Company
entered into an agreement with Metropolitan to change the
methodology for allocating the service fee and administrative
charges to a cost sharing arrangement from a fixed and
calculated fee arrangement. Management believes that the fixed
and calculated fee arrangement did not result in a reimbursement
to Metropolitan of all significant direct expenses incurred on
behalf of the Consolidated Group. Currently, management
anticipates that Metropolitan will continue to supply these
services in the future.

Metropolitan sponsors a Retirement Savings Plan
(the Plan), authorized under Section 401(k) of
the Tax Reform Act of 1986, as amended. This Plan is available
to all of the Companys employees over the age of 18 upon
completion of six months of service. Prior to January 1,
company employees may defer from 1% to 15% of their compensation
in multiples of whole percentages. Effective January 1,
2002, the plan was amended to allow employees to defer from 1%
to 80% of their compensation up to the annual maximum amount as
determined by the IRS.

F-35



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



16.     Related-Party
Transactions (continued)


Prior to January 1, 1999, if Metropolitan
had a net profit for the fiscal year ending within a calendar
year, a match equal to 50% of pre-tax contributions up to 6% of
the participants compensation was credited to the account
of each active participant on December 31. Effective
January 1, 1999, the plan was amended to modify the
employer match to a discretionary matching contribution equal to
a uniform percentage of the amount of the participant
contribution, up to 6% of the participants annual
compensation. The uniform percentage is to be determined
annually by Metropolitan. Metropolitan may also make an
additional discretionary contribution during any plan year. The
Companys contributions to the Plan were approximately
$77,000 during the year ended September 30, 2002.

17.     Fair Value of
Financial Instruments:

The following methods and assumptions were used
to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value.
Potential income tax ramifications related to the realization of
unrealized gains and losses that would be incurred in an actual
sale and/or settlement have not been taken into consideration.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Publicly Traded Investment
    SecuritiesFair value is
    determined by quoted market prices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Non-Publicly Traded Investment
    SecuritiesFair value is derived
    from quoted market prices for securities with similar
    characteristics and risks or is estimated based upon expected
    discounted future cash flows. When determining expected future
    cash flows, the Company considers interest rates, estimated
    prepayment rates, collateral value, and historical default rates
    experienced by the securities.                                                                                                                                                                                                             
|
| | Real Estate Contracts and Mortgage Notes
    ReceivableFor receivables,
    (excluding accrued interest receivable), fair value is estimated
    by discounting contractual cash flows adjusted for prepayment
    estimates. For residential mortgage notes receivable, fair value
    is estimated by discounting contractual cash flows adjusted for
    prepayment estimates. The prepayment estimates are based upon
    internal historical data. The discount rate is estimated using
    rates currently offered for receivables of similar
    characteristics that reflect the credit and interest rate risk
    inherent in the receivable.
|
| | Other Receivable
    InvestmentsThe fair value of
    other receivable investments is based on the discounted value of
    contractual cash flows. The discount rate is estimated using the
    rates currently offered for investments with similar credit
    ratings and similar remaining maturities.                                                                                                                                                                                                                                                                                                                                             
|
| | Annuity
    ReservesThe fair value of
    annuity reserves is based on the discounted value of contractual
    cash flows. The discount rate is determined using the rates
    currently offered for similar annuity reserves.                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Investment Certificates and Debt
    PayableThe fair value of
    investment certificates and debt payable is based on the
    discounted value of contractual cash flows. The discount rate is
    estimated using the rates currently offered for debt with
    similar remaining maturities.                                                                                                                                                                                                                                                                                                                                                       
|
| | Off-Balance-Sheet Financial
    InstrumentsFair value
    approximates the notional amount of commitments to extend credit
    because advances bear current interest rates and are made
    contingent to the borrowers compliance with the existing loan
    agreement.                                                                                                                                                                                                                                                                                                                                                                             

F-36



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17.     Fair Value of
Financial Instruments (continued)

The estimated fair values of the following
financial instruments as of September 30, 2002 and 2001 are
as follows:

|                       |                                                              |                               |   |             |             |          |   |             |             |  |   |             |            |  |   |             |            | 
|---------------------- | ------------------------------------------------------------ | ----------------------------- | - | ----------- | ----------- | -------- | - | ----------- | ----------- |  | - | ----------- | ---------- |  | - | ----------- | ---------- | 
|                       |                                                              |                               |   |            
|                       |                                                              | 2002                          |   | 2001       
|                       |                                                              |                               |   |            
|                       |                                                              | Carrying                      |   |             |             | Carrying |   |            
|                       |                                                              | Amounts                       |   | Fair Value  |             | Amounts  |   | Fair Value 
|                       |                                                              |                               |   |             |             |          |   |            
|Financial assets:      |                                                              |                               |   |             |             |          |   |             |             |  |   |             |            |  |   |            
|                       | Cash and cash equivalents                                    |                               | $ | 30,725,256  |             |          | $ | 30,725,256  |             |  | $ | 37,606,887  |            |  | $ | 37,606,887  |           
|                       | Investments in affiliated companies                          |                               |   | 3,022,425   |             |          |   | 3,022,425   |             |  |   | 4,522,425   |            |  |   | 4,522,425   |           
|                       | Investments:                                                 |                               |   |             |             |          |   |             |             |  |   |             |            |  |   |             |           
|                       |                                                              | Trading securities            |   |             |            |          |   |             |            |  |   |             | 22,226,923 |  |   |             | 22,226,923 | 
|                       |                                                              | Available-for-sale securities |   |             | 163,500,373 |          |   |             | 163,500,373 |  |   |             | 73,630,137 |  |   |             | 73,630,137 | 
|                       |                                                              | Held-to-maturity securities   |   |             | 5,883,021   |          |   |             | 6,088,889   |  |   |             |           |  |   |             |           | 
|                       | Real estate contracts and mortgage notes
    receivable      |                               |   | 251,290,499 |             |          |   | 253,947,097 |             |  |   | 211,965,416 |            |  |   | 225,762,867 |           
|                       | Other receivable investments                                 |                               |   | 90,060,257  |             |          |   | 95,028,894  |             |  |   | 44,317,237  |            |  |   | 44,328,959  |           
|Financial liabilities: |                                                              |                               |   |             |             |          |   |             |             |  |   |             |            |  |   |            
|                       | Annuity reserves                                             |                               |   | 420,284,849 |             |          |   | 425,820,042 |             |  |   | 292,434,738 |            |  |   | 292,512,087 |           
|                       | Investment certificates principal and
    compound interest |                               |   | 112,242,163 |             |          |   | 112,856,385 |             |  |   | 91,893,912  |            |  |   | 93,144,901  |           
|                       | Debt payable principal                                      |                               |   | 40,868,588  |             |          |   | 40,898,646  |             |  |   | 11,061,176  |            |  |   | 11,504,221  |           
|                       | Off-balance sheet instruments:                               |                               |   |             |             |          |   |             |             |  |   |             |            |  |   |             |           
|                       |                                                              | Commitments to extend credit  |   |             | 10,093,506  |          |   |             | 10,093,506  |  |   |             | 11,645,444 |  |   |             | 11,645,444 | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | LimitationsThe
    fair value estimates are made at a discrete point in time based
    on relevant market information and information about the
    financial instruments. Because no market exists for a
    significant portion of these financial instruments, fair value
    estimates are based on judgments regarding future expected loss
    experience, current economic conditions, risk characteristics of
    various financial instruments and other factors. These estimates
    are subjective in nature and involve uncertainties and matters
    of significant judgment and, therefore, cannot be determined
    with precision. Changes in assumptions could significantly
    affect the estimates. Accordingly, the estimates presented
    herein are not necessarily indicative of what the Company could
    realize in a current market exchange.



|    |                                              
|--- | ---------------------------------------------
|18. | Parent Company Only Financial
    Statements:

The condensed balance sheets of Summit
Securities, Inc. (Summit or the parent
company) at September 30, 2002 and 2001 are as
follows:

|                                                                                              |  |      |            |      |  |   |            | 
|--------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | 
|                                                                                              |  | 2002 |            | 2001
|                                                                                              |  |      |            |     
|ASSETS                                                                                       
|Cash and cash equivalents                                                                     |  | $    | 2,386,297  |      |  | $ | 765,617    | 
|Investments                                                                                   |  |      | 12,040,475 |      |  |   | 16,824,924 | 
|Real estate contracts and mortgage notes
    receivable and other receivable investments, net |  |      | 51,293,059 |      |  |   | 45,143,848 | 
|Real estate held for sale, net                                                                |  |      | 2,667,925  |      |  |   | 3,590,169  | 
|Equity in subsidiary companies                                                                |  |      | 81,395,894 |      |  |   | 58,116,402 | 
|Deferred cost, net                                                                            |  |      | 3,832,940  |      |  |   | 3,205,955  | 

F-37



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                         
|--- | --------------------------------------------------------
|18. | Parent Company Only Financial Statements
    (continued)

|                                                                         |                                            |      |             |             |  |   |            |             | 
|------------------------------------------------------------------------ | ------------------------------------------ | ---- | ----------- | ----------- |  | - | ---------- | ----------- | 
|                                                                         |                                            | 2002 |             | 2001       
|                                                                         |                                            |      |             |            
|Other assets, including receivable from affiliates                       |                                            |      | 152,529     |             |  |   | 1,758,496  |            
|Deferred income taxes                                                    |                                            |      | 9,940,586   |             |  |   | 6,374,345  |            
|                                                                         |                                            |      |             |             |  |   |            |            
|                                                                         | Total assets                               |      | $           | 163,709,705 |  |   | $          | 135,779,756 | 
|                                                                         |                                            |      |             |             |  |   |            |            
|                                                                        
|LIABILITIES                                                             
|Investment certificates and accrued interest                             |                                            | $    | 113,677,625 |             |  | $ | 93,101,273 |            
|Debt payable                                                             |                                            |      | 13,275,337  |             |  |   | 10,930,340 |            
|Accounts payable, including payable to affiliates                        |                                            |      | 1,240,334   |             |  |   | 60,781     |            
|                                                                         |                                            |      |             |             |  |   |            |            
|                                                                         | Total liabilities                          |      | $           | 128,193,296 |  |   | $          | 104,092,394 | 
|                                                                         |                                            |      |             |             |  |   |            |            
|                                                                        
|STOCKHOLDERS EQUITY                                                    
|Preferred stock (liquidation preference
    $33,060,840 and $33,251,240) |                                            |      | 3,306,084   |             |  |   | 3,325,124  |            
|Common stock, $10 par, 10,000 issued and
    outstanding                 |                                            |      | 100,000     |             |  |   | 100,000    |            
|Additional paid-in capital                                               |                                            |      | 26,810,732  |             |  |   | 27,020,141 |            
|Accumulated other comprehensive income (loss)                            |                                            |      | 2,865,893   |             |  |   | (1,121,734 | )          
|Retained earnings                                                        |                                            |      | 2,433,700   |             |  |   | 2,363,831  |            
|                                                                         |                                            |      |             |             |  |   |            |            
|                                                                         | Total stockholders equity                 |      |             | 35,516,409  |  |   |            | 31,687,362  | 
|                                                                         |                                            |      |             |             |  |   |            |            
|                                                                         | Total liabilities and stockholders equity |      | $           | 163,709,705 |  |   | $          | 135,779,756 | 
|                                                                         |                                            |      |             |             |  |   |            |            

Summits condensed statements of income for
the years ended September 30, 2002, 2001 and 2000 are as
follows:

|                                                                                               |                                                       |                |             |            |            |      |             |            |            |  |           |           |            | 
|---------------------------------------------------------------------------------------------- | ----------------------------------------------------- | -------------- | ----------- | ---------- | ---------- | ---- | ----------- | ---------- | ---------- |  | --------- | --------- | ---------- | 
|                                                                                               |                                                       | 2002           |             | 2001       |            | 2000
|                                                                                               |                                                       |                |             |            |            |     
|Revenues:                                                                                      |                                                       |                |             |            |            |      |             |            |            |  |           |          
|                                                                                               | Interest and other investment income                  |                | $           | 5,276,037  |            |      | $           | 6,360,869  |            |  | $         | 6,245,087 |           
|                                                                                               | Fees, commissions, services and other income          |                |             | 411,315    |            |      |             | 83,018     |            |  |           | 32,844    |           
|                                                                                               | Real estate sales                                     |                |             | 822,650    |            |      |             | 581,800    |            |  |           | 934,990   |           
|                                                                                               | Net gains (losses) on investments and
    receivables |                |             | (2,577,500 | )          |      |             | (2,564,238 | )          |  |           | 5,446,717 |           
|                                                                                               |                                                       |                |             |            |            |      |             |            |            |  |           |          
|                                                                                               |                                                       | Total revenues |             |            | 3,932,502  |      |             |            | 4,461,449  |  |           |           | 12,659,638 | 
|                                                                                               |                                                       |                |             |            |            |      |             |            |            |  |           |          
|Expenses:                                                                                      |                                                       |                |             |            |            |      |             |            |            |  |           |          
|                                                                                               | Interest expense                                      |                |             | 10,449,960 |            |      |             | 9,252,139  |            |  |           | 6,616,694 |           
|                                                                                               | Cost of real estate sold                              |                |             | 824,301    |            |      |             | 580,759    |            |  |           | 944,413   |           
|                                                                                               | Provision for losses on real estate assets            |                |             | 657,202    |            |      |             | 3,345,172  |            |  |           | 1,752,889 |           
|                                                                                               | Salaries and employee benefits                        |                |             | 193,613    |            |      |             | 425,418    |            |  |           | 560,999   |           
|                                                                                               | Other operating expenses                              |                |             | 4,146,487  |            |      |             | 5,186,644  |            |  |           | 1,536,785 |           
|                                                                                               |                                                       |                |             |            |            |      |             |            |            |  |           |          
|                                                                                               |                                                       | Total expenses |             |            | 16,271,563 |      |             |            | 18,790,132 |  |           |           | 11,411,780 | 
|                                                                                               |                                                       |                |             |            |            |      |             |            |            |  |           |          
|Income (loss) from operations before income taxes
    and equity in net income of subsidiaries |                                                       |                | (12,339,061 | )          |            |      | (14,328,683 | )          |            |  | 1,247,858 |          
|Income tax (provision) benefit                                                                 |                                                       |                | 4,239,141   |            |            |      | 4,742,608   |            |            |  | (379,460  | )        
|                                                                                               |                                                       |                |             |            |            |      |             |            |            |  |           |          

F-38



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                         
|--- | --------------------------------------------------------
|18. | Parent Company Only Financial Statements
    (continued)

|                                                                            |  |      |            |      |  |      |            |   |  |   |           | 
|--------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | --------- | 
|                                                                            |  | 2002 |            | 2001 |  | 2000
|                                                                            |  |      |            |      |  |     
|Income (loss) before equity in undistributed net
    income of subsidiaries |  |      | (8,099,920 | )    |  |      | (9,586,075 | ) |  |   | 868,398   | 
|Equity in undistributed net income of subsidiaries                          |  |      | 12,497,208 |      |  |      | 7,095,361  |   |  |   | 3,213,841 | 
|                                                                            |  |      |            |      |  |      |            |   |  |   |           | 
|Net income (loss)                                                           |  | $    | 4,397,288  |      |  | $    | (2,490,714 | ) |  | $ | 4,082,239 | 
|                                                                            |  |      |            |      |  |      |            |   |  |   |           | 

Summits condensed statements of cash flows
for the years ended September 30, 2002, 2001 and 2000 are as
follows:

|                                      |                                                                                                                 |                                                         |   |             |             |      |   |             |             |   |   |             |            |  
|------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | - | ----------- | ----------- | ---- | - | ----------- | ----------- | - | - | ----------- | ---------- | -
|                                      |                                                                                                                 | 2002                                                    |   | 2001        |             | 2000
|                                      |                                                                                                                 |                                                         |   |             |             |     
|Cash flows from operating activities: |                                                                                                                 |                                                         |   |             |             |      |   |             |             |   |   |            
|                                      | Net income (loss)                                                                                               |                                                         | $ | 4,397,288   |             |      | $ | (2,490,714  | )           |   | $ | 4,082,239   |           
|                                      | Adjustments to reconcile net income to net cash
    from operating activities                                   |                                                         |   | (1,980,719  | )           |      |   | 4,766,369   |             |   |   | (9,607,290  | )         
|                                      |                                                                                                                 |                                                         |   |             |             |      |   |             |             |   |   |            
|                                      |                                                                                                                 | Net cash provided by (used in) operating
    activities |   |             | 2,416,569   |      |   |             | 2,275,655   |   |   |             | (5,525,051 | )
|                                      |                                                                                                                 |                                                         |   |             |             |      |   |             |             |   |   |            
|Cash flows from investing activities: |                                                                                                                 |                                                         |   |             |             |      |   |             |             |   |   |            
|                                      | Principal payments on real estate contracts and
    mortgage notes receivable and other receivable investments  |                                                         |   | 11,724,838  |             |      |   | 5,695,286   |             |   |   | 30,580,520  |           
|                                      | Proceeds from sales of real estate contracts and
    mortgage notes receivable and other receivable investments |                                                         |   | 9,362,117   |             |      |   | 310,214     |             |   |   | 4,280,696   |           
|                                      | Acquisition of real estate contracts and mortgage
    notes and other receivable investments                    |                                                         |   | (20,501,742 | )           |      |   | 1,355,058   |             |   |   | (37,549,338 | )         
|                                      | Proceeds from real estate sales                                                                                 |                                                         |   | 822,650     |             |      |   | 581,800     |             |   |   | 934,990     |           
|                                      | Purchase of investments                                                                                         |                                                         |   |            |             |      |   | (1,001,798  | )           |   |   | (2,562,705  | )         
|                                      | Proceeds from sales of investments                                                                              |                                                         |   | 5,467,542   |             |      |   |            |             |   |   |            |           
|                                      | Proceeds from maturities of investments                                                                         |                                                         |   | 179,316     |             |      |   | 273,747     |             |   |   | 131,668     |           
|                                      | Additions to real estate held for sale                                                                          |                                                         |   | (98,011     | )           |      |   | (1,574,857  | )           |   |   | (305,726    | )         
|                                      | Net change in investment in and advances to
    subsidiaries                                                    |                                                         |   | (21,520,996 | )           |      |   | (30,741,877 | )           |   |   | (3,616,666  | )         
|                                      |                                                                                                                 |                                                         |   |             |             |      |   |             |             |   |   |            
|                                      |                                                                                                                 | Net cash used in investing activities                   |   |             | (14,564,286 | )    |   |             | (25,102,427 | ) |   |             | (8,106,561 | )
|                                      |                                                                                                                 |                                                         |   |             |             |      |   |             |             |   |   |            
|Cash flows from financing activities: |                                                                                                                 |                                                         |   |             |             |      |   |             |             |   |   |            
|                                      | Repayments to banks and others                                                                                  |                                                         |   | (656,974    | )           |      |   | (108,553    | )           |   |   | (4,269      | )         
|                                      | Debt issuance costs                                                                                             |                                                         |   | (626,985    | )           |      |   | (1,203,702  | )           |   |   | (694,589    | )         
|                                      | Proceeds from issuance of investment certificates                                                               |                                                         |   | 30,071,423  |             |      |   | 42,954,859  |             |   |   | 9,183,528   |           
|                                      | Repayments of investment certificates                                                                           |                                                         |   | (10,463,199 | )           |      |   | (19,885,931 | )           |   |   | (11,605,055 | )         

F-39



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                         
|--- | --------------------------------------------------------
|18. | Parent Company Only Financial Statements
    (continued)

|                                             |                                                                        |                                           |           |            |            |      |           |            |            |   |            |            |           | 
|-------------------------------------------- | ---------------------------------------------------------------------- | ----------------------------------------- | --------- | ---------- | ---------- | ---- | --------- | ---------- | ---------- | - | ---------- | ---------- | --------- | 
|                                             |                                                                        | 2002                                      |           | 2001       |            | 2000
|                                             |                                                                        |                                           |           |            |            |     
|                                             | Issuance of preferred stock, net of redemptions
    from related party |                                           |           | (228,449   | )          |      |           | 4,063,219  |            |   |            | 12,735,650 |          
|                                             | Cash dividends                                                         |                                           |           | (4,327,419 | )          |      |           | (3,599,849 | )          |   |            | (3,025,155 | )        
|                                             |                                                                        |                                           |           |            |            |      |           |            |            |   |            |           
|                                             |                                                                        | Net cash provided by financing activities |           |            | 13,768,397 |      |           |            | 22,220,043 |   |            |            | 6,590,110 | 
|                                             |                                                                        |                                           |           |            |            |      |           |            |            |   |            |           
|Net change in cash and cash equivalents      |                                                                        |                                           | 1,620,680 |            |            |      | (606,729  | )          |            |   | (7,041,502 | )         
|Cash and cash equivalents, beginning of year |                                                                        |                                           | 765,617   |            |            |      | 1,372,346 |            |            |   | 8,413,848  |           
|                                             |                                                                        |                                           |           |            |            |      |           |            |            |   |            |           
|Cash and cash equivalents, end of year       |                                                                        | $                                         | 2,386,297 |            |            | $    | 765,617   |            |            | $ | 1,372,346  |           
|                                             |                                                                        |                                           |           |            |            |      |           |            |            |   |            |           

Non-cash investing and financing activities not
included in Summits condensed statements of cash flows for
the years ended September 30, 2002, 2001 and 2000 are as
follows:

|                                                                                                                                                    |  |      |           |      |  |      |           |  |  |   |            | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | ---------- | 
|                                                                                                                                                    |  | 2002 |           | 2001 |  | 2000
|                                                                                                                                                    |  |      |           |      |  |     
|Real estate acquired through foreclosure                                                                                                            |  | $    | 534,663   |      |  | $    | 3,797,203 |  |  | $ | 719,997    | 
|Other receivable investment acquisitions financed
    with a note payable                                                                           |  |      | 3,000,000 |      |  |      |          |  |  |   | 10,900,800 | 
|Assumption of debt payable in conjunction with
    acquisition of real estate contracts and mortgage notes
    receivable or foreclosed real estate |  |      |          |      |  |      |          |  |  |   | 5,000      | 
|Transfer of securities from trading to
    available-for-sale                                                                                       |  |      |          |      |  |      | 4,078,396 |  |  |   |           | 

Accounting policies followed in the preparation
of the preceding condensed financial statements of Summit
(parent company only) are the same as those policies described
in the consolidated financial statements except that the equity
method was used in accounting for the investments in and net
income from subsidiaries.

At September 30, 2002 and 2001,
Summits debt payable consists of the following:

|                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      |            |      |  |   |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                |  | 2002 |            | 2001
|                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      |            |     
|Real estate contracts and mortgage notes payable,
    interest rates ranging from 5.25% to 8.00%, due in installments
    through 2020; collateralized by senior liens on certain of the
    Companys real estate contracts, mortgage notes receivable
    and real estate held for sale                                                                                                                                       |  | $    | 28,326     |      |  | $ | 29,358     | 
|Note payable to Metropolitan Mortgage &
    Securities Co., Inc., interest at 9.38% and 10% per annum, due
    in annual installments through September 2012 and September
    2011, for 2002 and 2001, respectively. Notes were collateralized
    by other receivable investments with face values of $17,851,247
    and $15,661,565 and carrying values of $13,285,466 and
    $10,691,815, for 2002 and 2001, respectively |  |      | 13,246,825 |      |  |   | 10,900,800 | 
|Prepaid interest                                                                                                                                                                                                                                                                                                                                                                                                                |  |      | 186        |      |  |   | 183        | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      |            |      |  |   |            | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                |  | $    | 13,275,337 |      |  | $ | 10,930,340 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      |            |      |  |   |            | 

F-40



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                         
|--- | --------------------------------------------------------
|18. | Parent Company Only Financial Statements
    (continued)

Aggregate amounts of principal payments due on
the parent companys debt payable are expected to be as
follows:

|                   |      |   |            |           | 
|------------------ | ---- | - | ---------- | --------- | 
|Fiscal Year Ending |      |  
|September 30,      |      |  
|                   |      |  
|                   | 2003 |   | $          | 849,937   | 
|                   | 2004 |   |            | 937,204   | 
|                   | 2005 |   |            | 1,025,120 | 
|                   | 2006 |   |            | 1,146,887 | 
|                   | 2007 |   |            | 1,226,468 | 
|Thereafter         |      |   | 8,089,721  |          
|                   |      |   |            |          
|                   |      | $ | 13,275,337 |          
|                   |      |   |            |          

At September 30, 2002 and 2001,
Summits investment certificates consisted of the following:

|                              |  |      |             |      |  |   |            | 
|----------------------------- |  | ---- | ----------- | ---- |  | - | ---------- | 
|Annual Interest Rates         |  | 2002 |             | 2001
|                              |  |      |             |     
|5% to 6%                      |  | $    | 2,578,366   |      |  | $ |           | 
|6% to 7%                      |  |      | 2,760,231   |      |  |   | 2,745,912  | 
|7% to 8%                      |  |      | 9,642,836   |      |  |   | 5,079,000  | 
|8% to 9%                      |  |      | 64,628,754  |      |  |   | 48,615,000 | 
|9% to 10%                     |  |      | 24,394,235  |      |  |   | 28,712,000 | 
|                              |  |      |             |      |  |   |            | 
|                              |  |      | 104,004,422 |      |  |   | 85,151,912 | 
|Compound and accrued interest |  |      | 9,673,203   |      |  |   | 7,949,361  | 
|                              |  |      |             |      |  |   |            | 
|                              |  | $    | 113,677,625 |      |  | $ | 93,101,273 | 
|                              |  |      |             |      |  |   |            | 

Maturities of the parent companys
investment certificates are as follows:

|                   |      |   |             |            | 
|------------------ | ---- | - | ----------- | ---------- | 
|Fiscal Year Ending |      |  
|September 30,      |      |  
|                   |      |  
|                   | 2003 |   | $           | 14,855,871 | 
|                   | 2004 |   |             | 15,783,365 | 
|                   | 2005 |   |             | 32,276,353 | 
|                   | 2006 |   |             | 18,769,452 | 
|                   | 2007 |   |             | 25,666,226 | 
|Thereafter         |      |   | 6,326,358   |           
|                   |      |   |             |           
|                   |      | $ | 113,677,625 |           
|                   |      |   |             |           

F-41



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                         
|--- | --------------------------------------------------------
|18. | Parent Company Only Financial Statements
    (continued)

Summit had the following related-party
transactions with its various subsidiaries and affiliated
entities:

|                                                                                                                                                                                 |  |      |            |      |  |      |           |  |  |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | --------- |  |  | - | ----------- | -
|                                                                                                                                                                                 |  | 2002 |            | 2001 |  | 2000
|                                                                                                                                                                                 |  |      |            |      |  |     
|Real estate contracts, mortgage notes and other
    receivable investments purchased through Metropolitan or
    affiliates                                                      |  | $    |           |      |  | $    | 1,315,203 |  |  | $ | 31,187,837  |  
|Contract acquisition costs charged to Summit on
    purchased real estate contracts, mortgage notes and other
    receivable investments, including management underwriting fees |  |      | 810,998    |      |  |      | 89,267    |  |  |   | 16,793      |  
|Purchase of residual interest in securitization
    from Metropolitan                                                                                                            |  |      |           |      |  |      |          |  |  |   | 1,196,701   |  
|Proceeds on sales or real estate contracts,
    mortgage notes and other receivable investments to Metropolitan
    or its affiliates                                            |  |      |           |      |  |      |          |  |  |   | 4,066,924   |  
|Realized net gains on sales of receivables to
    Metropolitan or its affiliates                                                                                                 |  |      |           |      |  |      |          |  |  |   | 13,571      |  
|Dividends received on affiliated companies
    stock investments                                                                                                                |  |      | 204,856    |      |  |      |          |  |  |   | 217,067     |  
|Net change in notes receivable from Metropolitan                                                                                                                                 |  |      | (1,206,161 | )    |  |      |          |  |  |   | (10,000,000 | )
|Net change in notes payable to Metropolitan                                                                                                                                      |  |      | 2,346,025  |      |  |      |          |  |  |   | 10,900,800  |  
|Net interest received on note receivable or
    payable to Metropolitan                                                                                                          |  |      | (736,477   | )    |  |      | 1,090,080 |  |  |   | 1,002,139   |  
|Servicing and collection fees charged by a
    Metropolitan affiliate                                                                                                            |  |      | 1,995,963  |      |  |      | 2,292,481 |  |  |   | 92,484      |  
|Proceeds from sales of minority interest
    investment to Metropolitan                                                                                                          |  |      | 2,325,945  |      |  |      |          |  |  |   |            |  
|Gains on sales of minority interest investment to
    Metropolitan                                                                                                               |  |      | 825,945    |      |  |      |          |  |  |   |            |  

During the year ended September 30, 2000,
the Company purchased a participation in certain structured
settlements from Metropolitan and a participation in certain
lease equipment receivables from a subsidiary of Metropolitan at
estimated fair value. The purchase price for the structured
settlements of approximately $8.1 million and the lease
equipment receivables of approximately $5.5 million were
financed in part by a $10.9 million note payable with the
participated receivables pledged as collateral. Additionally,
during the year ended September 30, 2002, the Company
agreed to purchase from Metropolitan the remaining participation
in certain structured settlements acquired from Metropolitan
during the fiscal year ended September 30, 2000. The
purchase price of approximately $4.8 million was derived
from future expected cash flows discounted at an 8.5% market
rate. Investment diversification was the primary purpose of
entering into the lottery trust and structured settlement
purchase and sale agreements. The outstanding balance on the
note receivable at September 30, 2002 and 2001 was
$13.2 million and $10.9 million, respectively.

Additionally, during the year ended
September 30, 2000, the Company purchased an
$18 million non-interest bearing contract receivable,
collateralized by timber rights in Hawaii from Metropolitan at
an estimated fair value of approximately $13.2 million
using a discount rate of 12%.

During the year ended September 30, 2002,
the Company sold to Metropolitan its minority interest
investment in Consumers Group Holding Company, a subsidiary of
Metropolitan. The sale price of approximately $2.3 million
was based on an estimated fair value of Consumers Group Holding
of approxi-

F-42



---



##### Table of Contents



SUMMIT SECURITIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

18.        Parent
Company Only Financial Statements (continued)

mately two times the adjusted book value,
discounted to approximately the adjusted book value due to the
minority interest nature of the investment. The sale resulted in
a gain of approximately $0.8 million.



|    |                                                     
|--- | ----------------------------------------------------
|19. | Supplementary Financial Information
    (unaudited):

Supplementary financial information of the
Company for each three month period (September 30,
June 30, March 31 and December 31) of the years
ended September 30, 2002 and 2001 are as follows:

|                                                |  |                        |        |      |  |       |        |          |  |           |        |      |  |       |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|----------------------------------------------- |  | ---------------------- | ------ | ---- |  | ----- | ------ | -------- |  | --------- | ------ | ---- |  | ----- | ------ | -------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                |  |                       
|                                                |  | Three months ended    
|                                                |  |                       
|                                                |  | September              |        | June |  | March |        | December |  | September |        | June |  | March |        | December
|                                                |  | 2002                   |        | 2002 |  | 2002  |        | 2001     |  | 2001      |        | 2001 |  | 2001  |        | 2000    
|                                                |  |                        |        |      |  |       |        |          |  |           |        |      |  |       |        |         
|                                                |  |                       
|                                                |  | (Dollars in thousands)
|CONSOLIDATED STATEMENTS OF OPERATIONS DATA:     |  |                        |        |      |  |       |        |          |  |           |        |      |  |       |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Revenues                                        |  | $                      | 23,312 | (1)  |  | $     | 17,775 |          |  | $         | 14,762 | (2)  |  | $     | 16,956 |          |  | $ | 14,834 |   |  | $ | 14,841 |   |  | $ | 8,288  |   |  | $ | 10,246 |  
|                                                |  |                        |        |      |  |       |        |          |  |           |        |      |  |       |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Net income (loss)                               |  |                        | 1,316  |      |  |       | 1,856  |          |  |           | 741    |      |  |       | 484    |          |  |   | (493   | ) |  |   | 1,356  |   |  |   | (2,838 | ) |  |   | (516   | )
|Preferred stock dividends                       |  |                        | (654   | )    |  |       | (686   | )        |  |           | (685   | )    |  |       | (662   | )        |  |   | (674   | ) |  |   | (637   | ) |  |   | (616   | ) |  |   | (623   | )
|                                                |  |                        |        |      |  |       |        |          |  |           |        |      |  |       |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Income (loss) applicable to common stockholders |  | $                      | 662    |      |  | $     | 1,170  |          |  | $         | 56     |      |  | $     | (178   | )        |  | $ | (1,167 | ) |  | $ | 719    |   |  | $ | (3,454 | ) |  | $ | (1,139 | )
|                                                |  |                        |        |      |  |       |        |          |  |           |        |      |  |       |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  



---



|    |                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes property development commissions and
    fees charged to Metropolitan of $2.1 million and proceeds
    from sales of real estate of $3.7 million.
|   
|(2) | Includes investment impairments of
    $3.1 million.                                                                                                      

F-43



---



##### Table of Contents



SCHEDULE I

SUMMIT SECURITIES, INC.

SUMMARY OF INVESTMENTS


OTHER THAN INVESTMENTS IN RELATED
PARTIES


September 30, 2002

|                                     |                                                             |                |             |              |  |                |             |             |  |   |             |             | 
|------------------------------------ | ----------------------------------------------------------- | -------------- | ----------- | ------------ |  | -------------- | ----------- | ----------- |  | - | ----------- | ----------- | 
|Column A                             |                                                             | Column B       |             | Column C     |  | Column D      
|                                     |                                                             |                |             |              |  |               
|                                     |                                                             |                |             |              |  | Amount At     
|                                     |                                                             |                |             |              |  | Which Shown On
|Type of Investments                  |                                                             | Amortized Cost |             | Market Value |  | Balance Sheet 
|                                     |                                                             |                |             |              |  |               
|FIXED MATURITIES                     |                                                             |                |             |              |  |                |             |             |  |   |             |            
|Investments:                         |                                                             |                |             |              |  |                |             |             |  |   |             |            
|                                     | U.S. Government and Government Agencies and
    Authorities |                | $           | 50,776,534   |  |                | $           | 52,401,391  |  |   | $           | 52,361,657  | 
|                                     | Corporate Bonds                                             |                |             | 1,855,580    |  |                |             | 1,864,035   |  |   |             | 1,864,035   | 
|                                     | Mortgage and Asset-Back Bonds                               |                |             | 99,875,617   |  |                |             | 102,655,289 |  |   |             | 102,489,155 | 
|                                     |                                                             |                |             |              |  |                |             |             |  |   |             |            
|TOTAL FIXED MATURITIES               |                                                             | $              | 152,507,731 |              |  | $              | 156,920,715 |             |  | $ | 156,714,847 |            
|                                     |                                                             |                |             |              |  |                |             |             |  |   |             |            
|Equity Securities                    |                                                             | $              | 11,723,400  |              |  | $              | 11,858,548  |             |  | $ | 11,858,548  |            
|                                     |                                                             |                |             |              |  |                |             |             |  |   |             |            
|Venture Capital/ Limited Partnership |                                                             | $              | 809,999     |              |  | $              | 809,999     |             |  | $ | 809,999     |            
|                                     |                                                             |                |             |              |  |                |             |             |  |   |             |            
|Receivables                          |                                                             | $              | 354,882,860 |              |  |                |             |             |  | $ | 354,882,860 |            
|Less Allowance for Losses            |                                                             |                | (4,715,489  | )            |  |                |             |             |  |   | (4,715,489  | )          
|                                     |                                                             |                |             |              |  |                |             |             |  |   |             |            
|Net Receivables                      |                                                             | $              | 350,167,371 |              |  |                |             |             |  | $ | 350,167,371 |            
|                                     |                                                             |                |             |              |  |                |             |             |  |   |             |            
|Real Estate Held for Sale            |                                                             | $              | 45,957,758  |              |  |                |             |             |  | $ | 45,957,758  |            
|                                     |                                                             |                |             |              |  |                |             |             |  |   |             |            
|Other AssetsPolicy Loans            |                                                             | $              | 5,700       |              |  |                |             |             |  | $ | 5,700       |            
|                                     |                                                             |                |             |              |  |                |             |             |  |   |             |            
|TOTAL INVESTMENTS                    |                                                             | $              | 561,171,959 |              |  |                |             |             |  | $ | 565,514,223 |            
|                                     |                                                             |                |             |              |  |                |             |             |  |   |             |            

S-1



---



##### Table of Contents



SCHEDULE II

SUMMIT SECURITIES, INC. AND
SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES


Years Ended September 30, 2002, 2001, and
2000

|                                                                 |      |              |   |              |  |             |   |             |   |  |   |           |  |  |   |           | 
|---------------------------------------------------------------- | ---- | ------------ | - | ------------ |  | ----------- | - | ----------- | - |  | - | --------- |  |  | - | --------- | 
|                                                                 |      |              |   | Additions    |  |             |   |            
|                                                                 |      |              |   | (Reductions) |  | Deductions  |   |            
|                                                                 |      | Balance at   |   | Charged to   |  | and         |   |            
|                                                                 |      | Beginning of |   | Costs and    |  | Accounts    |   | Balance at 
|Description                                                      |      | Year         |   | Expenses     |  | Written Off |   | End of Year
|                                                                 |      |              |   |              |  |             |   |            
|Allowance for losses on receivables                              |      |              |   |              |  |             |   |             |   |  |   |           |  |  |   |          
|                                                                 | 2002 |              | $ | 5,146,119    |  |             | $ | 939,905     |   |  | $ | 1,370,535 |  |  | $ | 4,715,489 | 
|                                                                 | 2001 |              |   | 6,512,642    |  |             |   | 687,218     |   |  |   | 2,053,741 |  |  |   | 5,146,119 | 
|                                                                 | 2000 |              |   | 3,082,918    |  |             |   | 3,886,086   |   |  |   | 456,362   |  |  |   | 6,512,642 | 
|Allowance for losses deducted from real estate
    held for sale |      |              |   |              |  |             |   |             |   |  |   |           |  |  |   |          
|                                                                 | 2002 |              | $ | 2,626,303    |  |             | $ | 1,364,100   |   |  | $ | 1,674,310 |  |  | $ | 2,316,093 | 
|                                                                 | 2001 |              |   | 242,602      |  |             |   | 2,398,619   |   |  |   | 14,918    |  |  |   | 2,626,303 | 
|                                                                 | 2000 |              |   | 878,102      |  |             |   | (429,930    | ) |  |   | 205,570   |  |  |   | 242,602   | 
|Allowance for losses deducted from investments                   |      |              |   |              |  |             |   |             |   |  |   |           |  |  |   |          
|                                                                 | 2002 |              | $ |             |  |             | $ |            |   |  | $ |          |  |  | $ |          | 
|                                                                 | 2001 |              |   |             |  |             |   |            |   |  |   |          |  |  |   |          | 
|                                                                 | 2000 |              |   | 170,000      |  |             |   | 50,000      |   |  |   |          |  |  |   | 220,000   | 

S-2



---



##### Table of Contents



SCHEDULE III

Page 1 of 2


SUMMIT SECURITIES, INC. AND
SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION


|                   |           |             |   |                  |  |          |   |              |  |  |   |   |  |  |   |   | 
|------------------ | --------- | ----------- | - | ---------------- |  | -------- | - | ------------ |  |  | - | - |  |  | - | - | 
|                   |           | Deferred    |   | Future Policy    |  |          |   | Other Policy
|                   |           | Policy      |   | Benefits Losses, |  |          |   | Claims and  
|                   |           | Acquisition |   | Claims and Loss  |  | Unearned |   | Benefits    
|                   |           | Cost        |   | Expenses         |  | Premiums |   | Payable     
|                   |           |             |   |                  |  |          |   |             
|September 30, 2002 |           |             |   |                  |  |          |   |              |  |  |   |   |  |  |   |  
|                   | Annuities |             | $ | 16,241,111       |  |          | $ | 420,284,849  |  |  | $ |  |  |  | $ |  | 
|                   |           |             |   |                  |  |          |   |              |  |  |   |   |  |  |   |  
|September 30, 2001 |           |             |   |                  |  |          |   |              |  |  |   |   |  |  |   |  
|                   | Annuities |             | $ | 12,669,584       |  |          | $ | 292,434,738  |  |  | $ |  |  |  | $ |  | 
|                   |           |             |   |                  |  |          |   |              |  |  |   |   |  |  |   |  
|September 30, 2000 |           |             |   |                  |  |          |   |              |  |  |   |   |  |  |   |  
|                   | Annuities |             | $ | 11,271,272       |  |          | $ | 237,634,664  |  |  | $ |  |  |  | $ |  | 
|                   |           |             |   |                  |  |          |   |              |  |  |   |   |  |  |   |  

S-3



---



##### Table of Contents



SCHEDULE III

Page 2 of 2


SUMMIT SECURITIES, INC. AND
SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION


|                   |           |              |   |                |  |            |   |              |  |           |   |            |  |  |   |           |  |  |   |           | 
|------------------ | --------- | ------------ | - | -------------- |  | ---------- | - | ------------ |  | --------- | - | ---------- |  |  | - | --------- |  |  | - | --------- | 
|                   |           |              |   |                |  | Benefits   |   | Amortization |  |          
|                   |           |              |   |                |  | Claims     |   | of Deferred  |  |          
|                   |           |              |   |                |  | Losses and |   | Policy       |  | Other    
|                   |           | Annuity Fees |   | Net Investment |  | Settlement |   | Acquisition  |  | Operating
|                   |           | and Charges  |   | Income         |  | Expenses   |   | Costs        |  | Expenses 
|                   |           |              |   |                |  |            |   |              |  |          
|September 30, 2002 |           |              |   |                |  |            |   |              |  |           |   |            |  |  |   |           |  |  |   |          
|                   | Annuities |              | $ | 183,566        |  |            | $ | 52,729,267   |  |           | $ | 19,629,077 |  |  | $ | 4,200,000 |  |  | $ | 8,660,382 | 
|                   |           |              |   |                |  |            |   |              |  |           |   |            |  |  |   |           |  |  |   |          
|September 30, 2001 |           |              |   |                |  |            |   |              |  |           |   |            |  |  |   |           |  |  |   |          
|                   | Annuities |              | $ | 159,609        |  |            | $ | 35,858,471   |  |           | $ | 16,737,395 |  |  | $ | 2,122,000 |  |  | $ | 6,137,456 | 
|                   |           |              |   |                |  |            |   |              |  |           |   |            |  |  |   |           |  |  |   |          
|September 30, 2000 |           |              |   |                |  |            |   |              |  |           |   |            |  |  |   |           |  |  |   |          
|                   | Annuities |              | $ | 235,511        |  |            | $ | 23,792,875   |  |           | $ | 11,907,780 |  |  | $ | 2,870,000 |  |  | $ | 2,243,586 | 
|                   |           |              |   |                |  |            |   |              |  |           |   |            |  |  |   |           |  |  |   |          

S-4



---



##### Table of Contents



SCHEDULE IV

Page 1 of 2


SUMMIT SECURITIES, INC. AND
SUBSIDIARIES

MORTGAGE LOANS ON REAL ESTATE


At September 30, 2002, the Company held
contracts and mortgage notes Receivables with a face values as
follows:

|                                                                                                      |  |             |             |            |  |                |            |          |  |  |      |   |  |  |      |  
|----------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | ---------- |  | -------------- | ---------- | -------- |  |  | ---- | - |  |  | ---- | -
|                                                                                                      |  | Carrying    |             | Delinquent |  | Weighted       |            | Weighted
|                                                                                                      |  | Amount of   |             | Principal  |  | Average Coupon |            | Average 
|Description                                                                                           |  | Receivables |             | Amount(2)  |  | Rate(3)        |            | Yield   
|                                                                                                      |  |             |             |            |  |                |            |         
|Commercial(1)                                                                                         |  | $           | 221,246,934 |            |  | $              | 62,679,596 |          |  |  | 13.0 | % |  |  | 15.3 | %
|Residential                                                                                           |  |             | 20,184,476  |            |  |                | 810,869    |          |  |  | 8.2  | % |  |  | 10.5 | %
|Other                                                                                                 |  |             | 10,942,493  |            |  |                | 494,165    |          |  |  | 9.7  | % |  |  | 11.7 | %
|Unrealized discounts, net of unamortized
    acquisition cost, on Receivables purchased at a discount |  |             | (1,083,404  | )          |  |                |            |          |  |  |      |   |  |  |      |  
|Accrued interest receivable                                                                           |  |             | 13,532,104  |            |  |                |            |          |  |  |      |   |  |  |      |  
|                                                                                                      |  |             |             |            |  |                |            |          |  |  |      |   |  |  |      |  
|                                                                                                      |  | $           | 264,822,603 |            |  | $              | 63,984,630 |          |  |  |      |   |  |  |      |  
|                                                                                                      |  |             |             |            |  |                |            |          |  |  |      |   |  |  |      |  



---

|    |                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The commercial real estate Receivables are
    defined as those generated through the Companys commercial
    lending source.                            
|   
|(2) | The principal amounts of real estate Receivables
    subject to delinquent principal or interest is defined as being
    in arrears for more than 90 days.
|   
|(3) | Less than 1% of the real estate Receivables are
    subject to variable interest rates                                                                    

The future maturities of the aggregate amounts of
commercial Receivables (face amount) are as follows:

|                                      |  |            |             | 
|------------------------------------- |  | ---------- | ----------- | 
|                                      |  | Commercial
|                                      |  | Principal 
|                                      |  |           
|Due in one year or less               |  | $          | 88,209,447  | 
|Due after one year through five years |  |            | 74,520,413  | 
|Due after five years                  |  |            | 58,517,074  | 
|                                      |  |            |             | 
|                                      |  | $          | 221,246,934 | 
|                                      |  |            |             | 

S-5



---



##### Table of Contents



SCHEDULE IV

Page 2 of 2


SUMMIT SECURITIES, INC. AND
SUBSIDIARIES

MORTGAGE LOANS ON REAL ESTATE


|                                                                                                |  |                               |             |      |  |      |             |  |  |   |             | 
|----------------------------------------------------------------------------------------------- |  | ----------------------------- | ----------- | ---- |  | ---- | ----------- |  |  | - | ----------- | 
|                                                                                                |  |                              
|                                                                                                |  | For Years Ended September 30,
|                                                                                                |  |                              
|                                                                                                |  | 2002                          |             | 2001 |  | 2000
|                                                                                                |  |                               |             |      |  |     
|Balance at beginning of period                                                                  |  | $                             | 220,281,692 |      |  | $    | 162,927,342 |  |  | $ | 112,766,433 | 
|Additions during period                                                                         |  |                               |             |      |  |      |             |  |  |   |             | 
|New Receivablescash                                                                            |  |                               | 143,046,857 |      |  |      | 97,415,309  |  |  |   | 117,839,166 | 
|Loans to facilitate the sale of real estate
    heldnoncash                                    |  |                               | 840,000     |      |  |      |            |  |  |   |            | 
|Assumption of other debt payable in conjunction
    with acquisition of new Receivablesnoncash |  |                               |            |      |  |      |            |  |  |   | 5,000       | 
|Increase in accrued interest net of discount
    amortization                                   |  |                               | 18,420,664  |      |  |      | 11,856,383  |  |  |   | 2,160,226   | 
|                                                                                                |  |                               |             |      |  |      |             |  |  |   |             | 
|Total additions                                                                                 |  |                               | 162,307,521 |      |  |      | 109,271,692 |  |  |   | 120,004,392 | 
|                                                                                                |  |                               |             |      |  |      |             |  |  |   |             | 
|Deductions during period                                                                        |  |                               |             |      |  |      |             |  |  |   |             | 
|Collections of principalcash                                                                   |  |                               | 81,759,253  |      |  |      | 44,477,539  |  |  |   | 53,871,225  | 
|Cost of Receivables sold                                                                        |  |                               | 911,600     |      |  |      | 538,609     |  |  |   | 9,364,535   | 
|Foreclosuresnoncash                                                                            |  |                               | 35,095,757  |      |  |      | 6,901,194   |  |  |   | 6,607,723   | 
|                                                                                                |  |                               |             |      |  |      |             |  |  |   |             | 
|Total deductions                                                                                |  |                               | 117,766,610 |      |  |      | 51,917,342  |  |  |   | 69,843,483  | 
|                                                                                                |  |                               |             |      |  |      |             |  |  |   |             | 
|Balance at end of period                                                                        |  | $                             | 264,822,603 |      |  | $    | 220,281,692 |  |  | $ | 162,927,342 | 
|                                                                                                |  |                               |             |      |  |      |             |  |  |   |             | 

S-6



---



##### Table of Contents



EXHIBIT INDEX

|        |       |             |  |                                                                                                                                                                                                                                                                                                                             
|------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 3.01  |             |  | Articles of Incorporation of Summit (Incorporated
    by Reference to Exhibit 3(a) to Registration
    No. 3-36775).                                                                                                                                                                                                        
|        | 3.02  |             |  | Bylaws of Summit (Incorporated by Reference to
    Exhibit 3(b) to Registration No. 33-36775).                                                                                                                                                                                                                              
|        | 4.01  |             |  | Indenture dated as of May 25, 2000, between
    Summit and U.S. Bank Trust National Association, Trustee
    (Incorporated by Reference to Exhibit 4.01 to Registration
    No. 333-40074).                                                                                                                                 
|        | 4.02  |             |  | Indenture dated as of November 15, 1990
    between Summit and West One Bank, Idaho, N.A., Trustee
    (Incorporated by Reference to Exhibit 4(a) to Registration
    No. 33-36775).                                                                                                                                        
|        | 4.03  |             |  | Tri-Party Agreement dated as of April 24,
    1996 between West One Bank, First Trust and Summit,
    appointing First Trust as successor Trustee (Incorporated by
    Reference to Exhibit 4(c) to Registration
    No. 333-19787).                                                                                        
|        | 4.04  |             |  | First Supplemental Indenture between Summit and
    First Trust dated as of December 31, 1997, with respect to
    Investment Certificates, Series B (Incorporated by
    Reference to Exhibit 4(c) to Registration
    No. 33-36775).                                                                                      
|        | 4.05  |             |  | Second Supplemental Indenture between Summit and
    U.S. Bank Trust National Association, dated as of
    March 1, 2001 (Incorporated by reference to
    Exhibit 4.04 to Summits registration statement on
    Form S-2, Registration No. 333-54458, filed
    March 1, 2001.)                                           
|        | 4.06  |             |  | Statement of Rights, Designations and Preferences
    of Variable Rate Cumulative Preferred Stock Series S-1
    (Incorporated by Reference to Exhibit 4(c) to Registration
    No. 33-57619).                                                                                                                              
|        | 4.07  |             |  | Statement of Rights, Designations and Preferences
    of Variable Rate Cumulative Preferred Stock Series S-2
    (Incorporated by Reference to Exhibit 4(c) to Registration
    No. 333-115).                                                                                                                               
|        | 4.08  |             |  | Statement of Rights, Designations and Preferences
    of Variable Rate Cumulative Preferred Stock Series S-RP
    (Incorporated by Reference to Exhibit 4(f) to Summits
    Annual Report on Form 10-K for fiscal 1997).                                                                                                   
|        | 4.09  |             |  | Statement of Rights, Designations and Preferences
    of Variable Rate Cumulative Preferred Stock Series S-3
    (Incorporated by Reference to Exhibit 4(d) to
    Amendment 3 to Registration No. 333-19787).                                                                                                              
|        | 10.01 |             |  | Receivable Management, Acquisition and Service
    Agreement between Summit Securities, Inc. and Metropolitan
    Mortgage & Securities Co., Inc. dated September 9,
    1994 (Incorporated by Reference to Exhibit 10(a) to
    Registration No. 33-57619).                                                                
|        | 10.02 |             |  | Receivable Management, Acquisition and Service
    Agreement between Old Standard Life Insurance Company and
    Metropolitan Mortgage & Securities Co., Inc. dated
    January 1, 2001. (Incorporated by Reference to
    Exhibit 10.02 to Summits Annual Report on
    Form 10-K for fiscal 2001).                       
|        | 10.03 |             |  | Receivable Management, Acquisition and Service
    Agreement between Old West Life Insurance Company and
    Metropolitan Mortgage & Securities Co., Inc. dated
    January 1, 2001. (Incorporated by Reference to
    Exhibit 10.03 to Summits Annual Report on
    Form 10-K for fiscal 2001).                           
|        | 10.04 |             |  | Form of Reinsurance Agreement between Western
    United Life Assurance Company and Old Standard Life
    Insurance Company (Incorporated by Reference to
    Exhibit 10(d) to Summits Annual Report on
    Form 10-K for fiscal 1998).                                                                                    
|        | 10.05 |             |  | Servicing Rights Purchase Agreement among Ocwen
    Federal Bank FSB, Metropolitan and various sellers named
    therein, dated as of April 1, 2001 (Incorporated by
    reference to Exhibit 10.02 to Metropolitan
    Mortgage & Securities Co., Inc.s Annual Report on
    Form 10-K for fiscal 2001).                  
|        | 10.06 |             |  | Amendment No. 1 to Servicing Rights Purchase
    Agreement among Ocwen Federal Bank FSB, Metropolitan and various
    sellers named therein, dated as of May 11, 2001
    (Incorporated by reference to Exhibit 10.03 to Metropolitan
    Mortgage & Securities Co., Inc.s Annual Report on
    Form 10-K for fiscal 2001).
|        | 10.07 |             |  | Servicing Agreement among Ocwen Federal Bank FSB,
    Metropolitan and various owners named therein, dated as of
    April 1, 2001 (Incorporated by reference to
    Exhibit 10.04 to Metropolitan Mortgage &
    Securities Co., Inc.s Annual Report on Form 10-K for
    fiscal 2001).                                   



---



##### Table of Contents



|        |       |             |  |                                                                                                                                                                                                                                                                                                      
|------- | ----- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.08 |             |  | Flow Subservicing Agreement among Ocwen Federal
    Bank FSB, Metropolitan and various owners named therein, dated
    as of September 1, 2001 (Incorporated by reference to
    Exhibit 10.05 to Metropolitan Mortgage &
    Securities Co., Inc.s Annual Report on Form 10-K for
    fiscal 2001).
|        | 12.01 |             |  | Statement regarding computation of ratios.                                                                                                                                                                                                                                                           
|        | 21.01 |             |  | Subsidiaries of Registrant (Incorporated by
    Reference to Exhibit 21 to Summits Annual Report on
    Form 10-K for fiscal 1998).