<PAGE>
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
                                 United States
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
 
                               ----------------
 
                                   FORM 10-K
 
                               ----------------
 
(Mark One)
 
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934
 
For the fiscal year ended September 30, 1998
 
[_]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 33-36775
 
                            SUMMIT SECURITIES, INC.
            (Exact name of registrant as specified in its charter)
 
                 Idaho                               82-0438135
       (State of incorporation)                   (I.R.S. Employer
                                                 Identification No.)
 
   601 West First Avenue Spokane, WA                 99201-5015
    (Address of Principal executive                   (Zip Code)
               offices)
 
      Registrant's telephone number, including area code: (509) 838-3111
 
              Securities Registered Pursuant to Section 12(b) of the Act: None
 
              Securities registered pursuant to Section 12(g) of the Act: None
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes  [X]  No  [_]
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (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.  [X]
 
  The voting stock of the registrant is not 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 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 60 days prior to the date of filing.
 
  The number of shares outstanding of the Registrant's common stock, as of
September 30, 1998, was 10,000.
 
                   Documents incorporated by reference: None
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
 
                                    PART I
 
Item 1. Business
 
                             ORGANIZATIONAL CHART
                          (AS OF SEPTEMBER 30, 1998)

                      [ORGANIZATIONAL CHART APPEARS HERE]
 
 
  The above chart lists the principal operating subsidiaries and their
ownership for Summit Securities, Inc. and all subsidiaries (the "Consolidated
Group").
 
  National Summit Corp.: Parent Company, inactive except as owner of Summit
Securities, Inc. Wholly owned by C. Paul Sandifur, Jr., President of
Metropolitan Mortgage & Securities Co, Inc.
 
  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.: Broker/dealer marketing securities
offered by Summit and Metropolitan (as defined herein), mutual funds, and
general securities.
 
  Summit Property Development, Inc.: Provides real estate development services
to others, with the principal clients being Metropolitan and its subsidiaries.
 
  Summit Group Holding Company: Inactive except as owner of Old Standard Life
Insurance Company.
 
  Old Standard Life Insurance Company: Invests in Receivables and other
investments principally funded by proceeds from Receivable investments and
from annuity sales.
 
  Old West Annuity & Life Insurance Company: Old Standard purchased this
insurance company effective December 28, 1995. Invests in Receivables and
other investments principally funded by proceeds from Receivable investments
and from annuity sales.
 
                                       2
<PAGE>
 
                                 INTRODUCTION
 
BACKGROUND
 
  The Consolidated Group consists of Summit Securities, Inc. ("Summit") and
several subsidiaries, including two insurance companies, Old Standard Life
Insurance Company ("Old Standard") and Old West Annuity & Life Insurance
Company ("Old West"), a securities broker/dealer, Metropolitan Investment
Securities, Inc. ("MIS") and a property development services company, Summit
Property Development, Inc.
 
  Summit, Old Standard and Old West are engaged in the business of investing
in cash flowing assets, consisting of obligations collateralized by real
estate, structured settlements, annuities, lottery prizes and other
investments ("Receivables") and other assets through funds provided by annuity
sales, sale of Receivables, including sales through securitization,
certificate (debt obligation) sales, preferred stock sales, earnings on
investments and the resale of repossessed real estate. The Consolidated
Group's goal is to achieve a positive spread between the return on its
Receivable and other investments and its cost of funds. 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 Mortgage &
Securities Co., Inc. ("Metropolitan"), which has as its principal subsidiaries
Metwest Mortgage Services, Inc. ("Metwest") and Western United Life Assurance
Company ("Western United"). These affiliates provide services to the
Consolidated Group for a fee and engage in various business transactions with
the Consolidated Group. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"
under Item 13.
 
  Summit was originally organized as a wholly owned subsidiary of
Metropolitan. On September 9, 1994, Metropolitan and C. Paul Sandifur, Jr.
completed a sale of the common stock of Summit to National Summit Corp.
National Summit Corp. is a holding company wholly owned by C. Paul Sandifur
Jr. 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 hold effective control of Summit through
National Summit Corp. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"
under Item 13.
 
  On January 31, 1995, Summit acquired a securities broker/dealer, MIS, from
Metropolitan. Also, on January 31, 1995, Summit Property Development, Inc.
commenced operations, and began providing real estate development services to
Metropolitan and its subsidiaries. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" under Item 13.
 
  On May 31, 1995, Summit, through a wholly owned holding company, purchased
Old Standard from Metropolitan. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" under Item 13.
 
  On June 1, 1995, Old Standard entered into a Stock Purchase Agreement with
ILA Financial Services, Inc. to acquire Arizona Life Insurance Company
("Arizona Life"), an insurance company domiciled in Arizona. The acquisition
was completed on December 28, 1995. Subsequent to the acquisition, Arizona
Life changed its name to Old West. Old West had been inactive since
approximately August 1994, except to the extent necessary to retain its
licenses. Old West holds licenses to engage in insurance sales in seven
states. Obtaining access to these additional markets was the principal purpose
for the purchase. During 1996, Old West commenced selling annuities and
investing in Receivables, similar to the activities of Old Standard. See
"ANNUITY OPERATIONS" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"
under Item 13.
 
  As of September 30, 1998, Summit's personnel consisted of its officers and
directors, an accountant and an attorney. See "MANAGEMENT" under Item 10. Most
of those individuals are also employed by Metropolitan. It is anticipated that
the Metropolitan employees will continue to devote substantially all of their
time to their duties related to their respective positions with Metropolitan
and its other affiliates subject to the necessary commitment of time to ensure
that Summit fulfills its obligations to Preferred Shareholders and its duties
under the Indenture pursuant to which it issues installment certificates
("Certificates") and such other duties and responsibilities as Summit may
undertake in the conduct of its business or as may be required by law. No
additional Summit employees are expected to be necessary or hired during the
foreseeable future.
 
  On September 30, 1998, Summit and its subsidiaries employed a total of 56
employees.
 
                                       3
<PAGE>
 
FACTORS AFFECTING FUTURE OPERATING RESULTS
 
  The provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act"), became effective in December 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:
 
Rising interest rates could      If interest rates rise, profitability and the
negatively effect the          fair value of equity of the Consolidated Group
profitability and the fair     could decline. Higher interest rates could
value of equity of the         cause interest expenses to increase faster than
consolidated group             it will cause interest revenues to increase,
                               because more liabilities than financial assets
                               are scheduled to reprice or mature for the
                               Consolidated Group during the fiscal year that
                               began on October 1, 1998.
 
Falling interest rates could     If interest rates fall, the profitability and
negatively effect the          the fair value of equity of the Consolidated
profitability and the fair     Group may decline because of refinancing of
value of equity of the         Receivables. When interest rates fall,
consolidated group             borrowers have an incentive to refinance their
                               Receivables by taking out new loans at a lower
                               rate of interest and repaying existing loans at
                               a higher rate of interest in full. Because the
                               Receivables with the higher rate of interest
                               may be repaid early, the interest earned by the
                               Consolidated Group may decline.
 
Dependence on the sale or        The Consolidated Group currently sells and,
securitization of              together with Metropolitan, securitizes pools
receivables                    of Receivables and intends to continue to sell
                               and securitize pools of Receivables. Several
                               factors affect the Consolidated Group's ability
                               to securitize or sell pools of Receivables,
                               including conditions in the securities markets
                               generally, conditions in the asset-backed
                               securities markets specifically, the credit
                               quality of the Receivables, compliance of the
                               Consolidated Group's Receivables with the
                               eligibility requirements established by the
                               securitization documents and the absence of any
                               material downgrading or withdrawal of ratings
                               given to securities issued in the Consolidated
                               Group's previous securitizations. The
                               Consolidated Group's financial performance and
                               growth prospects may be adversely effected if
                               they cannot favorably sell or securitize
                               Receivables, or if they are completely unable
                               to sell or securitize Receivables.
 
Residual and subordinate         The Consolidated Group owns subordinated and
interests in securitizations   residual interests in several securitized loan
                               pools, which generally are in a "first loss"
                               position relative to the more senior securities
                               sold to third parties and which carry a greater
                               risk if loans in the
 
                                       4
<PAGE>
 
                               securitizations are not paid or losses occur.
                               The Consolidated Group values these residual
                               interests based on assumptions including the
                               anticipated prepayments, defaults and losses of
                               the securitized Receivables. If those
                               assumptions are inaccurate, the Consolidated
                               Group will have overvalued these interests on
                               its balance sheet, overstated income and will
                               earn less income than was anticipated.
 
Risk that foreclosure on         Foreclosure, bankruptcy and other similar
mortgages will delay or        proceedings used to enforce mortgage loans are
reduce payments on             generally subject to principals of equity which
Receivables                    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 a certificate in a
                               securitization in which the Consolidated Group
                               is involved or in loans held by the
                               Consolidated Group.
 
Real estate used as              Most of the Receivables purchased by the
collateral to cover losses     Consolidated Group are collateralized by real
on Receivables may be          estate to provide collateral if a borrower
inadequate                     defaults on such borrower's mortgage. The real
                               estate used as collateral may be insufficient
                               to cover any loss in the event of foreclosure.
                               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 change restrictions on
                               the timing and methods of foreclosure.
 
Risk of default on               The Consolidated Group purchases some
Receivables not                Receivables that are not collateralized, such
collateralized                 as annuities, lottery prizes, structured
                               settlements or other investments. In these
                               cases, since the Consolidated Group does not
                               have collateral in a specific asset, it relies
                               instead upon a promise to pay from an insurance
                               company, state government or other entity.
                               There is a risk that the payor will not keep
                               its promise to pay and will default.
 
Underwriting may                 Metropolitan underwrites the Receivables that
insufficiently evaluate the    are purchased by the Consolidated Group.
risk of losses on              Metropolitan uses a variety of procedures to
Receivables                    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, there is no
                               assurance that these underwriting procedures
                               will be effective.
 
Risks with originating           The Consolidated Group recently began
commercial loans               originating loans that are collateralized by
                               multi-family and commercial properties
                               ("Commercial Loans"). Management 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.
 
Lack of control over             As a result of several contracts,
acquiring, servicing and       Metropolitan and Metwest provide most of the
selling Receivables            administrative services related to acquiring,
                               servicing and selling of Receivables to the
                               Consolidated Group. Management cannot predict
                               whether Metropolitan and Metwest
 
                                       5
<PAGE>
 
                               will effectively acquire, service and sell
                               Receivables in the future or whether it will be
                               more effective and efficient to get these
                               services internally or from a third party.
 
Insurance subsidiary             At September 30, 1998, approximately 67% of
earnings may be unavailable    the Consolidated Group's assets were held by
for dividends and fees         its insurance subsidiaries, Old Standard and
                               Old West. Insurance company regulations
                               restrict the way in which an insurance company
                               can transfer assets and the amount of money
                               that can be paid out in dividends by the
                               insurance company. To use money for dividends,
                               the insurance company must obtain permission
                               from the insurance commissioner in the state of
                               domicile of the insurance company. These
                               restrictions on the ability to declare
                               dividends and transfers of assets could have an
                               adverse effect on Summit's financial
                               performance and ability to meet its debt
                               obligations and preferred stock dividend
                               payments.
 
Dependence on future             The Consolidated Group earns revenue
offerings to meet              primarily from earnings on Receivables and
obligations                    other investments, the sale of annuities, the
                               sale or securitization of Receivables, the sale
                               of certificates and the sale of preferred
                               stock. The cash flow from the existing assets
                               has been adequate during the past five years to
                               satisfy the demand for payment of maturing
                               certificates and to pay preferred stock
                               dividends. However, the Consolidated Group's
                               ability to repay certificates and preferred
                               stock dividends that become due in the future
                               and other outstanding obligations depends in
                               part on the success of future public offerings
                               of certificates and preferred stock.
 
An increase in life              An increase in the termination rate of
insurance and annuity          annuity contracts and life insurance policies
termination rates may          would tend to decrease the earnings of Old
decrease earnings              Standard and Old West. If terminations
                               increase, costs would increase because the
                               insurance subsidiaries would have to expense
                               the unamortized deferred acquisition costs on
                               those surrendered policies instead of
                               continuing to amortize those costs over time.
                               The rate at which annuity contracts and life
                               insurance policies terminate is effected by
                               several factors, including changes in interest
                               rates, competition and changes in tax and other
                               regulations. Management cannot predict the
                               future rate of termination of life insurance
                               and annuity policies.
 
Environmental conditions and     The Consolidated Group acquires properties in
regulations                    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 or the previous owner liable for
                               the costs of removal or remediation of
                               hazardous or toxic substances on, under, in or
                               near the effected property. While the
                               Consolidated Group tries to avoid acquiring
                               properties or Receivables collateralized by
                               properties which may be contaminated, the
                               Consolidated Group may sustain significant
                               losses due to such liability.
 
The Consolidated Group may
be liable for environmental      The government can place a lien on
clean-up on real estate        environmentally contaminated property to
                               guarantee that the clean up costs for that
                               property are paid. In many states, these liens
                               have priority over the
 
                                       6
<PAGE>
 
                               existing mortgage on the property. The
                               Consolidated Group may be subject to these
                               liens directly if they own real property
                               subject to these liens, or indirectly if they
                               participate in a securitization of property and
                               have a role in the day-to-day management of the
                               facility or property. Environmental assessments
                               to determine whether certain properties are
                               contaminated are rarely performed by the
                               Consolidated Group, and even where they are
                               performed, there is no guarantee that the
                               Consolidated Group will be insulated from
                               liability for an environmental condition.
 
Conflicts of interest among      Certain of the officers and directors of
related companies              Summit and its subsidiaries are also employees
                               of Metropolitan and its subsidiaries. In
                               addition, the Consolidated Group, Metropolitan
                               and its subsidiaries provide certain services
                               to each other. These factors may lead to
                               conflicts of interest, including the amount of
                               time that officers or directors devote to the
                               Consolidated Group, which company receives a
                               particular securities sale and how Receivables
                               are distributed among or between separate
                               companies. Old Standard and Old West may
                               compete with Metropolitan and its subsidiaries
                               in acquiring Receivables, and with
                               Metropolitan's insurance subsidiary for the
                               sale of annuities. Also, the Consolidated Group
                               may compete with Metropolitan for the sale of
                               securities.
 
Year 2000 compliance             The Year 2000 problem arises from the use by
                               software developers of two digits rather than
                               four to denote year dates in software programs,
                               computer hardware operating systems and
                               microprocessor-based embedded controls in
                               automated equipment. As a result, information
                               systems that operate date sensitive software or
                               automated equipment that contains date
                               sensitive microprocessors may interpret "00" to
                               signify 1900 rather than 2000, thereby
                               impairing the ability of the information
                               systems or automated equipment to correctly
                               calculate, sequence or recognize dates. This
                               could result in serious malfunctions or
                               complete failures of affected systems,
                               including an inability to process transactions,
                               issue securities or checks, or engage in other
                               normal business activities.
 
                                 We are conducting tests on our internally
                               developed and supported software, hardware and
                               facilities systems for Year 2000 compliance and
                               are reviewing and working with outside vendors
                               regarding compliance on ancillary systems and
                               services involved with our business operations.
                               Additionally, we are developing contingency
                               plans in the event that a Year 2000 related
                               problem or failure occurs. We believe that we
                               will be compliant prior to the year 2000.
                               However, in the event that there are computer
                               problems arising out of a failure of such
                               efforts our business operations could be
                               negatively impacted since the conduct of our
                               business in relationship to purchasing
                               Receivables, servicing or administering the
                               Receivables, the sale and administration of
                               annuities, life insurance and the sale and
                               administration of securities all rely heavily
                               on computer programs and systems for processing
                               our business transactions.
 
                                       7
<PAGE>
 
                            RECEIVABLE INVESTMENTS
 
BACKGROUND
 
  Historically, the Consolidated Group's Receivable acquisitions have been
made pursuant to an agreement with Metropolitan. The Consolidated Group
anticipates continuing to acquire Receivables pursuant to this agreement to
the extent that its new commercial lending initiative does not achieve its
projections. Metropolitan has been investing in Receivables for its own
account for over forty years. The evaluation, underwriting and closing is
performed at Metropolitan's headquarters in Spokane, Washington. The
Receivable acquisition fees are based upon yield requirements established by
each company. Each company pays, as its Receivable acquisition service fee,
the difference between the yield requirement and the yield which Metropolitan
actually negotiates when the Receivable is acquired. In 1998, this yield
differential resulted in the Consolidated Group paying to Metropolitan
approximately $900,000 as compensation to Metropolitan for Receivable
acquisition services.
 
  Unless otherwise indicated in this section and in the section entitled
"SECURITIES INVESTMENTS," or the context otherwise requires, references to a
year (e.g., 1998) refer to the fiscal year of the Consolidated Group ended
September 30 of that year.
 
  Metwest, a subsidiary of Metropolitan, provides Receivable collection and
servicing for a fee to Summit, Old Standard and Old West. During 1998, the
Consolidated Group paid Receivable collection and servicing fees of
approximately $501,000 to Metwest.
 
  Management believes that the terms and conditions of the agreements with
Metropolitan and Metwest are at least as favorable to members of the
Consolidated Group as those that could have been obtained by a non-affiliated
third party. The agreements are non-exclusive and may be terminated in whole
or part by prior written notice to the other party.
 
 Types of Receivables
 
  The Consolidated Group's Receivable acquisitions include two principal types
of Receivables: (a) Receivables collateralized by real estate and (b)
alternative cash flows consisting of lotteries, structured settlements,
annuities, and other cash flowing assets. Commercial loans originated by the
Consolidated Group are originated and underwritten directly by the
Consolidated Group. All other Receivable acquisitions of the Consolidated
Group are acquired through and underwritten by Metropolitan.
 
 Secondary Mortgage Markets
 
  The market for the acquisition or sale of existing real estate Receivables
is commonly referred to as the secondary mortgage market. The secondary
mortgage market includes individual Receivables which are held and sold by
individual investors. These Receivables are typically the result of seller
financed sales of real estate. The secondary mortgage market also includes the
sale and resale of pools of Receivables which can be seller financed, or
originated by brokers or a financial institution. The Consolidated Group sells
both individual Receivables and a smaller number of pools of Receivables.
 
COMMERCIAL LOAN ORIGINATIONS
 
  During 1997, the Consolidated Group (principally Old Standard) began
originating loans collateralized by multi-family properties and various types
of commercial properties (collectively "Commercial Loans"). These Commercial
Loans are generally small to mid-sized loans that are originated for less than
$5 million.
 
  The Consolidated Group currently projects expansion of the origination of
Commercial Loans during 1999. Current projections include the possibility that
the substantial majority of the Consolidated Group's Receivable acquisitions
during 1999 may be new Commercial Loan originations. This projection is in
part due to
 
                                       8
<PAGE>
 
management's current perception that this market may be inadequately served by
lenders who are flexible in their underwriting and pricing policies.
 
  The Consolidated Group originates loans through licensed mortgage brokers
who submit loan applications on behalf of the borrower. Before the
Consolidated Group will enter into a broker agreement, the mortgage broker
must demonstrate that it is properly licensed, experienced and knowledgeable
in lending.
 
  Commercial Loans originated by the Consolidated Group are underwritten
applying criteria which include the following: evaluating the borrower's
credit and credit scores, obtaining a current interior appraisal of the
collateral, obtaining title insurance and calculating debt-to-income levels
and combined loan-to-value ratios. The borrower's credit determines the down
payment and interest rate which the Consolidated Group will require. A lower
credit rating would result in a higher required down payment and higher
interest rate. The Consolidated Group will lend up to 90% of the collateral
value for borrowers that the Consolidated Group believes to be the most credit
worthy, which decreases to 65% for other less credit worthy borrowers. The
mortgage loans originated by the Consolidated Group have standard
documentation and terms. Generally, no Seller makes a representation or
warranty that an assignment of rents and profits has been received in
connection with any of the Commercial Loans.
 
  Through approximately December 15, 1998, the average weighted annual yield
(including fees and points) was approximately 15.86% on the Consolidated
Group's Commercial Loans which have been committed to or closed through that
date. Frequently, the loans closed to date have required short-term balloon
payments (approximately two to five years). However, because the Consolidated
Group individually underwrites and prices these loans, the current terms may
not be a reflection of the terms which may be negotiated in future
transactions.
 
RECEIVABLE ACQUISITION VOLUME
 
  The Consolidated Group's real estate Receivable and other Receivable
investment acquisition activities grew from approximately $47.5 million in
1996, to $72.8 million in 1997 and to $77.0 million in 1998. During 1998, the
average monthly acquisition volume was in excess of $6.4 million.
 
RECEIVABLES ACQUISITIONS: SOURCES, STRATEGIES AND UNDERWRITING
 
  The following information describes Metropolitan's Receivable acquisition
and underwriting procedures as of September 30, 1998. These practices may be
amended, supplemented and changed at any time at the discretion of
Metropolitan and the Consolidated Group.
 
  Metropolitan has developed marketing techniques, sources and underwriting
practices for each of the different types of Receivables. In general, the real
estate Receivables acquired or originated by Metropolitan for the Consolidated
Group consist of non-conventional, A-, B and C credit grade loans. These types
of Receivables possess characteristics which differ from 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 non-conventional
financing. This type of lending requires that the lender focus on the quality
of the collateral as the ultimate recourse in the event of the borrower's
default and, to a lesser extent, the ability of a borrower to repay.
 
INDIVIDUAL RECEIVABLE ACQUISITION SOURCES
 
  Historically, the majority of Metropolitan's real estate Receivables are
acquired through individual Receivable acquisitions. See "--Current Mix of
Receivable Investment Holdings." Metropolitan's principal source for private
market Receivables has been independent brokers located throughout the United
States. These independent brokers typically deal directly with private
individuals or organizations who own and wish to sell a Receivable.
 
  Metropolitan's acquisition strategy is designed to provide flexible
structuring and pricing alternatives to the real estate Receivable seller, and
quick closing times. Metropolitan believes these are key factors to
 
                                       9
<PAGE>
 
Metropolitan's ability to attract and purchase Receivables. In order to
enhance its position in this market, Metropolitan has implemented the
following acquisition strategies: (a) centralizing acquisition activities, (b)
expanding the use of Metropolitan's Receivable submission software,
BrokerNet(R), (c) implementing flexible and strategic pricing and closing
programs, and (d) designing and implementing broker incentive programs.
Metropolitan is exploring other methods and sources for Receivable
acquisitions in order to increase volume, decrease cost, and enhance its
competitive position. There can be no assurance that any new strategies or
programs developed will achieve these goals.
 
POOL ACQUISITION SOURCES
 
  These portfolios of real estate Receivables may be seller originated or
institutionally originated. They may be acquired by Metropolitan from brokers,
banks, savings and loan organizations, mortgage brokerage firms and other
financial institutions.
 
  Over the years, Metropolitan has built relationships with several brokers
and lenders who provide a regular flow of potential acquisitions to the
capital markets department. In addition, other brokers learn about
Metropolitan through word of mouth and contact Metropolitan directly. Finally,
some leads on loan pools are generated by cold calling lending institutions or
brokers.
 
  Capital markets department acquisitions are typically negotiated through
direct contact with the selling broker or portfolio departments at the various
selling institutions, or are acquired through bidding at an auction. The
closing costs per loan for institutional acquisitions are generally lower than
private secondary mortgage market acquisitions. However, the investment yield
generally is lower than yields available in the private market.
 
  Metropolitan has recently hired additional sales and support staff and is
exploring new marketing methods in an attempt to continue to increase its
institutional pool purchase activities.
 
 Loan Originations Sources
 
  During the last quarter of fiscal 1996, Metropolitan's subsidiary, Metwest,
began originating first lien residential mortgage loans, including both fixed
and adjustable interest rate loans. Metwest is currently licensed for such
mortgage loans as a lender or is exempt from licensing in twenty-nine states.
 
  Metwest originates real estate loans through licensed mortgage brokers who
submit loan applications on behalf of the borrower. Before Metwest will enter
into a broker agreement, the mortgage broker must demonstrate that it is
properly licensed, experienced and knowledgeable in lending.
 
  During 1998, Metwest originated an average of approximately 101 real estate
loans per month, including loans to facilitate the resale of repossessed real
estate. This volume was below original projections. In an effort to increase
its volume, Metwest is making both procedural and staffing revisions. Also,
Metwest continues to develop new pricing programs for loan originations.
Management can give no assurance that these efforts will increase origination
volume.
 
 Correspondent Lending
 
  Beginning in 1997, Metropolitan began acquiring loans through loan
correspondent agreements. Under these agreements, Metropolitan agrees to
purchase loans at a specified yield immediately after their origination, so
long as they comply with Metropolitan's underwriting guidelines. Many such
loans are insured by a primary mortgage guarantee insurance policy. In
addition, loan correspondents may also submit loans which do not meet
established underwriting guidelines for individual evaluation and pricing.
Each correspondent makes standard representations and warranties with respect
to each loan and has certain limited repurchase obligations. Metropolitan has
added staff to support growth for such correspondent lending activities.
Management can give no assurance that these efforts will increase
correspondent lending volumes.
 
                                      10
<PAGE>
 
 Real Estate Receivable Underwriting
 
  Metropolitan's loan correspondent underwriting guidelines and Metwest's real
estate loan origination underwriting guidelines apply criteria which include
the following: evaluating the borrower's credit (which may include credit
scores), income and debt to income ratios, obtaining and reviewing a current
appraisal of the collateral, evaluating the property type, comparing the loan
amount to the collateral value and evaluating the economics of the region
where the collateral is located. For certain, but not all, of the loans with
higher loan to value ratios, mortgage insurance is required. In addition,
title insurance in an amount equal to the Receivable balance at the time of
acquisition is generally obtained. Generally, a lower credit rating would
result in a higher required down payment, higher collateral value to loan
amount and/or a higher interest rate or yield (through a discounted purchase
price). Unlike the seller financed real estate Receivables, the loans
originated by Metwest, certain pool acquisitions and the loans purchased
through Metropolitan's loan correspondent program have standardized
documentation and terms. Real estate Receivables acquired or originated for
inclusion in securitization pools generally have more stringent underwriting
guidelines than other acquired or originated real estate loans.
 
 Lotteries, Structured Settlements and Annuities Sources
 
  Metropolitan also negotiates the purchase of Receivables which are not
collateralized by real estate or other assets, such as structured settlements,
annuities and lottery prizes. The lottery prizes generally arise out of state
operated lottery games which 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 which cannot be liquidated
directly with the issuing insurance company. Metropolitan's source for these
investments is generally private brokers who specialize in these types of
Receivables.
 
 Lotteries, Structured Settlements and Annuities Underwriting
 
  In the case of all annuity purchases, Metropolitan's underwriting guidelines
generally include a review of: (1) an application for sale of structured
benefits which requests certain information regarding (i) the annuitant,
including current employment, (ii) the annuity policy, and (iii) the nature of
the claim and injuries sustained in connection with the structured settlement;
(2) a copy of the executed settlement agreement or judgment, if applicable;
and (3) a copy of the executed annuity policy together with any qualified
assignments. In certain circumstances Metropolitan waives certain of these
submission requirements if, in its sole best judgment, it determines that the
failure to have those documents would not impair the acquiring company's
interest in the structured settlement. Upon submission of the file, the
closing department will obtain a credit report regarding the annuitant and the
most current credit rating of the annuity issuer. Furthermore, Metropolitan
will conduct a Uniform Commercial Code ("UCC") search by county or state where
applicable, 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.
 
  When underwriting a structured settlement, Metropolitan will review the
credit report, the annuitant's completed purchase application, the results of
the UCC search, and the terms of the settlement and annuity policy, among
other things. Metropolitan will not knowingly purchase settlements paid to a
trust containing a spendthrift clause nor will it purchase settlements where
the payments are the annuitant's sole source of income, where the loss of
income would significantly damage the livelihood of the annuitant or where the
payments are used exclusively for the payment of medical necessities.
Metropolitan will not purchase payments from a minor without a court order
approving the transaction or from annuitants who are currently members of the
armed forces or from annuitants that do not otherwise have the legal capacity
to contract without a court order. Metropolitan will not purchase settlements
from annuitants that evidence a pattern of fraudulent behavior. In
underwriting a structured settlement, Metropolitan will confirm that the
settlement is not a workers' compensation settlement agreement or retirement
or pension benefit.
 
                                      11
<PAGE>
 
  In the case of lottery prizes, the underwriting guidelines generally require
a review of both the documents providing proof of the prize and the credit
rating of the insurance company or other entity that is making the lottery
prize payments. Where the lottery prize is from a state run lottery, the
underwriting guidelines generally require a confirmation from the respective
lottery commission of the prize winner's right to sell the prize and an
acknowledgment from the lottery commission of their receipt of notice of the
sale. In many states, the sale of a state lottery prize requires the winner
obtain a court order permitting the sale. In those states, Metropolitan
requires a certified copy of the court order.
 
 Other Receivables
 
  Metropolitan continually seeks opportunities in new Receivable markets.
Metropolitan currently has Receivable programs involving the acquisition of
conservation reclamation programs, acquiring farm subsidies and similar cash
flows. These programs account for a minimal amount of Metropolitan's current
and projected Receivable acquisition volume. However, if new opportunities
arise for the acquisition of new types of Receivables, Metropolitan is not
limited from pursuing these opportunities.
 
YIELD AND DISCOUNT CONSIDERATIONS
 
  Summit, Old Standard and Old West each establish their own yield
requirements for Receivable acquisitions. 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. See also "Receivable Acquisitions: Sources, Strategies and
Underwriting." Metropolitan negotiates Receivable purchases at prices
calculated to provide a yield desired by Metropolitan. If the Receivable is
purchased by the Consolidated Group from Metropolitan at a price below its
face amount, the difference is the "discount."
 
  For Receivables of all types, the discounts originating at the time of
purchase, net of capitalized acquisition costs, are amortized on an individual
basis using the level yield (interest) method over the remaining contractual
term of the Receivable.
 
  The Consolidated Group establishes the yield requirements for Receivable
investments by assuming that all payments on the Receivables will be made and
that a certain percentage of unpaid balances will be prepaid on an annual
basis (13% for 1998). During 1998, the Consolidated Group's average initial
yield requirement ranged from 9.5% to 12.75% for Receivables collateralized by
real estate. However, to the extent that Receivables are purchased at a
discount and payments are received earlier than anticipated, the discount is
earned more quickly resulting in an increase in the yield. Conversely, to the
extent that payments are received later than anticipated, the discount is
earned less quickly resulting in a lower yield.
 
  A greater effective yield also can be achieved through negotiating
amendments to the 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, the
latter of which increases the yield realized on a Receivable purchased at a
discount from its face value through accelerating recognition of the discount.
 
CURRENT MIX OF RECEIVABLE INVESTMENT HOLDINGS
 
  The Consolidated Group's investments in Receivables include Receivables
collateralized by first or second liens, primarily on single family
residential property and commercial properties. Management believes that the
yield earned on the mortgages collateralized by commercial property is higher
than the yield on Receivables collateralized by single family residential
property, while the credit risks are lower for the mortgage collateralized by
single family residential property. Management also believes that much of the
risk in the portfolio is dissipated by the large numbers of relatively small
individual Receivables, the geographic dispersion of the collateral and the
collateral value to investment amount requirements.
 
                                      12
<PAGE>
 
  The following table presents consolidated information regarding the
Consolidated Group's investments in Receivables collateralized by real estate,
as of September 30, 1998 and 1997:
 
<TABLE>
<CAPTION>
                                                       1998          1997
                                                   ------------  ------------
   <S>                                             <C>           <C>
   Face value of discounted Receivables........... $ 72,733,711  $ 99,493,067
   Face value of originated and non discounted
    Receivables...................................   55,416,736     9,548,371
   Unrealized discounts, net of unamortized
    acquisition costs.............................   (5,042,703)   (5,958,564)
   Allowance for losses...........................   (1,843,055)   (1,153,278)
   Accrued interest receivable....................      515,713     1,694,132
                                                   ------------  ------------
   Carrying value................................. $121,780,402  $103,623,728
                                                   ============  ============
</TABLE>
 
  As of September 30, 1998, approximately 92% of the Consolidated Group's
investments in Receivables were collateralized by first lien positions on real
estate and 8% in second lien positions. The Receivables are collateralized by
residential, business and commercial properties with residential collateral
representing approximately 41% of such investments as of September 30, 1998.
 
  The Consolidated Group's Receivables at September 30, 1998 were
collateralized by properties located throughout the United States with not
more than 3% (by dollar amount) in any single state except as follows:
 
<TABLE>
       <S>                                                                   <C>
       Arizona..............................................................   8%
       California...........................................................  12%
       Florida..............................................................   5%
       Hawaii...............................................................  14%
       Nevada...............................................................   6%
       New York.............................................................   4%
       Oregon...............................................................   8%
       Texas................................................................   5%
       Washington...........................................................  16%
</TABLE>
 
                                      13
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
                   RECEIVABLES COLLATERALIZED BY REAL ESTATE
 
                              SEPTEMBER 30, 1998
 
  Less than 1% of the Receivables are subject to variable interest rates.
Interest rates range from 0% to 19% with rates principally (71% of face value)
within the range of 8% to 12%. The following table segregates the Consolidated
Group's real estate Receivable portfolio by type, size, and lien position.
 
<TABLE>
<CAPTION>
                                                                                          NON
                                      INTEREST     CARRYING    DELINQUENT   NUMBER OF   ACCRUAL   NUMBER OF
                          NUMBER OF     RATES     AMOUNT OF     PRINCIPAL  DELINQUENT  PRINCIPAL NON ACCRUAL
      DESCRIPTION        RECEIVABLES PRINCIPALLY RECEIVABLES     AMOUNT    RECEIVABLES  AMOUNT   RECEIVABLES
      -----------        ----------- ----------- ------------  ----------- ----------- --------- -----------
<S>                      <C>         <C>         <C>           <C>         <C>         <C>       <C>
RESIDENTIAL
 First Mortgage >
  $75,000...............     116        7-10%    $ 18,550,671  $ 1,351,289       7      $  --        --
 First Mortgage >
  $40,000...............     276        7-10%      15,703,404      998,383      19         --        --
 First Mortgage <
  $40,000...............     568        8-12%      12,307,560      417,260      19         --        --
 Second or Lower >
  $75,000...............       8        8-12%       1,010,378          --       --         --        --
 Second or Lower >
  $40,000...............      31        8-10%       1,734,344       85,762       2         --        --
 Second or Lower <
  $40,000...............     157        8-11%       3,259,829       66,406       5         --        --
COMMERCIAL
 First Mortgage >
  $75,000...............     123        8-13%      47,777,727    1,052,781       5         --        --
 First Mortgage >
  $40,000...............      51        8-10%       3,161,885      111,797       2         --        --
 First Mortgage <
  $40,000...............      76        8-18%       1,277,752          --       --         --        --
 Second or Lower >
  $75,000...............       9       10-15%       2,484,904          --       --         --        --
 Second or Lower >
  $40,000...............       8        9-11%         474,404      170,674       3         --        --
 Second or Lower <
  $40,000...............      13       10-11%         298,089          --       --         --        --
FARM, LAND AND OTHER
 First Mortgage >
  $75,000...............      36        8-12%      10,201,534          --       --         --        --
 First Mortgage >
  $40,000...............      37        8-10%       2,137,455       72,050       1         --        --
 First Mortgage <
  $40,000...............     881        8-12%       7,261,547      128,792      12         --        --
 Second or Lower >
  $75,000...............       1        8-10%         201,014      186,406       1         --        --
 Second or Lower >
  $40,000...............       2        9-12%         109,886          --       --         --        --
 Second or Lower <
  $40,000...............      10        8-10%         198,064          --       --         --        --
 Unrealized discounts,
  net of unamortized
  acquisition costs, on
  Receivables purchased
  at a discount.........                           (5,042,703)
 Accrued Interest
  Receivable............                              515,713
 Allowance for Losses...                           (1,843,055)
                                                 ------------  -----------              ------
CARRYING VALUE..........                          121,780,402  $ 4,641,600              $  --
                                                 ============  ===========              ======
</TABLE>
 
  The principal amount of Receivables subject to delinquent principal or
interest is defined as being in arrears for more than three months but which
are still accruing interest.
 
  The future maturities of the aggregate amounts of Receivables (face amount)
are as follows:
 
<TABLE>
<CAPTION>
                          RESIDENTIAL COMMERCIAL    FARM, LAND,      TOTAL
                           PRINCIPAL   PRINCIPAL  OTHER PRINCIPAL  PRINCIPAL
                          ----------- ----------- --------------- ------------
<S>                       <C>         <C>         <C>             <C>
October 1998 - September
 2001.................... $ 9,669,524 $29,930,719   $ 9,142,530   $ 48,742,773
October 2001 - September
 2003....................   6,802,800   7,399,990     2,053,363     16,256,153
October 2003 - September
 2005....................   5,311,275   6,873,094     4,727,787     16,912,156
October 2005 - September
 2008....................   9,084,129   4,998,753     1,264,013     15,346,895
October 2008 - September
 2013....................  10,648,215   3,947,295     1,128,836     15,724,346
October 2013 - September
 2018....................   5,316,004     674,323     1,253,091      7,243,418
October 2018 -
  Thereafter.............   5,734,239   1,650,587       539,880      7,924,706
                          ----------- -----------   -----------   ------------
                          $52,566,186 $55,474,761   $20,109,500   $128,150,447
                          =========== ===========   ===========   ============
</TABLE>
 
  The Consolidated Group held 2,403 Receivables collateralized by real estate,
as of September 30, 1998. The average contractual interest rate (weighted by
principal balances) on these Receivables on that date was approximately 10.1%.
See "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Note 4" under Item 8.
 
 
                                      14
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
                   RECEIVABLES COLLATERALIZED BY REAL ESTATE
 
                              September 30, 1997
 
  Less than 1% of the Receivables are subject to variable interest rates.
Interest rates range from 0% to 19% with rates principally (76% of face value)
within the range of 8% to 12%. The following table segregates the Consolidated
Group's real estate Receivable portfolio by type, size, and lien position.
 
<TABLE>
<CAPTION>
                                                                                         Non
                                      Interest     Carrying    Delinquent  Number of   Accrual   Number of
                          Number of     Rates     Amount of    Principal  Delinquent  Principal Non Accrual
      Description        Receivables Principally Receivables     Amount   Receivables  Amount   Receivables
      -----------        ----------- ----------- ------------  ---------- ----------- --------- -----------
<S>                      <C>         <C>         <C>           <C>        <C>         <C>       <C>
RESIDENTIAL
 First Mortgage Greater
 than $75,000...........     149        7-10%    $ 18,572,318  $  920,167       8     $106,799          1
 First Mortgage Greater
  than $40,000..........     377        8-10%      20,507,806   1,009,439      16          --          --
 First Mortgage Less
  than $40,000..........     852        8-12%      17,737,192     949,229      51          --          --
 Second or Lower Greater
  than $75,000..........       9        8-10%       1,038,074         --       --          --          --
 Second or Lower Greater
  than $40,000..........      35        8-10%       1,865,575         --       --          --          --
 Second or Lower Less
  than $40,000..........     193        8-12%       3,921,663     212,308      10          --          --
COMMERCIAL
 First Mortgage Greater
  than $75,000..........     133        8-10%      25,535,365     859,986       5          --          --
 First Mortgage Greater
  than $40,000..........      66        8-10%       3,928,370     209,845       3          --          --
 First Mortgage Less
  than $40,000..........      86        8-18%       1,462,141       6,706       1          --          --
 Second or Lower Greater
  than $75,000..........      10        8-12%       1,047,398         --       --          --          --
 Second or Lower Greater
  than $40,000..........      16        8-11%         906,314         --       --          --          --
 Second or Lower Less
  than $40,000..........      26        8-10%         525,973      42,952       3          --          --
FARM, LAND AND OTHER
 First Mortgage Greater
  than $75,000..........      40        8-12%       5,720,971         --       --          --          --
 First Mortgage Greater
  than $40,000..........      53        8-10%       2,800,281      63,955       1          --          --
 First Mortgage Less
  than $40,000..........     101        8-10%       2,754,784      74,366       2          --          --
 Second or Lower Greater
  than $75,000..........       2           7%         328,833     208,007       1          --          --
 Second or Lower Greater
  than $40,000..........       2        9-12%         109,905         --       --          --          --
 Second or Lower Less
  than $40,000..........      13        8-10%         278,475      29,040       1          --          --
 Unrealized Discounts,
  net of unamortized
  acquisition costs, on
  Receivables purchased
  at a discount.........                           (5,958,564)
 Accrued Interest
  Receivable............                            1,694,132
 Allowance for Losses...                           (1,153,278)
                                                 ------------  ----------             --------
CARRYING VALUE..........                         $103,623,728  $4,586,000             $106,799
                                                 ============  ==========             ========
</TABLE>
 
  The principal amount of Receivables subject to delinquent principal or
interest is defined as being in arrears for more than three months but which
are still accruing interest.
 
  The future maturities of the aggregate amounts of Receivables (face amount)
are as follows:
 
<TABLE>
<CAPTION>
                          Residential Commercial    Farm, Land,      Total
                           Principal   Principal  Other Principal  Principal
                          ----------- ----------- --------------- ------------
<S>                       <C>         <C>         <C>             <C>
October 1997 - September
 2000.................... $ 9,317,899 $ 7,694,381   $ 3,826,225   $ 20,838,505
October 2000 - September
 2002....................   7,563,205   5,832,081     2,408,582     15,803,868
October 2002 - September
 2004....................   6,046,022   4,629,040     1,177,112     11,852,174
October 2004 - September
 2007....................  12,085,385   6,903,142     1,865,980     20,854,507
October 2007 - September
 2012....................  14,799,647   5,269,468     1,429,989     21,499,104
October 2012 - September
 2017....................   6,802,272   1,059,377       799,161      8,660,810
October 2017 -
  Thereafter.............   7,028,198   2,018,072       486,200      9,532,470
                          ----------- -----------   -----------   ------------
                          $63,642,628 $33,405,561   $11,993,249   $109,041,438
                          =========== ===========   ===========   ============
</TABLE>
 
                                      15
<PAGE>
 
DELINQUENCY EXPERIENCE AND COLLECTION PROCEDURES
 
  The principal amount of Receivables collateralized by real estate, held by
the Consolidated Group (as a percentage of the total outstanding principal
amount of such Receivables) which was in arrears for more than ninety days at
September 30, 1998 was 3.6% compared to 4.2% and 4.0% at September 30, 1997
and 1996, respectively. Management expects higher delinquency rates, because
Receivables purchased or originated by the Consolidated Group are typically
not of the same quality as mortgages that are originated for sale to agencies
such as the Federal National Mortgage Association (Fannie Mae), and because of
the increasing concentration of acquisitions in commercial loans. Management
also believes that these higher delinquency rates will be generally offset by
higher yields and the value of the underlying collateral. In addition, the
Consolidated Group maintains an allowance for losses on delinquent real estate
Receivables. See "--Allowance for Losses on Receivables." As a result,
management believes losses from resales of repossessed properties are
generally lower than might otherwise be expected given the delinquency rates.
In addition, the Consolidated Group is compensated for the risk associated
with delinquencies through Receivable yields that are greater than typically
available through the conventional, "A" credit lending markets.
 
  Metwest provides Receivable collections and servicing to Summit, Old
Standard and Old West pursuant to specific procedures. Once a payment becomes
five days delinquent, a Receivable collateralized by real estate is reported
to a front-end collector who may place a collection call to the borrower.
Generally, if a payment becomes seven days past due, a late notice will
automatically be sent to the borrower notifying the borrower of the
delinquency and the applicable late charge. When 10 days delinquent, the
mortgage loan will be assigned to a collector who will attempt to make verbal
contact with the borrower no later than the twenty-ninth day of delinquency.
The collector works closely with a more senior collector in a team
environment. If no satisfactory arrangement is made by the twenty-second day
of delinquency a pre-litigation (demand) letter will be sent to the borrower.
Additionally at the thirtieth day of delinquency the senior collector for that
team will attempt to make contact with the borrower. If verbal contact or
satisfactory arrangements are not made by the forty-fifth day, a decision
matrix is used by a committee to analyze the basis for default, the economics
of the Receivable and the potential for environmental risks. When appropriate,
a Phase I environmental study is obtained prior to foreclosure to avoid
cleanup costs. See "INTRODUCTION--Factors Affecting Future Operating Results."
Based upon this analysis, the Receivable is considered for a workout
arrangement, further collection activity, or foreclosure of any property
providing collateral for the Receivable. Collection activity may also involve
the initiation of legal proceedings against the Receivable obligor. Legal
proceedings, when necessary, are generally initiated within approximately
ninety days after the initial default. If accounts are reinstated prior to
completion of the legal action, as a condition of reinstatement, attorney
fees, costs, expenses and late charges are generally collected from the payor,
or added to the Receivable balance.
 
  When a lottery, structured settlement or annuity becomes delinquent, Metwest
attempts to commence collection efforts within four days of a missed payment.
Generally, these collection efforts consist of sending a letter to the
Receivable seller and following up with telephone contact. If these steps have
not resolved the delinquency, legal action to enforce payment is commenced
within approximately two weeks from the date of delinquency.
 
 Allowance for Losses on Receivables
 
  The Consolidated Group establishes an allowance for losses on Receivables
based on an evaluation of delinquent Receivables. The Consolidated Group
reviews the results of its resales of repossessed real estate to identify
market trends and to document the Consolidated Group's historical experience
on such sales. The Consolidated Group then adjusts its allowance for losses
requirement as appropriate, based upon such observed trends in delinquencies
and resales. The allowance for losses was 1.4%, 1.1%, and 1.2% of the face
value of Receivables collateralized by real estate at September 30, 1998, 1997
and 1996, respectively.
 
                                      16
<PAGE>
 
  The following is an analysis of the allowance for losses on real estate
contracts and mortgage notes receivable.
 
<TABLE>
<CAPTION>
                                                       September 30,
                                               --------------------------------
                                                  1998        1997       1996
                                               ----------  ----------  --------
<S>                                            <C>         <C>         <C>
Balance, beginning of year.................... $1,153,278  $  974,487  $765,130
Provision for losses..........................  1,243,044     386,525   212,600
Charge offs...................................   (553,267)   (207,734)   (3,243)
                                               ----------  ----------  --------
                                               $1,843,055  $1,153,278  $974,487
                                               ==========  ==========  ========
</TABLE>
 
  There was no impairment in the carrying value of real estate contracts and
mortgage notes receivable at September 30, 1998. At September 30, 1997, the
net investment in real estate contracts and mortgage notes receivable for
which impairment has been recognized was approximately $118,000, of which
approximately $21,000, representing the amount by which the net carrying value
of the receivable exceeds the fair value of the collateral, has been
specifically included in the allowance for losses on real estate assets. Had
these receivables performed in accordance with their terms, additional
interest income of approximately $1,900 would have been recognized during the
period of impairment.
 
  The provision for losses on real estate contracts and mortgage notes
receivable is determined as the amount required to establish the allowance at
the level determined in accordance with the policy described above. Because
primarily all of the receivables are collateralized by real estate, the
Company considers its delinquency and loss experience in determining the
likelihood that receivables that are currently performing may become
delinquent, and the loss that may be experienced should foreclosure become the
means of satisfaction. The Company manages its risk of loss upon default
through the underwriting process, which is performed by Metropolitan, which
reviews demographics, real estate market trends, property value and overall
economic conditions related to the real property collateralizing a receivable.
Management does not expect that the loss experience related to the receivables
will increase materially during the next full year of operations.
 
 Repossessed Properties
 
  Summit, Old Standard and Old West own various repossessed properties that
are held for sale. At September 30, 1998, 50 properties, acquired in
satisfaction of debt, with a combined carrying amount of approximately
$2,254,000 were held, of which the largest single property had a carrying
value of approximately $190,000.
 
RECEIVABLE SALES
 
  The Consolidated Group sells pools of Receivables when it considers it
profitable to do so. Such sales often occur in conjunction with sales of
Receivables by Metropolitan and generally occur through one of two methods:
(a) securitization or (b) direct sales. Management believes that in addition
to the profits which may be earned, the sale of Receivables provides a number
of benefits including allowing the Consolidated Group to diversify its funding
base and provide liquidity. The sale of Receivables allows the Consolidated
Group to continue to expand its investing activities without increasing its
total asset size.
 
  Generally, a securitization involves the sale of certain specified
Receivables to a bankruptcy remote single purpose trust. The trust issues
certificates which represent an undivided ownership interest in the
Receivables transferred to the trust. Typically, the certificates consist of
several different classes, including senior certificates, residual interest
certificates and may also include intermediate classes of subordinated
certificates. The senior certificates are sold to investors who are generally
institutional investors. If a market exists, some or all of the subordinate
certificates are also sold to investors. The companies which sell their
Receivables to the trust receive a cash payment representing their respective
interest in the sales price for the senior certificates and any subordinate
certificates sold. The selling companies receive an interest in any unsold
subordinate certificates, and also typically receive an interest in the
residual interest. Such interests are generally apportioned based upon the
respective companies' contribution of Receivables to the pool of Receivables
sold to the trust.
 
                                      17
<PAGE>
 
  In the typical securitization structure, the Receivable payments are
distributed first to the senior certificates, next to the subordinated
certificates, if any, and finally to the residual interests. As a result, the
residual interest is the interest first affected by any loss of income due to
the failure of the Receivable to pay as scheduled. The rights of the senior
certificate holders can be further enhanced by subordinating the rights of the
subordinate certificate holders to receive distributions or by establishing a
reserve fund. The holders of the residual interest value such interest in
their respective financial statements based upon certain assumptions regarding
anticipated losses and prepayments. To the extent actual prepayments and
losses are greater or less than the assumptions, the companies holding the
residual interests will experience a gain or a loss.
 
  Through September 30, 1998, the Consolidated Group (principally Summit and
Old Standard) has participated as a seller of Receivables in four real estate
Receivable securitizations with Metropolitan. The Consolidated Group's
percentage of each securitization has been less than approximately 10% in each
transaction. In each securitization, Metropolitan has used either futures
contracts or securities "short sales" to hedge or protect the profits for all
or a portion of the transaction. The price to the Consolidated Group at
settlement for each securitization includes their proportionate share of
hedging transactions related to each securitization. See "NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS--Note 1" under Item 8.
 
  The Consolidated Group (principally Summit and Old Standard) has
participated as Sellers in securitizations with Metropolitan and Western
United. In these securitizations, the rights of the senior certificate holders
were enhanced though subordinating the right of subordinate certificate
holders to receive distributions with respect to the mortgage loans to such
rights of senior certificate holders. The selling companies initially retained
their respective residual interests. At September 30, 1998, the residual
interests held by Summit and Old Standard from the prior securitizations
aggregated approximately $1,253,000.
 
  In addition to sales through securitizations, the Consolidated Group may
sell pools of Receivables directly to purchasers. These sales are typically
without recourse, except that for a period of time the selling company is
generally required to repurchase or replace any Receivables which do not
conform to the representations and warranties made at the time of sale.
 
  During 1998, Summit, Old Standard, and Old West received proceeds of
approximately $22.7 million from the sale of portfolios of real estate
Receivables through securitization and proceeds of $11.6 million from the
direct sale of other Receivable investments. During 1998 and 1997, gains on
these securitizations and direct sales were approximately $2.1 million and
$955,000, respectively.
 
                              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 on May 31, 1995. Old
Standard had total assets of approximately $141.8 million at September 30,
1998. Old Standard markets its annuity products through approximately 100
independent sales representatives under contract. These representatives may
also sell insurance products for other companies. Old Standard is licensed as
an insurer in Idaho, Montana, North Dakota, Oregon, Washington and Utah.
During calendar 1997, the most recent year for which statistical information
is available, Old Standard's individual annuity market share in Idaho was 5%,
ranking it the fourth largest producer of annuities in Idaho during the
period.
 
  The Consolidated Group acquired Arizona Life on December 28, 1995. Arizona
Life subsequently changed its name to Old West. As of September 30, 1998, Old
West had total assets of approximately $21.9 million. Old West is licensed in
Arizona, California, Delaware, Washington, Idaho, New Mexico, Texas and Utah
and has an application pending in Kansas. It commenced annuity sales and
Receivable investing activities during fiscal 1996.
 
                                      18
<PAGE>
 
  Management intends to expand the insurance operations into other states as
opportunities arise, which may include the acquisition of other insurance
companies.
 
  There are no specific regulatory limitations imposed by Idaho or Arizona on
the percent of assets which Old Standard or Old West may invest in Receivables
collateralized by first position liens on real estate. As of September 30,
1998, 61% of Old Standard's assets were invested in Receivables collateralized
by real estate, and 12% in lotteries. As of September 30, 1998, 66% of Old
West's assets were invested in Receivables collateralized by real estate. As
of September 30, 1998, the balance of Old Standard's and Old West's
investments were principally invested in corporate and government securities.
See "REGULATION."
 
  Generally, loans which are acquired through the institutional secondary
mortgage market qualify as "mortgage related securities" pursuant to the
Secondary Mortgage Market Enhancement Act (SMMEA). SMMEA generally provides
that qualifying loans may be acquired to the same extent that obligations
which are issued by or guaranteed as to principal and interest by the United
States government, its agencies or instrumentalities can be acquired. Such
acquisitions are exempt from certain state insurance regulations including
loan to collateral value and appraisal regulations.
 
ANNUITIES
 
  During the last three years, Old Standard and Old West have derived 100% of
their premiums from annuity sales including both annuities reinsured from
Western United and their own direct annuity sales. Management believes that
annuity balances have continued to grow due to market acceptance of the
products (due largely to a competitive rate), and changes in tax laws that
removed the attractiveness of competing tax-advantaged products.
 
  Old Standard's annuities also qualify as investments under several of the
tax-advantaged programs.
 
  During 1999, the Consolidated Group anticipates correlating premium cash
flows substantially with the cash flows availability from Receivable
investments, in order to maximize the earnings from the interest spread.
Additionally, the premium cash flows and resulting total asset growth will be
influenced by the ability of Summit to make additional capital contributions
to Old Standard and Old West, and the ability to securitize or otherwise sell
Receivables.
 
  Flexible and single premium annuities are offered with short, intermediate
and traditional surrender fee periods. At September 30, 1998, deferred policy
acquisition costs were approximately 5.8% of annuity reserves. Since surrender
charges typically do not exceed 5% of policy amounts, increasing termination
rates may have an adverse impact on the insurance subsidiaries' earnings,
requiring faster amortization of these costs. During the years ended September
30, 1996, 1997 and 1998, the amortization of deferred policy acquisition costs
was approximately $85,000, $422,000 and $1,195,000, respectively. The
calculation has been reviewed by an actuary.
 
  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 year ended September 30, 1998, withdrawals and
benefits were approximately $7.0 million. The annualized lapse rate was
approximately 11.6%. Management believes a reasonable estimate for future
lapse rates to be 4%, except in the year surrender charges expire, the lapse
rate is estimated at 12%. The lapse rate for partial withdrawals is estimated
to be 4%.
 
 
                                      19
<PAGE>
 
  The life insurance subsidiaries of the Consolidated Group 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, 1998, 1997 and 1996, respectively, is as
follows:
 
<TABLE>
<CAPTION>
                                            1998         1997         1996
                                         -----------  -----------  -----------
   <S>                                   <C>          <C>          <C>
   Net Income-GAAP...................... $ 3,211,934  $ 2,409,260    1,285,135
   Adjustments to reconcile:
    Deferred policy acquisition cost....  (1,597,861)  (2,650,898)  (1,097,613)
   State insurance guaranty fund........         864         (298)     (28,261)
   Annuity reserves and benefits........    (703,876)    (167,439)     244,358
   Capital gains and IMR amortization...  (1,592,281)    (777,877)    (779,523)
   Allowance for losses.................   1,112,982      712,485      486,125
   Federal income taxes.................     416,457      404,346      258,888
   Other................................      53,343      230,714        5,594
                                         -----------  -----------  -----------
   Net Income-Statutory................. $   901,562  $   160,293      374,703
                                         ===========  ===========  ===========
</TABLE>
 
REINSURANCE
 
  Reinsurance is the practice whereby an insurance company enters into
agreements ("treaties") with other insurance companies in order to assign or
assume some of the insured risk for which a premium is paid, while the
reinsured retains 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. Most life insurers 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 it has in force and upon its ability to sustain unusual surrender
fluctuations.
 
  Old Standard has entered into two separate reinsurance agreements with
Western United. The first of those two agreements became effective January 23,
1997 and was terminated with respect to additional premiums on September 30,
1997. Under this first agreement, Western United reinsured with Old Standard
75% of the risk on six different annuity products and premium ceded was
approximately $28.0 million. Western United received ceding allowances equal
to expected commission plus 1.0% of premium, which was approximately $1.6
million.
 
  The second of the two agreements became effective July 1, 1998 and remained
in effect at September 30, 1998. Under this second agreement, Western United
reinsured with Old Standard 75% of the risk on 15 different annuity products
and premium ceded through September 30, 1998 was approximately $25.4 million.
Western United received ceding allowances equal to actual commission plus 1.5%
of the premium, which was approximately $1.3 million through September 30,
1998.
 
  These agreements have allowed Old Standard to acquire annuities at greater
speeds and at lower premium rates than management believes would have been
available through direct sales. Under its contractual terms, the second
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. It is expected that approximately
$50 million will be ceded under this treaty during fiscal 1999. Western United
receives a fee from Old Standard for servicing the reinsured policies, which
fee is 40 basis points annually on the cash value of the reinsured policies.
 
RESERVES
 
  Applicable state law requires that the annuity reserve be sufficient to meet
Old Standard's 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 contract holders, duration of contracts
and variations in contract
 
                                      20
<PAGE>
 
terms. Since such reserves are based on certain actuarial assumptions, no
representation is made that the ultimate liability will not exceed these
reserves. Old Standard and Old West utilize an actuary to review the reserve
amount for compliance with applicable statutes.
 
  The actuarially determined reserve is reported in statutory financial
statements as required by state insurance regulatory authorities. Accounting
principles used to prepare these statutory financial statements differ from
generally accepted accounting principles (GAAP). Annuity reserves were
approximately $136.4 million at September 30, 1998 based on GAAP financial
reporting.
 
                            SECURITIES INVESTMENTS
 
  At September 30, 1998 and 1997, 71.1% and 94.0%, 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 Old Standard and Old West at September 30, 1998:
 
<TABLE>
<CAPTION>
                                    AVAILABLE-  HELD-TO-
                          TRADING    FOR-SALE   MATURITY
                         PORTFOLIO  PORTFOLIO  PORTFOLIO    TOTAL    PERCENTAGE
                         ---------- ---------- ---------- ---------- ----------
                                         (DOLLARS IN THOUSANDS)
<S>                      <C>        <C>        <C>        <C>        <C>
Total Amount............ $2,167,225 $5,356,652 $2,005,209 $9,529,086   100.0%
                         ========== ========== ========== ==========   =====
% Invested in:
  Fixed Income.......... $2,167,225 $5,356,652 $2,005,209 $9,529,086   100.0%
  Equities..............        --         --         --         --        0%
                         ---------- ---------- ---------- ----------   -----
                         $2,167,225 $5,356,652 $2,005,209 $9,529,086   100.0%
                         ========== ========== ========== ==========   =====
% Fixed Income:
  Taxable............... $2,167,225 $5,356,652 $2,005,209 $9,529,086   100.0%
  Non-taxable...........        --         --         --         --        0%
                         ---------- ---------- ---------- ----------   -----
                         $2,167,225 $5,356,652 $2,005,209 $9,529,086   100.0%
                         ========== ========== ========== ==========   =====
% Taxable:
  U.S. Government....... $      --  $4,118,124 $2,005,209 $6,123,333    64.3%
  Corporate.............  2,167,225  1,238,528        --   3,405,753    35.7%
                         ---------- ---------- ---------- ----------   -----
                         $2,167,225 $5,356,652 $2,005,209 $9,529,086   100.0%
                         ========== ========== ========== ==========   =====
% Corporate:
  AA.................... $1,595,734 $1,238,528 $      --  $2,834,262    83.2%
  BBB...................        --         --         --         --        0%
  BB....................    360,293        --         --     360,293    10.6%
  B.....................    211,198        --         --     211,198     6.2%
                         ---------- ---------- ---------- ----------   -----
                         $2,167,225 $1,238,528 $      --  $3,405,753   100.0%
                         ========== ========== ========== ==========   =====
% Corporate:
  Mortgage-backed....... $2,167,225 $1,238,528 $      --  $3,405,753   100.0%
  Finance...............        --         --         --         --        0%
  Industrial............        --         --         --         --        0%
                         ---------- ---------- ---------- ----------   -----
                         $2,167,225 $1,238,528 $      --  $3,405,753   100.0%
                         ========== ========== ========== ==========   =====
</TABLE>
 
  Investments of the insurance subsidiaries are subject to the direction and
control of investment committees appointed by their respective Board of
Directors. All such investments must comply with applicable state insurance
laws and regulations. See "REGULATION." Investments primarily include
corporate, government agency, and direct government obligations.
 
                                      21
<PAGE>
 
  Old Standard and Old West are 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. See "RECEIVABLE INVESTMENTS--Receivable
Sales." At September 30, 1998, the Consolidated Group had no outstanding hedge
transactions or open short sales positions. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Asset/Liability
Management" under Item 7.
 
                              METHOD OF FINANCING
 
  The Consolidated Group's continued growth is expected to depend on its
ability to market its securities and annuities to the public and to invest the
proceeds in higher-yielding investments. Financing needs are intended to be
met primarily by the sale of its annuities, certificates, preferred stock and
sales and securitizations of Receivables. Such funds may be supplemented by
short-term bank financing and borrowing from affiliates. Old Standard has
established secured lines of credit through several lending institutions,
principally consisting of brokerage firms. As of September 30, 1998, no short-
term collateralized borrowings were outstanding.
 
  The availability of Receivables offered for investment in the national
market is believed by management to be adequate to meet the needs of the
Consolidated Group.
 
                           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 and of
Metropolitan, Summit's former parent company. In addition, MIS currently
markets several families of mutual funds, and general securities. MIS is
licensed as a broker/dealer in 10 states. MIS had net income of approximately
$58,000 during 1998. Management has made staffing, management and budget
changes which are designed to improve the profitability of MIS. There can be
no assurance that these efforts will continue to be successful. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" under Item 7 and Item 13.
 
                         PROPERTY DEVELOPMENT SERVICES
 
  Summit Property Development, Inc. provides real estate development services
for a fee. Currently, its principal clients are Metropolitan and Western
United. 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. Summit
Property Development does not own any real estate itself. Summit Property
Development, Inc. produced operating income for the Consolidated Group during
the fiscal year ended September 30, 1998 of approximately $264,000 on revenues
of approximately $1,851,000. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" under Item 7 and Item 13.
 
                                  COMPETITION
 
  Summit, Old Standard and Old West's ability to compete for Receivable
investments (except for commercial loans) is currently dependent upon
Metropolitan's Receivable acquisition network. Metropolitan competes with
various real estate financing firms, real estate brokers, banks and individual
investors for the Receivables it acquires. In the private secondary mortgage
market, the largest single competitors are subsidiaries of much larger
companies while the largest group of individual competitors are a multitude of
individual investors. In all areas of Receivable acquisitions, the
Consolidated Group competes with financial institutions
 
                                      22
<PAGE>
 
many of which are larger, have access to more resources and have greater name
recognition. Management believes its primary competitive factors are the
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 Summit, Old Standard and Old West include access to
Metropolitan's Receivable acquisition network, which allows access to markets
throughout the United States and flexibility in structuring Receivable
acquisitions. To the extent other competing Receivable investors may develop
faster closing times or more flexible investment policies, they may experience
a competitive advantage.
 
  Summit, Old Standard and Old West compete in the secondary mortgage market
as sellers of pools of Receivables through both direct sales and sales through
securitizations. This market is a multi-billion dollar industry and includes
many financial institutions and government participants. Competitors generally
have access to larger resources, better name recognition and greater
transaction volumes and economies of scale.
 
  Summit's and MIS's securities products face competition for investors from
other securities issuers, other broker/dealers and from other types of
financial institutions, many of which are much larger, and have greater name
recognition than MIS.
 
  Summit 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 vastly greater resources, economies of scale
and name recognition. Summit believes that its flexible underwriting and
pricing guidelines enhance its ability to compete in this market. There can be
no assurance that Summit's commercial loan origination program will be
successful in expanding these activities, nor that they will be profitable, if
expanded.
 
  The life insurance and annuity business is highly competitive. Premium
rates, annuity yields and commissions to agents are particularly sensitive to
competitive forces. Old Standard's and Old West's management believe that
their respective companies are in an advantageous position in this regard
because of their earning capability through investments in Receivables
compared to that of most other life insurance companies. Old Standard has been
assigned an A.M. Best Co. ("Best") rating of "B" (good), and Old West has been
assigned a Best rating of "B" (good). 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 policyholders and insurance agents.
 
                                  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. Each act regulates 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 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 levels, approving
policy forms, prescribing the nature and amount of permitted investments,
establishing solvency standards and conducting extensive periodic examinations
of insurance company records. Such regulation is intended to protect annuity
contract and policy owners, rather than investors in an insurance company. Old
Standard and Old West are required to file detailed annual and quarterly
financial reports with their respective states of domicile.
 
  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
 
                                      23
<PAGE>
 
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.
 
  The net amounts expensed by Old Standard and Old West for guaranty fund
assessments and charged to operations for the years ended September 30, 1998,
1997 and 1996 were approximately $119,000, $120,000, and $ 90,000,
respectively. This estimate was based on updated information provided by the
National Organization of Life and Health Insurance Guaranty Associations
regarding insolvencies occurring during 1990 through 1996. Management does not
believe that the amount of future assessments associated with known
insolvencies after 1996 will be material to its financial condition, results
of operations or cash flows. These estimates are subject to future revisions
based upon the ultimate resolution of the insolvencies and resultant losses.
Management cannot reasonably estimate the additional effects, if any, upon its
future assessments pending the resolution of the above described insolvencies.
 
  Old Standard and Old West are subject to regulatory restrictions on their
ability to pay dividends. Such 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 $574,000 and $(1,422,000),
respectively, as of September 30, 1998.
 
  For statutory purposes, Old Standard's and Old West's capital and surplus
and their ratio of capital and surplus to admitted assets were as follows as
of the dates indicated:
 
<TABLE>
<CAPTION>
                                                        As of December 31,
                                          As of        -----------------------
                                    September 30, 1998  1997     1996    1995
                                    ------------------ -------  ------  ------
                                             (Dollars in Thousands)
<S>                                 <C>                <C>      <C>     <C>
Old Standard:
  Capital and Surplus..............      $12,374       $10,359  $8,324  $3,007
  Ratio of Capital and Surplus to
   Admitted Assets.................          9.1%          9.7%   11.6%    5.4%
Old West:
  Capital and Surplus..............      $ 3,786       $ 3,039  $2,481  $1,214
  Ratio of Capital and Surplus to
   Admitted Assets.................         18.0%         18.9%   53.5%   99.2%
</TABLE>
 
  Although the States of Idaho and Arizona require only $2.0 million and
$450,000, respectively, in capital and surplus to conduct insurance business,
the insurance companies have attempted to maintain a capital and surplus ratio
of at least 5% of total admitted assets which management considers adequate
for regulatory and rating purposes.
 
  Idaho and Arizona have enacted the Risk Based Capital Model law which
requires an insurance company to maintain minimum amounts of capital and
surplus based on complex calculations of risk factors that encompass the
invested assets and business activities. At September 30, 1998, the 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.
 
 
                                      24
<PAGE>
 
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. See "INTRODUCTION" and "RECEIVABLE
INVESTMENTS--Repossessed Properties" under Item 1.
 
Item 3. Legal Proceedings
 
  There are no material legal proceedings or actions pending or threatened
against Summit Securities, Inc., 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 the Consolidated Group's security
holders during the fourth quarter ended September 30, 1998.
 
                                      25
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
 
  1.(a)  Market Information. There is no market for the Registrant's common
         stock.
 
    (b)  Holders. At September 30, 1998, there was one Common stockholder,
         National Summit Corp.
 
    (c)  Dividends. The Registrant paid dividends per share of $21.07 and
         $0 during fiscal 1998 and 1997, respectively.
 
  2. Recent Sales of Unregistered Securities. On October 15, 1996, Summit
issued to one accredited investor who is also an MIS Registered
Representative, in a private offering exempt from registration pursuant to the
Securities Act of 1933, as amended, $256,000 of Variable Rate Cumulative
Preferred Stock, Series S-RP. The underwriter was MIS. The consideration for
the transaction was residential real estate valued at $256,000. See "NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS--Note 13" under Item 8.
 
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's for the five years in the
period ended September 30, 1998.
 
<TABLE>
<CAPTION>
                                             YEAR ENDED SEPTEMBER 30,
                          ------------------------------------------------------------------
                              1998          1997          1996         1995         1994
                          ------------  ------------  ------------  -----------  -----------
<S>                       <C>           <C>           <C>           <C>          <C>
INCOME STATEMENT DATA:
Revenues................  $ 29,965,547  $ 19,785,462  $ 14,536,449  $ 9,576,615  $ 3,395,352
                          ============  ============  ============  ===========  ===========
Net income..............  $  2,524,027  $  1,851,240  $  1,244,522  $   587,559  $   264,879
Preferred stock
 dividends..............      (498,533)     (446,560)     (333,606)    (309,061)      (2,930)
                          ------------  ------------  ------------  -----------  -----------
Income applicable to
 common Stockholders....  $  2,025,494  $  1,404,680  $    910,916  $   278,498  $   261,949
                          ============  ============  ============  ===========  ===========
PER COMMON SHARE DATA:
Basic and diluted income
 per share applicable to
 common stockholder.....  $     202.55  $     140.47  $      91.09  $     27.85  $     13.47
                          ============  ============  ============  ===========  ===========
Weighted average number
 of Common shares
 outstanding............        10,000        10,000        10,000       10,000       19,445
                          ============  ============  ============  ===========  ===========
Ratio of earnings to
 fixed charges..........          1.64          1.46          1.40         1.25         1.16
Ratio of earnings to
 fixed charges and
 preferred stock
 dividends..............          1.46          1.31          1.26         1.11         1.16
BALANCE SHEET DATA:
Due from/(to) affiliated
 companies, net.........  $ 10,985,805  $    870,255  $  1,296,290  $(1,960,104) $   267,735
Total assets............  $206,594,234  $166,354,070  $117,266,680  $96,346,572  $35,101,988
Debt securities and
 other debt payable.....  $ 56,078,514  $ 50,607,983  $ 46,674,841  $38,650,532  $31,212,718
Stockholders' equity....  $ 10,684,064  $  7,756,643  $  5,358,774  $ 3,907,067  $ 3,321,230
</TABLE>
 
                                      26
<PAGE>
 
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, 1998.
 
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 
                           AND RESULTS OF OPERATIONS
 
              For the Three Fiscal Years Ended September 30, 1998
 
INTRODUCTION
 
  Summit's operations for the current fiscal year ended September 30, 1998
continued to benefit from the acquisition and start-up of several new
operating subsidiaries acquired during 1995. MIS was acquired from Summit's
former parent company in January 1995. At the same time, Summit established a
property development subsidiary, Summit Property Development. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" under Item 13. Summit acquired Old
Standard from Summit's former parent company on May 31, 1995 and acquired Old
West from ILA Financial Services, Inc. in December of 1995. Of these
transactions, the largest was the acquisition of Old Standard. As of September
30, 1998, Old Standard had total assets of approximately $141.8 million.
During the fiscal year ended September 30, 1998, MIS, Summit Property
Development, Old Standard and Old West contributed gross revenues of
approximately $3.3 million, $1.8 million, $45.7 million and $10.0 million,
respectively, to the Consolidated Group. For the same period, Summit Property
Development, MIS, Old Standard and Old West contributed operating income of
approximately $264,000, $89,000, $3,752,000 and $419,000, respectively, to the
Consolidated Group.
 
RESULTS OF OPERATIONS
 
  Revenues of the Consolidated Group increased to approximately $30.0 million
in 1998 from $19.8 million in 1997 and $14.5 million in 1996. The increase in
revenues from 1997 to 1998, as was the case from 1996 to 1997, is primarily
attributable to the continuing increase in investment earnings (interest and
earned discounts) on outstanding Receivables, due largely to the continuing
growth of its insurance subsidiaries Old Standard and Old West, along with an
increase in fee, commission and service revenues primarily from its service
oriented subsidiaries, MIS and Summit Property Development. The Consolidated
Group has increased its investment in Receivables, collateralized by real
estate, to approximately $121.8 million at September 30, 1998 from $103.6
million at September 30, 1997. Additionally, the Consolidated Group continued
to invest in annuities and structured settlements ending the year at September
30, 1998 with a total outstanding investment of $26.9 million, which is an
increase from the $20.6 million investment at September 30, 1997.
 
  Net income before preferred stock dividends for the fiscal year ended
September 30, 1998 was $2,524,000 compared to $1,851,000 in 1997 and
$1,245,000 in 1996. The increase from 1997 to 1998, as was the case from 1996
to 1997, was primarily the result of an increase in the margin between
interest sensitive income and interest sensitive expense caused largely by the
continued growth in Old Standard's Receivable portfolios, increased gains on
the sale of investments and receivables, and increased fees, commissions and
service income, all of which were only partially offset by increases in its
provision for losses on real estate assets, salaries and benefits, commissions
and other operating expenses.
 
  The Consolidated Group strives to maximize its risk-adjusted return by
investing in non-conventional real estate Receivables and origination of small
to mid-sized commercial loans. Non-conventional Receivables are typically
Receivables not originated by a regulated financial institution and not
underwritten to FNMA or FHA underwriting guidelines. Normally, either the
borrower or the collateral will not meet FNMA or FHA underwriting guidelines
to qualify for conventional financing and the seller will be required to
provide the financing to complete the sale. These seller financed Receivables
are the types of non-conventional Receivables
 
                                      27
<PAGE>
 
normally acquired by the Consolidated Group. Because borrowers in this market
generally have blemished credit records, the Consolidated Group's underwriting
practices focus more strongly on the collateral value as the ultimate source
for repayment. While higher delinquency rates are expected in connection with
its investment in non-conventional Receivables, the Consolidated Group
believes this risk is generally offset by the value of the underlying
collateral and the superior interest yields realized over normal conventional
financing.
 
  Commercial loans are generally small to mid-sized loans that are originated
for less than $5 million and are collateralized by multi-family properties and
various types of commercial properties. The Consolidated Group anticipates
that a substantial majority of its Receivable acquisitions during 1999 may be
new commercial loan originations. See "RECEIVABLE INVESTMENTS" under Item 1.
 
  Since the date of its incorporation through approximately the end of
calendar year 1993 and again in 1995, 1996, 1997 and 1998, Summit has
generally benefited from a declining interest rate environment with lower cost
of funds and relatively consistent interest yields on acquired Receivables. In
addition, a declining interest rate environment positively impacted earnings
by increasing the value of the portfolio of predominantly fixed rate
Receivables. This situation was evident in 1998, 1997, and 1996 as Summit was
able to realize gains of approximately $2,103,000, $955,000, and $977,000,
respectively, from the sale of Receivables. Higher than anticipated levels of
prepayments in the Receivable portfolio were experienced during the years 1992
through 1998, allowing Summit to recognize unamortized discounts on
Receivables which increased resultant yields. During 1994 and continuing in
1995, 1996, 1997 and 1998, Metropolitan, Summit's former parent and the
primary supplier of Receivables, began charging the Consolidated Group
underwriting fees associated with Receivable acquisitions. The charging of the
underwriting fee results in a somewhat lower yield over the life of the newly
acquired Receivables. However, management believes the yield to be favorable
in comparison to other investment opportunities. See "RECEIVABLE INVESTMENTS"
under Item 1.
 
  As the national economy has experienced moderate growth over the past three
years, the Consolidated Group's financial results were not materially impacted
by general economic factors because of: (a) the wide geographic dispersion of
its Receivables; (b) the relatively small average size of each Receivable; (c)
the primary concentration of investments in residential Receivables where
market values have been more stable than in commercial properties; and (d) a
continuing strong demand for tax-advantaged products, such as annuities.
 
  The Consolidated Group is currently unable to determine the impact of its
anticipated increase in the acquisition of commercial loan agreements.
Maintaining efficient collection efforts and minimizing delinquencies in the
Consolidated Group's Receivable portfolio are ongoing management goals. During
1998, the Consolidated Group realized a loss on the sale of repossessed real
estate and real estate held for sale of approximately $118,000 as compared to
a loss of $80,000 in 1997 and a loss of $40,000 in 1996. In recognition of the
increased size of the Consolidated Group's Receivable and real estate
portfolios, principally associated with the purchase of Old Standard, the
Consolidated Group has increased its provision for losses on assets
collateralized by real estate. Provisions for losses were approximately
$1,799,000, $986,000, and $490,000, for 1998, 1997, and 1996, respectively. At
September 30, 1998, the Consolidated Group had an allowance for losses on real
estate assets of approximately $1,843,000 compared to $1,153,000 and $974,000
at September 30, 1997 and 1996, respectively. The increases in 1998 and 1997
were primarily due to increases in the size of the respective year's
Receivable portfolios, in particular, commercial loans that are larger in
average size as compared to other Receivables. At September 30, 1998, 1997,
and 1996, the allowance for losses represented approximately 1.4%, 1.1%, and
1.2%, respectively, of the face value of Receivables collateralized by real
estate.
 
INTEREST SENSITIVE INCOME AND EXPENSE
 
  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, while interest
sensitive income includes interest and earned discounts on Receivables,
dividends and other investment income.
 
 
                                      28
<PAGE>
 
  The Consolidated Group is in a "liability sensitive" position in that its
interest sensitive liabilities reprice or mature more quickly than do its
interest sensitive assets. Consequently, in a rising interest rate
environment, the net return from interest sensitive assets and liabilities
will tend to decrease, thus rising interest rates will have a negative impact
on results of operations. Conversely, in a falling interest rate environment,
the net return from interest sensitive assets and liabilities will tend to
improve, thus falling interest rates will have a positive impact on results of
operations. As with the impact on operations from changes in interest rates,
the Consolidated
Group's Net Present Value ("NPV") of financial liabilities is subject to
fluctuations in interest rates. The Consolidated Group continually monitors
the sensitivity of net interest income and NPV to changes in interest rates.
 
  NPV is calculated based on the net present value of estimated cash flows
utilizing market prepayment assumptions and market rates of interest provided
by independent broker quotations and other public sources.
 
  Computation of forecasted effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and redemptions of certificates, and should not be
relied upon as indicative of actual future results.
 
  The following table presents, as of September 30, 1998, the Consolidated
Group's estimate of the change in the NPV of the financial assets and
liabilities if interest rate levels generally were to increase or decrease by
1% and 2%, respectively. These calculations, which are highly subjective and
technical, may differ from actual results. See "--Asset/Liability Management".
 
<TABLE>
<CAPTION>
                                               Fair Value With Interest Rate
                                                          Change
                                            -----------------------------------
                          Carrying   Fair   Decrease Decrease Increase Increase
                          Amounts   Value      1%       2%       1%       2%
                          -------- -------- -------- -------- -------- --------
                                         (Dollars in Thousands)
<S>                       <C>      <C>      <C>      <C>      <C>      <C>
Financial Assets:
 Cash and cash
  equivalents...........  $ 14,168 $ 14,168 $ 14,168 $ 14,168 $ 14,168 $ 14,168
 Investments:
 Affiliated companies...     4,522    4,522    4,522    4,522    4,522    4,522
 Trading................     6,050    6,050    6,219    6,397    5,888    5,733
 Available-for-sale.....     5,357    5,357    5,412    5,467    5,302    5,249
 Held-to-maturity.......     2,005    2,018    2,027    2,036    2,009    2,000
 Real estate contracts
  and mortgage notes....   123,108  135,190  139,117  143,240  131,447  127,878
 Other receivable
  investments...........    26,943   29,320   30,659   32,086   28,063   26,882
                          -------- -------- -------- -------- -------- --------
                          $182,153 $196,625 $202,124 $207,916 $191,399 $186,432
                          ======== ======== ======== ======== ======== ========
Financial Liabilities:
 Annuity reserves.......  $136,362 $136,362 $140,936 $145,725 $131,994 $127,820
 Investment
  certificates..........    55,037   55,934   57,147   58,397   54,757   53,614
 Debt payable...........       183      186      190      194      182      178
                          -------- -------- -------- -------- -------- --------
                          $191,582 $192,482 $198,273 $204,316 $186,933 $181,612
                          ======== ======== ======== ======== ======== ========
</TABLE>
 
  The excess of interest sensitive income over interest sensitive expense was
approximately $5.5 million in 1998, $3.9 million in 1997 and $2.2 million in
1996. The increase from 1997 to 1998, as was the case from 1996 to 1997, was
attributable to the following: (a) increased investment in the Receivable
portfolio largely due to the continued growth of Old Standard and Old West;
and (b) a lower cost of funds.
 
  The calculations of present value have certain shortcomings. The discount
rates utilized for Receivables and investment securities are based on
estimated market interest rate levels of similar receivables and securities
nationwide, with prepayment levels generally assumed based on global
statistics. The unique characteristics of the Consolidated Group's Receivables
and investment securities may not necessarily parallel those assumed in the
model, and therefore, would likely result in different discount rates,
prepayment experiences, and present
 
                                      29
<PAGE>
 
values. The discount rates utilized for investment certificates, annuity
reserves and debt payable are based upon valuable alternative types and
sources of funds which are not necessarily indicative of the present value of
such instruments. The present values are determined based on the discounted
cash flows over the remaining estimated lives of the financial instruments and
assumes that the resulting cash flows are reinvested in financial instruments
with virtually identical terms. The total measurement of the Consolidated
Group's exposure to interest rate risk as presented in the above table may not
be representative of the actual values which might result from a higher or
lower interest rate environment. A higher or lower interest rate environment
will most likely result in different investment and borrowing strategies by
the Consolidated Group designed to mitigate the effect on the value of, and
the net earnings generated from, the Consolidated Group's net assets from any
change in interest rates.
 
FEES, COMMISSIONS, SERVICE AND OTHER INCOME
 
  Fees, commissions, service and other income grew to approximately $4,845,000
in 1998 from $3,545,000 in 1997 and $2,850,000 in 1996. Revenues in 1998
consisted primarily of commissions earned by the Consolidated Group's
broker/dealer subsidiary, MIS, and service fees earned by its property
development subsidiary. MIS and Summit PD earned approximately $2,776,000 in
commissions (after eliminating commissions received by MIS from Summit) and
approximately $1,844,000 in service fees in 1998, respectively. The increase
in revenue in 1998 of approximately $1,300,000 resulted primarily from an
increase in commissions earned by MIS. The increase in revenues during 1997 of
approximately $695,000 was primarily due to an increase in commissions earned
by MIS of $901,000 being partially offset by a decrease in property
development fees of $200,000.
 
OTHER EXPENSES
 
  Operating expenses increased to approximately $7,824,000 from $5,432,000 in
1997 and from $3,988,000 in 1996. The 1998 increase in operating expenses was
principally the result of increased commissions to agents, in particular
commissions paid by MIS which increased by over $1.0 million and increased
operating costs associated with its insurance operations which included an
increase in amortization of deferred policy acquisition costs of over
$750,000. The 1997 increase in operating expenses was principally the result
of the continued growth of the Consolidated Group, in particular MIS and Old
Standard. In 1997, MIS's had increased expenses of approximately $846,000,
while Old Standard's continued growth resulted in expense increases of
approximately $469,000 and Old West's growth resulted in expense increases of
approximately $105,000.
 
PROVISION FOR LOSSES ON REAL ESTATE RECEIVABLES
 
  The provision for losses on Receivables has increased as the size of the
portfolio of Receivables has grown to provide for what Management believes is
an adequate allowance for probable losses; however, there can be no assurance
that actual losses will not exceed management's expectations. The following
table summarizes the Consolidated Group's allowance for losses on Receivables:
 
<TABLE>
<CAPTION>
                                                 1998        1997       1996
                                              ----------  ----------  ---------
<S>                                           <C>         <C>         <C>
Beginning Balance............................ $1,153,278  $  974,487  $ 765,130
Increase due to:
  Provision for losses.......................  1,243,044     386,525    212,600
  Charge-Offs................................   (553,267)   (207,734)   (18,896)
  Recoveries.................................        --          --      15,653
                                              ----------  ----------  ---------
Ending Balance............................... $1,843,055  $1,153,278  $ 974,487
                                              ==========  ==========  =========
</TABLE>
 
  These allowances are in addition to unamortized acquisition discounts of
approximately $5.0 million at September 30, 1998, $6.0 million at September
30, 1997, and $4.7 million at September 30, 1996.
 
 
                                      30
<PAGE>
 
GAIN/LOSS ON OTHER REAL ESTATE OWNED
 
  During 1998, the Consolidated Group realized a loss on the sale of real
estate of approximately $118,000 compared to a loss of approximately $80,000
in 1997 and a loss of $40,000 in 1996. At September 30, 1998, the Consolidated
Group had approximately $2,646,000 in real estate held for sale or 1.3% of
total assets as compared to approximately $2,820,000 or 1.7% of total assets
at September 30, 1997.
 
EFFECT OF INFLATION
 
  During the three-year period ended September 30, 1998, inflation has had a
generally positive impact on the Consolidated Group's operations. This impact
has primarily been indirect in that the level of inflation tends to be
reflected in the current level of interest rates which impact interest returns
and cost of funds on the Consolidated Group's assets and liabilities. However,
both interest rate levels in general and the cost of the Consolidated Group's
funds and the return on its investments are influenced by additional factors
such as the level of economic activity and competitive or strategic product
pricing issues. The net effect of the combined factors on the earnings of the
Consolidated Group has been a slight improvement over the three-year period in
the positive spread between the return on interest earning assets and the cost
of interest bearing liabilities. Inflation has not had a material effect on
the Consolidated Group's operating expenses. Increases in operating expenses
have resulted principally from increased product volumes or other business
considerations including the acquisition of additional companies and the
start-up of new businesses.
 
  Revenues from real estate sold are influenced in part by inflation, as,
historically, real estate values have fluctuated with the rate of inflation.
However, the effect of inflation in this regard has not had a material effect
on the real estate sales of the Consolidated Group nor is it expected to have
a material effect in the near future.
 
ASSET/LIABILITY MANAGEMENT
 
  As most of the Consolidated Group's assets and liabilities are financial in
nature, the Consolidated Group is subject to interest rate risk. In fiscal
1999, more of the Consolidated Group's financial liabilities (primarily
annuities and certificates) will reprice or mature more quickly than its
financial assets (primarily Receivables and fixed income investments). In a
decreasing interest rate environment, this factor will tend to increase
earnings as liabilities will generally be repriced at lower rates of interest
while financial assets maintain their existing rates of interest. This effect
is mitigated to the extent that Receivables are reduced when debtors increase
their level of early repayments in a decreasing rate environment.
 
  The Consolidated Group may use financial futures instruments for the purpose
of hedging interest rate risk relative to investments in 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. Additionally, the Consolidated Group may sell
securities "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 economically hedging interest rate risk, or take a trading
position in an attempt to benefit from an anticipated movement in the
financial markets. The Consolidated Group had not employed any such strategies
prior to or through September 30, 1998. See "SECURITIES INVESTMENTS" under
Item 1.
 
  During fiscal 1999, approximately $82.1 million of interest sensitive assets
(cash, Receivables and fixed income investments) are expected to reprice or
mature. Interest sensitive liabilities, including annuity reserves of
approximately $100.0 million reprice during fiscal 1999, and approximately
$11.7 million of Certificates and other debt will mature during fiscal 1999.
These estimates result in repricing of interest sensitive liabilities in
excess of interest sensitive assets of approximately $29.6 million, or a ratio
of interest sensitive liabilities to interest sensitive assets of
approximately 136%.
 
 
                                      31
<PAGE>
 
  The Consolidated Group is able to manage this liability to asset mismatch of
approximately 1.4:1 by the fact that approximately 87% of the interest
sensitive liabilities are annuity contracts which are subject to surrender
charges. These contracts have maturities, which extend for as long as nine
years with surrender charges of decreasing amounts during their term. At the
option of the respective insurance subsidiaries, these contracts are subject
to annual repricing. In periods of declining interest rates, this feature is
beneficial as it allows the insurance subsidiaries to reprice their
liabilities at lower market rates of interest. In periods of increasing
interest rates, such liabilities are protected by surrender charges. Depending
on the remaining surrender charges, the insurance subsidiaries have the option
to extend any interest rate increase over a two to three year period, thereby
making it not generally economical for an annuitant to pay the surrender
charge in order to receive payment in lieu of accepting a rate of interest
that is lower than current market rates of interest. As a result, the
insurance subsidiaries may respond more slowly to increases in market interest
rate levels thereby diminishing the impact on the Consolidated Group of the
current mismatch in the interest sensitivity ratio. Additionally, through
Receivable securitizations, the Consolidated Group has increased its ability
to raise necessary liquidity to manage the liability to asset mismatch. If
necessary, the proceeds from the securitizations could be used to retire
maturing liabilities.
 
NEW ACCOUNTING RULES
 
  In March 1995, Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS 121"), was issued. SFAS 121 requires certain long-
lived assets, such as the Consolidated Group's real estate assets, be reviewed
for impairment in value whenever events or circumstances indicate that the
carrying value of an asset may not be recoverable. In performing the review,
if expected future undiscounted cash flows from the use of the asset or the
fair value, less selling costs, from the disposition of the asset is less than
its carrying value, an impairment loss is to be recognized. The adoption of
SFAS on October 1, 1996 did not have a material effect on the consolidated
financial statements.
 
  In June 1996, Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"), was issued. SFAS 125 provides
accounting and reporting standards based on a consistent application of a
financial components approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered and derecognizes
liabilities when extinguished. This statement provides consistent standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. SFAS 125 is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after
December 31, 1996. The application of the provisions of SFAS 125 effective
January 1, 1997 did not have a material effect on the Consolidated Group's
financial condition, results of operations or cash flows.
 
  In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), was issued. SFAS 128 establishes standards
for computing and presenting earnings per share ("EPS") and simplifies the
existing standards. This standard replaces the presentation of primary EPS
with a presentation of basic EPS. It also requires the dual presentation of
basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods
and requires restatement of all prior-period EPS data presented. The
application of this standard did not have a material effect on the
presentation of the Consolidated Group's earnings per share disclosures.
 
  In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), was issued. SFAS 130
establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. This Statement requires that all items
required to be recognized under accounting standards as components of
 
                                      32
<PAGE>
 
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. This Statement does
not require a specific format for the financial statement, but requires an
enterprise to display an amount representing total comprehensive income for
the period in the financial statements. This Statement requires an enterprise
to classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. This Statement is effective for
fiscal years beginning after December 15, 1997. The Consolidated Group has not
determined the financial statement effect of the application of this
Statement.
 
  In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"), was issued. SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This Statement
supersedes SFAS 14, "Financial Reporting for Segments of a Business
Enterprise," but retains the requirement to report information about major
customers. This Statement is effective for financial statements for periods
beginning after December 15, 1997. The Consolidated Group has not yet
determined the financial statement effect of the application of this Statement
on the disclosures of its business segments.
 
  In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments" ("SOP 97-3"). SOP 97-3 applies
to all entities that are subject to guaranty-fund and other insurance-related
assessments. Assessments covered by this SOP include any charge mandated by
statute or regulatory authority that is related directly or indirectly to
underwriting activities (including self-insurance), except for income taxes
and premium taxes. SOP 97-3 is effective for financial statements for fiscal
years beginning after December 15, 1998. The Consolidated Group does not
believe that the application of SOP 97-3 will have a material effect on its
consolidated financial statements.
 
  In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
was issued. SFAS 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. SFAS 133 is effective for all quarters of fiscal
years beginning after June 15, 1999, however, earlier application is
encouraged as of the beginning of any fiscal quarter. The Consolidated Group
has not yet determined the effect of SFAS 133 on its consolidated financial
statements.
 
  In October 1998, Statement of Financial Accounting Standards No. 134,
"Accounting for Mortgage-Banking Enterprise" ("SFAS 134"), was issued. SFAS
134 requires that after the securitization of mortgage loans held for sale, an
entity engaged in mortgage banking activities classify the resulting mortgage-
backed securities or other retained interests based on its ability and intent
to sell or hold those investments. This statement conforms the subsequent
accounting for securities retained after the securitization of mortgage loans
by a mortgage banking enterprise with the subsequent accounting for securities
retained after the securitization of other types of assets by a non-mortgage
banking enterprise. This statement is effective for the first fiscal quarter
beginning after December 15, 1998. The Consolidated Group has not yet
determined the effect of the application of this statement on its consolidated
financial statements.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  As a financial institution, the Consolidated Group's sources of liquidity
are largely linked to its ability to renew, maintain or obtain additional
sources of cash. The Consolidated Group has successfully met these
requirements during the past three years and has continued to invest funds
generated by operations, financing activities, Receivables and investments.
 
                                      33
<PAGE>
 
  The Consolidated Group utilized cash in operating activities of
approximately $5.4 million in 1998 and $0.6 million in 1996, while operating
activities in 1997 provided cash of approximately $4.3 million. Cash used by
the Consolidated Group in its investing activities totaled approximately $17.4
million in 1998, $40.7 million in 1997, and $15.2 million in 1996. Cash
provided by the Consolidated Group's financing activities totaled
approximately $28.5 million in 1998, $40.4 million in 1997, and $17.2 million
in 1996. These cash flows have resulted in year-end cash and cash equivalent
balances of approximately $14.2 million in 1998, $8.5 million in 1997, and
$4.5 million in 1996.
 
  The cash from financing activities of $28.5 million resulted primarily from:
(a) issuance of Certificates, net of repayments and related debt issue costs
of $4.1 million; (b) issuance of insurance annuities, net of surrenders, of
approximately $24.1 million; (c) issuance of preferred stock, less
redemptions, of approximately $1.2 million; less (d) dividend payments of $0.7
million and (e) a contingent purchase price paid on the purchase of a
subsidiary from a related part of approximately $136,000. Cash used in
operating activities of $5.4 million resulted primarily from net income of
$2.5 million, increases in annuity reserves of $6.9 million being offset by
other operating activities and changes in various assets and liabilities of
approximately $14.8 million. Cash used in investing activities of $17.4
million primarily resulted from the acquisition of real estate, real estate
Receivables and other Receivable investments which totaled $80.4 million and
the approximately $1.0 million purchase of investment securities, being offset
by payments and sales of real estate, real estate Receivables and other
Receivable investments of $57.1 million and proceeds from investment
securities, including maturities and sales, of approximately $6.9 million.
Both Receivable acquisitions and Receivable dispositions were influenced by
securitizations during 1998.
 
  During 1997, approximately $40.4 million was provided by financing
activities, approximately $4.3 million was provided by operating activities,
and $40.7 million was used in investing activities which resulted in a $4.0
million increase in available cash and cash equivalents. The cash from
financing activities of $40.4 million resulted primarily from: (a) issuance of
Certificates, net of repayments and related debt issue costs, of $5.8 million;
(b) issuance of insurance annuities, net of surrenders, of approximately $38.0
million; (c) issuance of preferred stock of approximately $1.2 million; less
(d) debt payments to banks and others of $3.8 million; (e) dividend payments
of $0.4 million; and (f) contingency purchase price payments on the
acquisition of subsidiary, Old Standard, of approximately $250,000. Cash
provided by operating activities of $4.3 million resulted primarily from net
income of $1.9 million, increases in annuity reserves of $4.9 million being
offset by other operating activities and changes in various assets and
liabilities of approximately $2.5 million. Cash used in investing activities
of $40.7 million primarily included the acquisition of real estate, real
estate Receivables and other Receivable investments which totaled $74.8
million being offset by payments and sales of real estate, real estate
Receivables and other Receivable investments of $40.7 million and acquisition
of investment securities, net of maturities and sales, of approximately $6.6
million. Both Receivable acquisitions and Receivable dispositions were
influenced by securitizations during 1997.
 
  During 1996, approximately $17.2 million was provided by financing
activities, approximately $0.6 million was used in operating activities, and
$15.2 million was used in investing activities which resulted in a $1.5
million increase in available cash and cash equivalents. The cash from
financing activities of $17.2 million resulted primarily from: (a) issuance of
Certificates, net of repayments and related debt issue costs, of $4.1 million;
(b) issuance of insurance annuities, net of surrenders, of approximately $9.2
million; (c) issuance of preferred stock of approximately $0.5 million; (d)
borrowings from banks and others, net of debt repayments, of $3.7 million;
less (e) dividend payments of $0.3 million. Cash used in operating activities
of $0.6 million resulted primarily from net income of $1.2 million, increases
in annuity reserves of $3.7 million being offset by other operating activities
and changes in various assets and liabilities of approximately $5.5 million.
Cash used in investing activities of $15.2 million primarily included
acquisition of real estate Receivables and other Receivable investments, net
of payments and sales, of $13.4 million, $1.5 million invested in the common
stock of an affiliated company and $760,000 used in the purchase of Old West.
 
  During 1999, anticipated principal, interest and dividend payments on
outstanding debentures, other debt payments and preferred stock distributions
are expected to be approximately $13.7 million. During 1998, the
 
                                      34
<PAGE>
 
principal portion of the payments received on the Consolidated Group's
Receivables and proceeds from sales of real estate and Receivables were $57.1
million. A decrease in the prepayment rate on these Receivables or a decrease
in the ability to sell or securitize Receivables would reduce future cash
flows from Receivables and might adversely affect the Consolidated Group's
ability to meet its principal, interest and dividend payments.
 
  The Consolidated Group expects to maintain adequate levels of liquidity in
the foreseeable future by continuing its securities offerings, annuity sales
and the sale and securitization of Receivables. At September 30, 1998, cash or
cash equivalents were $14.2 million, or 6.9% of total assets. Including
securities that are either trading or available-for-sale, total liquidity was
$25.6 million, $16.2 million, and $4.7 million as of September 30, 1998, 1997
and 1996, respectively, or 12.4%, 9.7%, and 4.0% of total assets,
respectively.
 
  Access to new "capital markets" through Receivable securitizations has
allowed the Consolidated Group to both increase liquidity and accelerate
earnings through the gains recorded on the securitizations. This increased
ability to create liquidity will enable the Consolidated Group to accept
certain asset/liability mismatches which have historically been beneficial to
the Consolidated Group when they have been able to finance higher earning
longer term assets with lower cost of funds associated with shorter term
liabilities.
 
  For statutory purposes, Old Standard and Old West perform cash flow testing
under several different rate scenarios as required by the states of Idaho and
Arizona, respectively. The results of these tests are filed annually with the
Insurance Commissioner of the respective states. At the end of calendar year
1997, the results of this cash flow testing process were satisfactory.
 
  At September 30, 1998, the Consolidated Group had no material commitments
for any capital expenditures outside of commitments related to its normal
investing activities. Additionally, the Consolidated Group had no knowledge of
any environmental liabilities associated with any of its real estate asset
investments.
 
  Management believes that cash flow from financing activities, liquidity
provided from current investments and the Consolidated Group's ability to
securitize its Receivables collateralized by real estate will be sufficient
for the Consolidated Group to conduct its business and meet its anticipated
obligations as they mature during fiscal 1999. Summit has not defaulted on any
of its obligations since its founding in 1990.
 
YEAR 2000 DISCLOSURE
 
  The Consolidated Group is aware of the potential effect that the year 2000
and the new century may have on computer hardware, computer software and
applications and embedded micro-controllers in non-computer equipment
(collectively "Information Technology"). The problem is insuring that the
Consolidated Group is "Year 2000 Compliant" meaning that the Information
Technology is able to (i) process date and time data accurately and (ii)
calculate, compare and sequence from, into and between the twentieth and
twenty-first centuries, the years 1999, 2000 and leap years.
 
  The Consolidated Group and its affiliates share many software, hardware,
facilities and other systems. Therefore, the Consolidated Group's Year 2000
efforts are a combined and coordinated effort among all companies within the
Consolidated Group and its affiliates. The following are statements regarding
the Year 2000 compliance of the Consolidated Group. The information below has
not been independently verified by the Consolidated Group, other than
statements relating to the Consolidated Group.
 
 State of Readiness
 
  The Consolidated Group has established a Year 2000 task force which has
developed an action plan for addressing issues related to the Year 2000.
Management currently contemplates that the plan, with the exception of the
contingency plan, will be substantially completed by August 1, 1999. The
contingency plan is expected to be substantially completed by December 1,
1999, but will continue to be revised thereafter as needed in order to
maintain an effective contingency plan. The action plan includes the following
phases:
 
                                      35
<PAGE>
 
  .  Inventory--Identify all internal and external systems and services that
     may utilize date sensitive information.
 
  .  Assessment--Determine whether each system or service meets the
     Consolidated Group's definition of Year 2000 Compliance and assess the
     potential business impact of non-compliance.
 
  .  Renovation--Modify and/or replace any systems or services that do not
     satisfy the Consolidated Group's definition of Year 2000 Compliance.
 
  .  Certification--Obtain certification that each system or service meets
     the definition of compliance.
 
  .  Training--Develop and implement any training and procedural changes to
     ensure correct data entry.
 
  .  Contingency Planning--Develop and implement contingency plans against
     possible failures.
 
  The plan includes a timeline for the completion of each of the phases and
components of the work within each phase. Many of the different phases have
overlapping timelines and are therefore progressing simultaneously; therefore
the status of progress on any particular phase is difficult to assess at any
point in time. The Year 2000 task force generally meets weekly to coordinate
its efforts as well as to monitor progress.
 
  The status of the Consolidated Group's Year 2000 efforts are regularly
monitored by the internal auditor. In addition, during the first quarter of
calendar 1999, the Consolidated Group intends to engage a third party to
provide an external evaluation of its Year 2000 action plan and the status of
the preparations of the Consolidated Group at that time.
 
  The Consolidated Group has begun the testing of its internally supported
software applications and its hardware. Testing to date has not produced any
results which were not able to be resolved. The testing continues to be
substantially on track with the Year 2000 action plan timeline.
 
  The Consolidated Group is requesting vendor documentation certifying Year
2000 compliance with respect to third party software applications, third party
services, equipment and facilities related systems. Certain equipment and
facilities systems which have been identified as higher priority are also
being tested for compliance, where testing is possible. To date, the
Consolidated Group has not received any indication from any third party that a
mission critical system or service will not be able to be certified by them as
Year 2000 compliant. The Year 2000 task force is monitoring and tracking
projected certification dates from third party providers.
 
  The Consolidated Group has begun the development of a Year 2000 contingency
plan to address potential Year 2000 related failures. There can be no
assurance that this contingency plan or that the Year 2000 action plan will be
able to prevent a material disruption of the Consolidated Group's business.
 
 Expected Costs of Remediation
 
  Prior to fiscal 1998, the Consolidated Group did not track Year 2000 related
costs. The Consolidated Group and its affiliates had developed a Year 2000
budget of approximately $1.3 million for the fiscal year commencing October 1,
1999. The Consolidated Group will pay certain of these costs while the
remainder of the costs will be paid by or charged to the affiliated companies.
The predominant components of both past and future costs consist of soft costs
related to employee time and resource allocations rather than direct costs
such as the acquisition of new software.
 
 Risks
 
  The Consolidated Group, as a financial institution, relies heavily upon
computers and information technology systems to acquire, service and sell
Receivables as well as for its securities and insurance sales activities. The
Consolidated Group faces extensive Year 2000 related risks. The order within
which these risks
 
                                      36
<PAGE>
 
are presented is not intended as a prioritization of the potential risks nor
an exhaustive identification of the risks. These risks include, but are not
limited to the following:
 
  .  unavailability of electrical power or telecommunication systems supplied
     by third parties;
 
  .  inability of obligors on the Receivables to access their funds to make
     required payments;
 
  .  inability of the mail systems or wire transfer systems performed by
     third parties to deliver such payments;
 
  .  inability of banks to process those payments;
 
  .  failure of any of the software/hardware systems which the Consolidated
     Group uses to track insurance products, securities products or acquire,
     service and sell Receivables;
 
  .  inability of the Consolidated Group to access its own funds or to make
     wire transfers or otherwise make payments on its obligations due to
     internal or third party (generally banking) system failures; and
 
  .  inability of the Consolidated Group to process data accurately or timely
     for general business management purposes, regulatory reporting purposes
     or other purposes.
 
 Contingency Plans
 
  The Consolidated Group has commenced the development of a contingency plan
but has not finalized such a plan to date. Development of contingency plans
for mission critical items is the first and top priority of the contingency
planning phase. Where appropriate and feasible, the plan will also address
alternatives for internally developed systems as well as externally developed
ones, and will include steps to implement transition to an alternative system.
The plan will include trigger dates for implementing alternative solutions
prior to the Year 2000, where system testing or third party documentation
indicates that a system is not and will not be compliant. There can be no
assurance that this contingency plan or that the Year 2000 action plan will be
able to prevent a material disruption of the Consolidated Group's business.
 
Item 7.A.  Quantitative And Qualitative Disclosures About Market Risk
 
  For quantitative information about market risk of the Registrant, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Interest Sensitive Income and Expense" under Item 7.
 
  For qualitative information about market risk of the Registrant, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Asset/Liability 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 and incorporated into 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
 
  None.
 
                                      37
<PAGE>
 
                                   PART III
 
Item 10. Directors And Executive Officers Of Registrant Management
 
                                  MANAGEMENT
 
                       Directors and Executive Officers
                           (As of December 31, 1998)
 
<TABLE>
<CAPTION>
                        Name                    Age Position
                        ----                    --- --------
     <S>                                        <C> <C>
     Tom Turner................................ 48  President/Director
     Philip Sandifur........................... 27  Vice President/Director
     Greg Gordon............................... 45  Secretary/Treasurer/Director
     Clayton Rudd.............................. 63  President, Old Standard
     Robert Potter............................. 71  Director
</TABLE>
 
  Tom Turner was elected President on October 31, 1995. Prior to serving as
President, he had served as Secretary/Treasurer since September 28, 1994. He
has been and continues to be an employee of Metropolitan since 1985, as a
financial analyst. From 1983 to 1985, Mr. Turner was employed by Olsten
Temporary Services. Prior to 1983, Mr. Turner was self-employed, principally
doing business in the real estate industry.
 
  Philip Sandifur is the son of C. Paul Sandifur, Jr., who is the sole
shareholder of National Summit Corp., the parent company of Summit and also
the controlling shareholder of Metropolitan. Philip graduated in 1993 from
Santa Clara University, receiving a BA in Business. He is currently active
with the Consolidated Group's commercial lending activities. From 1994 to
1997, he was principally active as President of Summit Trading Services, Inc.,
a wholly owned subsidiary of Summit's parent company, National Summit.
 
  Greg Gordon was elected Secretary/Treasurer of Summit on October 31, 1995.
He joined Metropolitan in April of 1989 and started Metropolitan's demography
department, which continues to encompass his principal responsibilities. From
1985 to 1989, he was employed as the Northeastern US division Market Analyst
for Mortgage Guarantee Insurance Corporation. From 1984 to 1985, he was
employed as a limited partnership underwriter with Reliance Insurance Company.
 
  Clayton Rudd was elected President of Old Standard in 1994. From 1990 to
1994, he was Vice President of Old Standard. Previously, he had been employed
by Western United since 1982 in marketing. Prior to that time, he had worked
for twenty years in the insurance industry in marketing and sales related
positions. Mr. Rudd retired from Old Standard in September of 1998.
 
  Robert Potter was elected a 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.
 
  The directors of Summit are elected for one-year terms at annual shareholder
meetings. The officers of Summit serve at the discretion of the Board of
Directors.
 
  Summit's officers and directors continue to hold their respective positions
with Metropolitan and do not anticipate that their responsibilities with
Summit will involve a significant amount of time. They will, however, devote
such time to the business and affairs of Summit as may be necessary for the
proper discharge of their duties.
 
 
                                      38
<PAGE>
 
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 the Consolidated Group's 401(k) plan.
 
                          SUMMARY COMPENSATION TABLE
                          (AS OF SEPTEMBER 30, 1998)
 
<TABLE>
<CAPTION>
                                                      SALARY
          NAME AND PRINCIPAL POSITION           YEAR   ($)    BONUS/ COMMISSIONS
          ---------------------------           ---- -------- ------------------
<S>                                             <C>  <C>      <C>
Tom Turner..................................... 1998 $105,000      $   --
 President, Summit*                             1997   85,000          --
                                                1996   80,833          --
Clayton Rudd................................... 1998 $192,645      $ 2,480
 President, Old Standard**                      1997  108,000       39,581
                                                1996  108,000       19,747
</TABLE>
--------
*  The salary received by Mr. Turner is principally 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.
** Mr. Rudd retired in September of 1998.
 
                             DIRECTOR COMPENSATION
 
  Other than Robert Potter, the directors do not receive any compensation for
services rendered on behalf of Summit. Robert Potter receives $500 per year
and $100 per meeting plus travel expenses.
 
          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 sole common shareholder of the Consolidated Group. There are no
compensation committee interlocks between the above described individuals and
another entity's compensation committee. None of the above described
individuals serves as an executive officer of another entity outside the
Consolidated Group.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
                            PRINCIPAL SHAREHOLDERS
 
  The following table sets forth information with respect to the beneficial
owners of more than five percent of Summit's voting common stock as of
September 30, 1998.
 
<TABLE>
<CAPTION>
                                                               SHARES OF   % OF
   NAME AND ADDRESS                                           COMMON STOCK CLASS
   ----------------                                           ------------ -----
   <S>                                                        <C>          <C>
   National Summit Corp......................................
   601 West First Avenue.....................................
   Spokane, WA 99201.........................................    10,000     100%
</TABLE>
 
                                      39
<PAGE>
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
NAMES AND RELATIONSHIP OF PARTIES/PERSONSINVOLVED 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 which is wholly
owned by C. Paul Sandifur, Jr. The change in control was made pursuant to a
reorganization wherein Summit redeemed all the common shares held by its
former parent company, Metropolitan, which consisted of 100% of the
outstanding common stock of Summit. Contemporaneous with this redemption,
Summit issued 10,000 shares of common stock to National Summit Corp., a
Delaware corporation, for $100,000. In addition, various investors in
Metropolitan's common and preferred stock, including members of Mr. Sandifur's
immediate family, acquired 30,224 shares of Summit's Preferred Stock Series S-
1 for $100 per share in exchange for preferred and common shares of
Metropolitan with a value of approximately $3 million. Following this sale,
Metropolitan has continued to provide, for a fee, principally all the
management services to Summit. See "RECEIVABLE INVESTMENTS" under Item 1.
 
  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.
 
  Prior to the sale, the officers and directors of Summit were also officers
or directors of Metropolitan and/or its affiliates. Contemporaneous with the
sale, the officers and directors resigned and new officers and directors were
elected. Currently, no officer or director of Summit is an officer or director
of Metropolitan.
 
DESCRIPTION OF RELATED PARTY TRANSACTIONS
 
  Transactions between Metropolitan, its subsidiaries and companies within the
Consolidated Group take place in the normal course of business. Such
transactions include rental of office space, provision of administrative and
data processing support, accounting and legal services. See "NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS--Note 15" under Item 8. In addition,
Metropolitan and its subsidiaries provide services to various companies within
the Consolidated Group, as described more fully herein below.
 
  Summit, Old Standard and Old West obtain substantially all of their
Receivable management and servicing support (except for commercial loan
originations) from Metropolitan through a Management, Receivable Acquisition
and Servicing Agreement. In 1998, the Consolidated Group paid compensation to
Metropolitan for Receivable acquisitions of approximately $900,000 and fees
for servicing by Metwest of approximately $501,000. See "RECEIVABLE
INVESTMENTS" under Item 1 and "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
Note 15" under Item 8. Management believes that such Agreements are on terms
at least as favorable as could be obtained from non-affiliated parties.
 
  Old Standard has entered into two separate reinsurance agreements with
Western United. The first of those two agreements became effective January 23,
1997 and was terminated with respect to additional premiums on September 30,
1997. Under this first agreement, Western United reinsured with Old Standard
75% of the risk on six different annuity products and premium ceded was
approximately $28.0 million. Western United received ceding allowances equal
to expected commission plus 1.0% of premium, which was approximately $1.6
million.
 
  The second of the two agreements became effective July 1, 1998 and remained
in effect at September 30, 1998. Under this second agreement, Western United
reinsured with Old Standard 75% of the risk on 15 different annuity products
and premium ceded through September 30, 1998 was approximately $25.4 million.
Western United received ceding allowances equal to actual commission plus 1.5%
of premium, which was approximately $1.3 million through September 30, 1998.
 
                                      40
<PAGE>
 
  These agreements have allowed Old Standard to acquire annuities at greater
speeds and at lower premium rates than management believes would have been
available through direct sales. Under its contractual terms, the second
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. It is expected that approximately
$50 million will be ceded under this treaty during fiscal 1999. Western United
receives a fee from Old Standard for servicing the reinsured policies, which
fee is 40 basis points annually on the cash value of the reinsured policies.
 
  Summit has entered into Selling Agreements with Metropolitan Investment
Securities ("MIS") to provide for the sale of the Certificates and Preferred
Stock pursuant to which MIS will be paid commissions up to a maximum of 6% of
the investment amount in each transaction. During the fiscal year ended
September 30, 1998, Summit paid or accrued commissions to MIS in the amount of
$492,169 upon the sale of $14,168,688 of certificates and commissions of
$70,092 upon the sale of $1,246,036 of preferred stock. MIS also maintains, on
behalf of Summit, certain investor files and information pertaining to
investments in Summit's certificates and preferred stock.
 
  MIS, a broker-dealer and former subsidiary of Metropolitan, sells the
publicly registered securities of Metropolitan and Summit. Metropolitan paid
commissions to MIS for the sale of Metropolitan's securities pursuant to the
terms of written Selling Agreements. During the fiscal years ended September
30, 1998, 1997, and 1996 Metropolitan paid commissions to MIS in the amounts
of $2,342,779, $1,151,637, and $203,946, on sales of debt securities in the
amounts of $65,048,869, $38,510,520, and $9,125,303, respectively. During the
fiscal years ended September 30, 1998, 1997, and 1996, Metropolitan paid
commissions to MIS in the amounts of $0, $0, and $8,216 on sales of preferred
stock in the amounts of $2,027,737, $2,222,893, and $2,135,714, respectively.
Additionally, in 1998, 1997, and 1996, Metropolitan paid commissions to MIS in
the amounts of $105,296, $155,473, and $156,918 on sales of preferred stock
through an in-house trading list.
 
  Summit Property Development has entered into an Agreement with Metropolitan
to provide property development services to Metropolitan for a fee. During the
year ended September 30, 1998 the fee was approximately $1.8 million. See
"PROPERTY DEVELOPMENT SERVICES" under Item 1.
 
  During April 1996, C. Paul Sandifur, Jr., President of Metropolitan and
controlling shareholder of Metropolitan and the Consolidated Group, sold to
Summit nineteen shares of stock in Consumers Group Holding Company (a
subsidiary of Metropolitan) for $1.5 million. The purchase price was paid in
cash.
 
                                      41
<PAGE>
                                    PART IV
 
Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K
 
 (a) 1. Financial Statements
 
  Included in Part II, Item 8 of this report:
 
  Report of Independent Accountants
  Consolidated Balance Sheets at September 30, 1998 and 1997
  Consolidated Statements of Income for the Years Ended September 30, 1998,
   1997 and 1996
  Consolidated Statements of Stockholders' Equity for the Years Ended
   September 30, 1998, 1997 and 1996
  Consolidated Statements of Cash Flows for the Years Ended September 30,
   1998, 1997 and 1996
  Notes to Consolidated Financial Statements
 
 (a) 2. Financial Statements Schedules
 
  Included in Part IV of this report:
 
  Report of Independent Accountants on Financial Statement Schedules
  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 financial
statements or notes thereto.
 
(a) 3. Exhibits
 
<TABLE>
 <C>         <S>
          3. Articles of Incorporation of the Company (Incorporated by
             Reference to Exhibit 3(a) to Registration No. 3-36775).
       3(b). Bylaws of the Company (Incorporated by Reference to Exhibit 3(b)
             to Registration No. 33-36775).
       4(a). 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(b). 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(c). 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(d). 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(e). 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(f). Statement of Rights, Designations and Preferences of Variable Rate
             Cumulative Preferred Stock Series S-RP (Incorporated by Reference
             to Exhibit 4(f) to Form 10-K file January 13, 1997).
       4(g). 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(a). 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).
</TABLE>
 
                                       42
<PAGE>
 
<TABLE>
 <C>          <S>
       10(b). Receivable Management, Acquisition and Service Agreement between
              Old Standard Life Insurance Company and Metropolitan Mortgage &
              Securities Co., Inc. dated December 31, 1994 (Incorporated by
              Reference to Exhibit 10(b) to Registration No. 33-57619).
       10(c). Receivable Management, Acquisition and Service Agreement between
              Old West Life Insurance Company and Metropolitan Mortgage &
              Securities Co., Inc. dated October 10, 1996 (Incorporated by
              Reference to Exhibit 4(c) to Registration No. 333-19787).
      *10(d). Form of Reinsurance Agreement between Western United Life
              Assurance Company and Old Standard Life Insurance Company.
         *11. Statement regarding Computation of Earnings Per Common Share.
         *12. Statement regarding computation of ratios.
         *21. Subsidiaries of Registrant.
          23. Consent of Experts, See Item 14(a)2. Report of Independent
              Accountants on Financial Statement Schedules.
         *27. Financial Data Schedule.
</TABLE>
--------
 * Filed herewith
 
 (b) Reports on Form 8-K
 
  Summit did not file any reports on Form 8-K for the fourth quarter of fiscal
year 1998.
 
                                       43
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
                       ON FINANCIAL STATEMENT SCHEDULES
 
THE DIRECTORS AND STOCKHOLDERS
SUMMIT SECURITIES, INC.
 
  Our report on the consolidated financial statements of Summit Securities,
Inc. and subsidiaries is included in Item 8 herein. In connection with our
audits of such financial statements, we have also audited the related
financial statement schedules listed in Item 14 of this Form 10-K.
 
  In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
 
                                              /s/ PricewaterhouseCoopers LLP
                                          By___________________________________
                                            PricewaterhouseCoopers LLP
Spokane, Washington
November 20, 1998
 
                                      44
<PAGE>
 
                                  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: January 13, 1999
 
  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 TURNER                         President and           January 13, 1999
-------------------------------------   Director (Principal    
Tom Turner                              Executive officer)
 
/s/ PHILIP SANDIFUR                    Vice President and      January 13, 1999
-------------------------------------   Director                     
Philip Sandifur
 
/s/ GREG GORDON                        Secretary, Treasurer    January 13, 1999
-------------------------------------   and Director                 
Greg Gordon
 
/s/ STEVEN CROOKS                      Principal Financial     January 13, 1999
-------------------------------------   Officer and                 
Steven Crooks                           Principal
                                        Accounting Officer
 
                                      45
<PAGE>
 
                    SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                 YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
 
<TABLE>
<S>                                                                          <C>
Report of Independent Accountants........................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Income........................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
 
                                      F-1
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
The Directors and Stockholders
Summit Securities, Inc.
 
  In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Summit Securities,
Inc. and its subsidiaries (the Company) as of September 30, 1998 and 1997, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards 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 the opinion expressed above.
 
  As discussed in Note 1, the Company changed its method of accounting for the
transfer and servicing of financial assets in fiscal 1997 and impaired loans
in fiscal 1996.
 
November 20, 1998, except Note 19, as to which the date
is December 29, 1998
 
                                      F-2
<PAGE>
 
                    SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                          SEPTEMBER 30, 1998 AND 1997
 
<TABLE>
<CAPTION>
                                                          1998         1997
                                                      ------------ ------------
<S>                                                   <C>          <C>
ASSETS:
  Cash and cash equivalents.......................... $ 14,168,191 $  8,461,101
  Investments:
    Affiliated companies.............................    4,522,425    4,522,425
    Trading securities, at market....................    6,049,823    1,743,836
    Available-for-sale securities, at market.........    5,356,652    5,959,470
    Held-to-maturity securities, at amortized cost...    2,005,209    7,241,209
    Accrued interest on investments..................      133,430      162,774
                                                      ------------ ------------
      Total cash and investments.....................   32,235,730   28,090,815
 
  Real estate contracts and mortgage notes
   receivable, net, including real estate contracts
   and mortgage notes receivable held for sale of
   approximately $12,323,000 in 1998.................  121,780,402  103,623,728
  Other receivable investments, net..................   26,943,073   20,588,202
  Real estate held for sale, net (including
   foreclosed real estate received in satisfaction of
   debt of $2,253,962 and $1,648,953)................    2,645,773    2,819,845
  Deferred costs, net................................    9,193,498    7,634,699
  Receivables from affiliates, net...................   10,985,805      870,525
  Other assets, net..................................    2,809,953    2,726,256
                                                      ------------ ------------
      Total assets................................... $206,594,234 $166,354,070
                                                      ============ ============
 
LIABILITIES:
  Annuity reserves................................... $136,362,403 $105,339,688
  Investment certificates............................   55,894,093   50,406,991
  Debt payable.......................................      184,421      200,992
  Accounts payable and accrued expenses..............    2,055,143    1,302,945
  Deferred income taxes..............................    1,414,110    1,346,811
                                                      ------------ ------------
      Total liabilities..............................  195,910,170  158,597,427
                                                      ------------ ------------
 
Commitments and contingencies (Note 9)
 
STOCKHOLDERS' EQUITY:
  Preferred stock, $10 par (liquidation preference
   $6,658,680 and $5,381,690)........................      665,868      538,169
  Common stock, $10 par, 10,000 shares issued and
   outstanding.......................................      100,000      100,000
  Additional paid-in capital.........................    4,405,604    3,326,007
  Retained earnings..................................    5,420,838    3,741,613
  Net unrealized gains on investments................       91,754       50,854
                                                      ------------ ------------
      Total stockholders' equity.....................   10,684,064    7,756,643
                                                      ------------ ------------
      Total liabilities and stockholders' equity..... $206,594,234 $166,354,070
                                                      ============ ============
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-3
<PAGE>
 
                    SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
             FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                           1998         1997         1996
                                        -----------  -----------  -----------
<S>                                     <C>          <C>          <C>
Revenues:
  Annuity fees and charges............. $   148,958  $   111,999  $    45,348
  Interest on receivables..............  11,364,705    8,402,867    6,018,615
  Earned discount on receivables.......   3,437,133    3,359,652    2,598,306
  Other investment income..............   2,025,530    1,174,828      753,163
  Dividends............................     214,354      240,267      200,256
  Real estate sales....................   5,424,221    1,910,930    1,093,000
  Fees, commissions, service and other
   income..............................   4,845,280    3,544,946    2,849,737
  Gains on investments, net............     402,814       85,000          583
  Gains on sales of receivables, net...   2,102,552      954,973      977,441
                                        -----------  -----------  -----------
    Total revenues.....................  29,965,547   19,785,462   14,536,449
                                        -----------  -----------  -----------
Expenses:
  Annuity benefits.....................   6,953,757    5,071,732    3,702,324
  Interest expense.....................   4,778,443    4,325,528    3,741,095
  Cost of real estate sold.............   5,542,431    1,991,197    1,132,552
  Provision for losses on real estate
   assets..............................   1,799,173      986,435      490,082
  Salaries and employee benefits.......   2,113,632    1,896,748    1,636,773
  Commissions to agents................   4,776,826    4,079,786    1,673,279
  Other operating and underwriting
   expenses............................   2,351,914    2,106,789    1,775,484
  Less capitalized deferred costs, net
   of amortization.....................  (1,418,690)  (2,650,898)  (1,097,613)
                                        -----------  -----------  -----------
    Total expenses.....................  26,897,486   17,807,317   13,053,976
                                        -----------  -----------  -----------
Income before income taxes.............   3,068,061    1,978,145    1,482,473
Income tax provision...................    (544,034)    (126,905)    (237,951)
                                        -----------  -----------  -----------
Net income.............................   2,524,027    1,851,240    1,244,522
Preferred stock dividends..............    (498,533)    (446,560)    (333,606)
                                        -----------  -----------  -----------
Income applicable to common
 stockholder........................... $ 2,025,494  $ 1,404,680  $   910,916
                                        ===========  ===========  ===========
Basic and diluted income per share
 applicable to common stockholder...... $    202.55  $    140.47  $     91.09
                                        ===========  ===========  ===========
Weighted average number of shares of
 common stock outstanding..............      10,000       10,000       10,000
                                        ===========  ===========  ===========
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-4
<PAGE>
 
                    SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
             FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                              NET
                                                          UNREALIZED
                                              ADDITIONAL     GAINS
                          PREFERRED   COMMON   PAID-IN    (LOSSES) ON  RETAINED
                            STOCK     STOCK    CAPITAL    INVESTMENTS  EARNINGS      TOTAL
                          ---------  -------- ----------  ----------- ----------  -----------
<S>                       <C>        <C>      <C>         <C>         <C>         <C>
Balance, September 30,
 1995...................  $356,222   $100,000 $1,786,991   $(11,884)  $1,675,738  $ 3,907,067
Net income..............                                               1,244,522    1,244,522
Cash dividends on
 preferred stock
 (variable rate)........                                                (333,606)    (333,606)
Sale of variable rate
 preferred stock, net of
 offering costs (5,690
 shares)................    56,895               482,146                              539,041
Net change in unrealized
 losses on investment
 securities, net of
 income tax provision of
 $901...................                                      1,750                     1,750
                          --------   -------- ----------   --------   ----------  -----------
Balance, September 30,
 1996...................   413,117    100,000  2,269,137    (10,134)   2,586,654    5,358,774
Net income..............                                               1,851,240    1,851,240
Cash dividends on
 preferred stock
 (variable rate)........                                                (446,560)    (446,560)
Sale of variable rate
 preferred stock, net of
 offering costs (12,505
 shares)................   125,052             1,056,870                            1,181,922
Net change in unrealized
 losses on investment
 securities, net of
 income tax provision of
 $33,542................                                     60,988                    60,988
Contingent purchase
 price of subsidiary
 previously purchased
 from related party.....                                                (249,721)    (249,721)
                          --------   -------- ----------   --------   ----------  -----------
Balance, September 30,
 1997...................   538,169    100,000  3,326,007     50,854    3,741,613    7,756,643
Net income..............                                               2,524,027    2,524,027
Cash dividends on common
 stock ($21.07 per
 share).................                                                (210,700)    (210,700)
Cash dividends on
 preferred stock
 (variable rate)........                                                (498,533)    (498,533)
Sale of variable rate
 preferred stock, net of
 offering costs (13,161
 shares)................   131,612             1,114,424                            1,246,036
Redemption and
 retirement of preferred
 stock (391 shares).....    (3,913)              (34,827)                             (38,740)
Net change in unrealized
 gains on investment
 securities, net of
 income tax benefit of
 $21,070................                                     40,900                    40,900
Contingent purchase
 price of subsidiary
 previously purchased
 from related party.....                                                (135,569)    (135,569)
                          --------   -------- ----------   --------   ----------  -----------
Balance, September 30,
 1998...................  $665,868   $100,000 $4,405,604   $ 91,754   $5,420,838  $10,684,064
                          ========   ======== ==========   ========   ==========  ===========
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-5
<PAGE>
 
                    SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
             FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                           1998          1997          1996
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income..........................  $  2,524,027  $  1,851,240  $  1,244,522
 Adjustments to reconcile net income
  to net cash from operating
  activities:
   Acquisition of trading
    securities.......................    (4,324,572)      (98,874)
   Proceeds from sales of trading
    securities.......................       404,266
   Gains on investments, net.........      (402,814)      (85,000)         (583)
   Gains on sales of receivables,
    net..............................    (2,102,552)     (954,973)     (977,441)
   Loss on sales of real estate......       118,210        80,267        39,552
   Provision for losses on real
    estate assets....................     1,799,173       986,435       490,082
   Depreciation and amortization.....     1,771,930       967,382       493,506
   Deferred income tax provision
    (benefit)........................        67,299       (79,268)      134,877
   Changes in assets and liabilities:
     Annuity reserves................     6,912,825     4,946,874     3,713,490
     Compound and accrued interest on
      investment certificates and
      debt payable...................       701,060     1,124,113      (432,048)
     Accrued interest on real estate
      contracts and mortgage notes
      receivable.....................      (731,102)      157,804    (1,005,273)
     Other, net......................   (12,186,181)   (4,590,006)   (4,269,279)
                                       ------------  ------------  ------------
      Net cash from operating
       activities....................    (5,448,431)    4,305,994      (568,595)
                                       ------------  ------------  ------------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from sales of available-
  for-sale investments...............                                   999,790
 Proceeds from maturities of
  available-for-sale investments.....       681,837        97,397
 Purchase of available-for-sale
  investments........................                  (7,228,889)     (275,641)
 Proceeds from maturities of held-to-
  maturity investments...............     6,250,000     1,500,000       500,000
 Purchase of held-to-maturity
  investments........................    (1,006,719)     (995,469)     (486,753)
 Principal payments on real estate
  contracts and mortgage notes
  receivable.........................    18,781,579    13,034,662    13,874,707
 Proceeds from sale of real estate
  contracts and mortgage notes
  receivable.........................    22,706,575    24,213,531    19,430,000
 Purchases and originations of real
  estate contracts and mortgage notes
  receivable.........................   (58,146,826)  (59,193,794)  (40,100,330)
 Principal payments on other
  receivable investments.............     2,332,867     1,891,355       753,892
 Proceeds from sales of other
  receivable investments.............    10,854,452
 Purchases of other receivable
  investments........................   (18,840,127)  (13,652,880)   (7,387,117)
 Proceeds from real estate sales.....     2,390,392     1,566,132        79,686
 Additions to real estate held for
  sale...............................    (3,391,584)   (1,962,997)     (292,494)
 Net cash paid or received associated
  with purchases of subsidiaries.....                                  (761,739)
 Investment in affiliated company....                                (1,500,000)
                                       ------------  ------------  ------------
      Net cash from investing
       activities....................   (17,387,554)  (40,730,952)  (15,165,999)
                                       ------------  ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Receipts from annuity products......  $ 39,881,270    47,521,061    15,632,116
 Withdrawals of annuity products.....   (15,771,380)   (9,568,102)   (6,465,340)
 Proceeds from issuance of investment
  certificates.......................    14,168,688    13,262,761    13,291,967
 Repayments of investment
  certificates.......................    (9,382,646)   (6,812,643)   (8,571,918)
 Borrowings from banks and others....                                 5,752,500
 Repayments to banks and others......       (33,123)   (3,812,524)   (2,043,015)
 Debt issuance costs.................      (682,228)     (651,450)     (585,198)
 Contingent purchase price paid on
  subsidiary purchased from related
  party..............................      (135,569)     (249,721)
 Issuance of preferred stock.........     1,246,036     1,181,922       539,041
 Redemption and retirement of
  preferred stock....................       (38,740)
 Cash dividends......................      (709,233)     (446,560)     (333,606)
                                       ------------  ------------  ------------
      Net cash from financing
       activities....................    28,543,075    40,424,744    17,216,547
                                       ------------  ------------  ------------
Net increase in cash and cash
 equivalents.........................     5,707,090     3,999,786     1,481,953
Cash and cash equivalents, beginning
 of year.............................     8,461,101     4,461,315     2,979,362
                                       ------------  ------------  ------------
 
Cash and cash equivalents, end of
 year................................  $ 14,168,191  $  8,461,101  $  4,461,315
                                       ============  ============  ============
</TABLE>
 
 
 
See Note 15 for supplemental cash flow information.
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-6
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
             FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
 
1. SUMMARY OF ACCOUNTING POLICIES:
 
 Business and Reorganization
 
  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 engages, nationwide, in the business of acquiring, holding and
selling receivables. These receivables include real estate contracts and
mortgage notes that are collateralized by first position liens on real estate.
The Company also invests in receivables consisting of real estate contracts
and mortgage notes secured by second and lower position liens, structured
settlements, annuities, lottery prizes and other investments. The receivables
collateralized by real estate are typically non-conventional because they were
either financed by the sellers of the properties involved or they were
originated by institutional lenders who specialize in borrowers with impaired
credit or non-conventional properties. In fiscal 1998, the Company began
originating loans collateralized by commercial real estate. In addition to
receivables, the Company invests in U.S. Treasury obligations, corporate bonds
and other securities.
 
  The Company invests in receivables and securities using funds generated from
receivable cash flows, the sale of annuities, the sale and securitization of
receivables, the sale of certificates and preferred stock, secured borrowing
and securities portfolio earnings.
 
  Metropolitan and its subsidiaries provide services to the Company for a fee
and engage in various business transactions with the Company.
 
 Principles of Consolidation
 
  The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Metropolitan Investment Securities, Inc., a
securities broker/dealer; Summit Property Development, Inc., a real estate
property development company; Old Standard Life Insurance Company (OSL), a
life insurance company; and its wholly owned subsidiary, Old West Annuity &
Life Insurance Company (since December 28, 1995), also a life insurance
company. All significant intercompany transactions and balances have been
eliminated in consolidation.
 
  On December 28, 1995, the Company consummated an agreement with ILA
Financial Services, Inc., whereby 100% of the outstanding common stock of Old
West Annuity & Life Insurance Company (OWAL), formally named Arizona Life
Insurance Company, an insurance company domiciled in the state of Arizona, was
sold to OSL. The purchase price of $1,234,000, approximated the net book value
of OWAL at date of purchase. OWAL held licenses to engage in insurance sales
in seven states and the purchase price included approximately $268,000 in
value assigned to these state licenses. At the date of purchase, OWAL was
dormant and had no outstanding insurance business or other liabilities. OWAL's
business activities have been the acquisition of real estate contracts and
mortgage notes receivable using funds derived from the sale of annuities and
funds derived from receivable cash flows. The acquisition of OWAL had an
immaterial effect on the financial condition and operations of the Company.
 
                                      F-7
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  On May 31, 1995, the Company consummated an agreement with Metropolitan,
whereby it acquired OSL effective May 31, 1995, for $2,722,000, which
approximated the historical cost basis of OSL at date of purchase, with future
contingency payments equal to 20% of statutory income prior to the accrual of
income taxes for the fiscal years ending December 31, 1995, 1996 and 1997.
Future contingency payments of $135,569 and $249,721 were made during the
years ended September 30, 1998 and 1997, respectively, and were accounted for
as dividends. The initial purchase price plus estimated future contingency
payments approximated the appraised valuation of OSL. The acquisition was
recorded as a purchase. However, due to the common control of Metropolitan and
the Company, the historical cost bases of assets and liabilities of OSL were
recorded by the Company.
 
 Cash and Cash Equivalents
 
  The Company considers all highly liquid debt instruments purchased with a
remaining maturity of three months or less to be cash equivalents. Cash
includes all balances on deposit in banks and financial institutions. The
Company periodically evaluates the credit quality of these banks and financial
institutions. Substantially all cash and cash equivalents are on deposit with
one financial institution and balances often exceed the federal insurance
limit.
 
 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 consist primarily of pass-through
  certificates that are retained in connection with the Company's
  securitization transactions and are recorded at market value.
 
    The subordinated certificates retained from a securitization transaction
  are recorded at fair value based on independent market quotes.
 
    The Company initially records residual interests from securitization
  transactions at their allocated cost based upon the present value of the
  interest in the cash flows retained by the Company after considering
  various economic factors, including interest rates, collateral value and
  estimates of the value of future cash flows using expected loss and
  prepayment assumptions, discounted at a market yield. The fair value of
  these securities is determined based on interest rates, actual prepayment
  rates, collateral value and historical default rates experienced by the
  securities.
 
    Other 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 income.
 
    Available-for-Sale Securities: Available-for-sale securities, consisting
  primarily of government-backed securities and pass-through certificates are
  carried at market value. Unrealized gains and losses are presented as a
  separate component of stockholders' equity, net of related deferred income
  taxes.
 
    Held-to-Maturity Securities: Held-to-maturity securities, consisting
  primarily of government-backed securities and corporate bonds having fixed
  maturities, 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.
 
                                      F-8
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Realized gains and losses on investments are calculated on a specific-
identification basis and are recognized in the consolidated statements of
income in the period in which the investment is sold.
 
  For other than a temporary decline in the value of a common stock, preferred
stock or publicly traded bonds below their cost or amortized cost, the
investment is reduced to its net realizable value, which becomes the new cost
basis of the investment. The amount of the reduction is reported as a loss in
the consolidated statements of income. Any recovery of market value in excess
of the investment's new cost basis is recognized as a realized gain only upon
sale, maturity or other disposition of the investment. Factors which the
Company evaluates in determining the existence of an other than temporary
decline in value include the length of time and extent to which market value
has been less than cost; the financial condition and near-term prospects of
the issuers; and the intent and ability of the Company to retain its
investment for the anticipated period of recovery in market value.
 
 Real Estate Contracts and Mortgage Notes Receivable
 
  Real estate contracts and mortgage notes receivable held for investment
purposes 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 of direct
origination costs, are deferred and recognized as interest income using the
level yield (interest) method over the contractual term of the receivable.
 
 Real Estate Contracts and Mortgage Notes Receivable, Held for Sale
 
  Real estate contracts and mortgage notes receivable held for sale are
carried at the lower of cost (outstanding principal adjusted for net discounts
and capitalized acquisition costs) or market value, determined on an aggregate
basis by major type of receivable. Gains or losses on such sales are
recognized utilizing the aggregation method for financial reporting and income
tax purposes at the time of sale. Interest on these receivables is included in
interest income during the period held for sale. Deferred net discounts and
capitalized acquisition costs are recognized at the time the related
receivables are sold to third-party investors or securitized through transfer
to a trust.
 
  Effective January 1, 1997, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 125 (SFAS No. 125), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," as amended by SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of the SFAS No. 125". SFAS No. 125 provides accounting and
reporting standards based on a consistent application of a financial-
components approach that focuses on control. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered and derecognizes liabilities when
extinguished. This statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The application of the provisions of SFAS No. 125 did not have a
material effect on the Company's financial condition, results of operations or
cash flows.
 
 Allowances for Losses on Real Estate Contracts and Mortgage Notes Receivable
 
  The established allowances for losses on real estate contracts and mortgage
notes receivable include amounts for estimated probable losses on receivables
determined in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment
of a Loan," as amended. The adoption of this new standard on October 1, 1995,
did not have a material effect on the Company's consolidated financial
statements.
 
 
                                      F-9
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  Specific allowances are established for delinquent receivables with net
carrying values in excess of $100,000, as necessary. Additionally, the Company
establishes allowances, based on prior delinquency and loss experience, for
currently performing receivables and smaller delinquent receivables.
Allowances for losses are based on the net carrying values of the receivables,
including accrued interest. Accordingly, the Company continues to accrue
interest on delinquent receivables until foreclosure, unless the principal and
accrued interest on the receivables exceed the fair value of the collateral,
net of estimated selling costs. The Company obtains new or updated appraisals
on collateral for appropriate delinquent receivables, and adjusts the
allowance for losses, as necessary, such that the net carrying value does not
exceed net realizable value.
 
 Other Receivable Investments
 
  Other receivable investments are carried at amortized cost. 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
 
  Real estate held for sale is stated at the lower of cost or fair value less
estimated costs to sell. The Company principally acquires real estate through
foreclosure, forfeiture or acquisition. Cost is determined by the purchase
price of the real estate or, for real estate acquired by foreclosure, at the
lower of (a) the fair value of the property at the date of foreclosure less
estimated selling costs, or (b) cost (net unpaid receivable carrying value).
 
  The established allowances for losses on real estate held for sale include
amounts for estimated losses as a result of an impairment in value of the real
property. The Company reviews its real estate properties for impairment in
value whenever events or circumstances indicate that the carrying value of the
asset may not be recoverable. In performing the review, if expected future
undiscounted cash flows from the use of the asset or the fair value, less
selling costs, from the disposition of the asset is less than its carrying
value, an impairment loss is recognized. As a result of changes in the real
estate markets in which these assets are located, it is reasonably possible
that the carrying values could be reduced in the near term.
 
  Profit on sales of real estate is recognized when the buyers' 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.
 
 Deferred Costs
 
  Deferred policy acquisition costs, consisting of commissions to agents and
other insurance underwriting and annuity policy costs, are deferred. Costs
that are estimated not to be recoverable from surrender charges are amortized
as a constant percentage of the estimated gross realized and unrealized
profits associated with the policies in force.
 
  Investment certificate issuance costs, including commissions to sales
representatives and other issuance costs are deferred. These costs are
amortized over the expected term of the related certificate, which ranges from
6 months to 5 years, using the interest method.
 
  Changes in the amount or timing of estimated gross profits on policies in
force will result in adjustments to the cumulative amortization of the related
costs.
 
 Annuity Reserves
 
  Premiums for annuities are recorded 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
 
                                     F-10
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
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.
 
 Recognition of Annuity Revenues
 
  Annuity revenues consist of the charges assessed against the annuity account
balance for services and surrender charges. Charges for future services are
assessed; however, the related revenue is deferred and recognized in income
over the period benefited using the same assumptions as are used to amortize
deferred policy acquisition costs.
 
 Guaranty Fund Assessments
 
  The Company's life 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. At September 30, 1998 and 1997, the Company has accrued a liability
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.
 
  In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-3, Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments (SOP 97-3). SOP 97-3 applies to
all entities that are subject to guaranty fund and other insurance-related
assessments. Assessments covered by this SOP include any charge mandated by
statute or regulatory authority that is related directly or indirectly to
underwriting activities (including self-insurance), except for income taxes
and premium taxes. SOP 97-3 is effective for financial statements for fiscal
years beginning after December 15, 1998. The Company does not believe that the
application of SOP 97-3 will have a material effect on its consolidated
financial statements.
 
 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 Company is allocated a current and deferred tax
provision from National Summit Corp. as if the Company filed a separate tax
return.
 
 Income Per Share
 
  Income per share--basic is computed by dividing income applicable to common
stockholder by the weighted-average number of common shares outstanding during
the period. Income per share--diluted is computed by dividing income
applicable to common stockholder by the weighted-average number of common
shares outstanding increased by the additional common shares that would have
been outstanding if potentially dilutive common shares had been issued. There
were no potentially dilutive common shares outstanding during any of the three
years in the period ended September 30, 1998.
 
                                     F-11
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  The income per share disclosures have been made in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No.
128), which was applied by the Company in the year ended September 30, 1998.
In accordance with SFAS No. 128, all prior income per share data has been
restated to conform to this presentation. Basic and diluted income per share
amounts for periods prior to 1998 are identical in amount to primary and fully
diluted income per share amounts that were previously presented.
 
 Comprehensive Income
 
  In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), was issued. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. This Statement requires an enterprise to
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. This Statement is effective for
fiscal years beginning after December 15, 1997. The Company does not believe
that the application of this statement will have a material effect on the
presentation of its financial statements.
 
 Hedging Activities
 
  The Company is authorized by its Board of Directors, subject to certain
limitations, to use financial futures instruments for the purpose of hedging
interest rate risk relative to the securities portfolio and in anticipation of
sales and securitizations of real estate contracts and other receivable
investments. The Company participates with Metropolitan and its subsidiaries
in futures contracts as a means of managing interest rate risk or to benefit
from an anticipated movement in the financial markets.
 
  The Company also purchases collateralized mortgage obligations (CMOs), pass-
through certificates and other asset-backed securities for its investment
portfolio. Such purchases have been limited to tranches that perform in
concert with the underlying mortgages or assets; i.e., improving in value with
falling interest rates and declining in value with rising interest rates. The
Company has not invested in "derivative products" that have been structured to
perform in a way that magnifies the normal impact of changes in interest rates
or in a way dissimilar to the movement in value of the underlying securities.
 
  At September 30, 1998, the Company was not a party to any derivative
financial instruments.
 
  In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133),
was issued. 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. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999, however, earlier application is encouraged. The
Company has not yet determined the effect of the implementation of SFAS No.
133 on its financial statements.
 
 Interest Rate Risk
 
  The results of operations of the Company may be materially and adversely
affected by changes in prevailing economic conditions, including rapid changes
in interest rates. The Company's financial assets (primarily real estate
contracts and mortgage notes receivable, other receivables and investment
securities) and liabilities (primarily annuity contracts and investment
certificates) are subject to interest rate risk. In the year ending September
30, 1999, approximately $111,729,000 of the Company's financial liabilities
will reprice or mature as
 
                                     F-12
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
compared to approximately $82,115,000 of its financial assets, resulting in a
mismatch of approximately $29,614,000. This structure is beneficial in periods
of declining interest rates; however, it may result in declining net interest
income during periods of rising interest rates. Of the financial liabilities
scheduled to reprice or mature, approximately 87% are annuity contracts which
are subject to surrender charges. Management is aware of the sources of
interest rate risk and endeavors to actively monitor and manage its interest
rate risk, although there can be no assurance regarding the management of
interest rate risk in future periods.
 
 Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
 
2. INVESTMENTS IN AFFILIATED COMPANIES:
 
  At September 30, 1998 and 1997, investments in affiliated companies
consisted of:
 
<TABLE>
<CAPTION>
                                                          Cost and Carrying
                                                Number          Value
                                                  of    ---------------------
                  Type of Shares                Shares     1998       1997
                  --------------                ------- ---------- ----------
   <S>                                          <C>     <C>        <C>
   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-4..............................   1,400    140,000    140,000
                                                        ---------- ----------
                                                         3,022,425  3,022,425
   Consumers Group Holding Co., Inc.:
     Common....................................      19  1,500,000  1,500,000
                                                        ---------- ----------
                                                        $4,522,425 $4,522,425
                                                        ========== ==========
</TABLE>
 
  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, 1998 and 1997, the Company owned 7.09% of Metropolitan's
outstanding Class A common stock. Metropolitan had total consolidated assets
of approximately $1.2 billion at September 30, 1998.
 
  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, 1998, the preferred Series C, D and E-1 had
dividend rates of 6.69%. The preferred Series E-4 had a dividend rate of
7.19%. Neither the common nor preferred shares are traded in a public market.
 
  At September 30, 1998 and 1997, the Company owned 3.49% of the outstanding
common stock of Consumers Group Holding Co., Inc. The Company acquired the
stock investment in April 1996 in a cash purchase from C. Paul Sandifur, Jr.
The remaining outstanding shares of common stock of Consumers Group Holding
Co., Inc. are owned by Metropolitan. Consumers Group Holding Co., Inc. owns
approximately 75.5% of Western United Life Insurance Company (Western), a life
insurer domiciled in the state of Washington. Western had total assets of
approximately $940 million at September 30, 1998.
 
                                     F-13
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
3. INVESTMENTS:
 
  A summary of carrying and estimated market values of investments at
September 30, 1998 and 1997 is as follows:
 
<TABLE>
<CAPTION>
                                                       1998
                                    -------------------------------------------
                                                                     ESTIMATED
                                                                       MARKET
                                                 GROSS      GROSS      VALUE
                                    AMORTIZED  UNREALIZED UNREALIZED (CARRYING
               TRADING                 COST      GAINS      LOSSES     VALUE)
               -------              ---------- ---------- ---------- ----------
   <S>                              <C>        <C>        <C>        <C>
   Pass-Through Certificates......  $5,592,598  $457,225   $         $6,049,823
                                    ==========  ========   ========  ==========
<CAPTION>
                                                                     ESTIMATED
                                                                       MARKET
                                                 GROSS      GROSS      VALUE
                                    AMORTIZED  UNREALIZED UNREALIZED (CARRYING
         AVAILABLE-FOR-SALE            COST      GAINS      LOSSES     VALUE)
         ------------------         ---------- ---------- ---------- ----------
   <S>                              <C>        <C>        <C>        <C>
   U.S. Government Bonds..........  $3,998,561  $119,563   $         $4,118,124
   Pass-Through Certificates......   1,219,070    19,458              1,238,528
                                    ----------  --------   --------  ----------
                                    $5,217,631  $139,021   $         $5,356,652
                                    ==========  ========   ========  ==========
<CAPTION>
                                    AMORTIZED
                                       COST      GROSS      GROSS    ESTIMATED
                                    (CARRYING  UNREALIZED UNREALIZED   MARKET
          HELD-TO-MATURITY            VALUE)     GAINS      LOSSES     VALUE
          ----------------          ---------- ---------- ---------- ----------
   <S>                              <C>        <C>        <C>        <C>
   U.S. Government Bonds..........  $2,005,209  $ 13,073   $         $2,018,282
                                    ==========  ========   ========  ==========
<CAPTION>
                                                       1997
                                    -------------------------------------------
                                                                     ESTIMATED
                                                                       MARKET
                                                 GROSS      GROSS      VALUE
                                    AMORTIZED  UNREALIZED UNREALIZED (CARRYING
               TRADING                 COST      GAINS      LOSSES     VALUE)
               -------              ---------- ---------- ---------- ----------
   <S>                              <C>        <C>        <C>        <C>
   Pass-Through Certificates......  $1,658,836  $ 85,000   $         $1,743,836
                                    ==========  ========   ========  ==========
<CAPTION>
                                                                     ESTIMATED
                                                                       MARKET
                                                 GROSS      GROSS      VALUE
                                    AMORTIZED  UNREALIZED UNREALIZED (CARRYING
         AVAILABLE-FOR-SALE            COST      GAINS      LOSSES     VALUE)
         ------------------         ---------- ---------- ---------- ----------
   <S>                              <C>        <C>        <C>        <C>
   U.S. Government Bonds..........  $3,973,218  $ 75,534   $         $4,048,752
   Pass-Through Certificates......   1,901,856     8,862              1,910,718
                                    ----------  --------   --------  ----------
                                    $5,875,074  $ 84,396   $         $5,959,470
                                    ==========  ========   ========  ==========
<CAPTION>
                                    AMORTIZED
                                       COST      GROSS      GROSS    ESTIMATED
                                    (CARRYING  UNREALIZED UNREALIZED   MARKET
          HELD-TO-MATURITY            VALUE)     GAINS      LOSSES     VALUE
          ----------------          ---------- ---------- ---------- ----------
   <S>                              <C>        <C>        <C>        <C>
   U.S. Government Bonds..........  $6,240,640  $  1,390   $(34,648) $6,207,382
   Corporate Bonds................   1,000,569               (1,408)    999,161
                                    ----------  --------   --------  ----------
                                    $7,241,209  $  1,390   $(36,056) $7,206,543
                                    ==========  ========   ========  ==========
</TABLE>
 
                                     F-14
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  The activity related to the pass-through certificates, which represent the
Company's residual interests from securitization transactions, for the years
ended September 30, 1998, 1997 and 1996 is as follows:
 
<TABLE>
<CAPTION>
                                                    1998       1997      1996
                                                 ----------  --------  --------
   <S>                                           <C>         <C>       <C>
   Carrying value, beginning of year............ $  836,524  $245,598
   Securities retained..........................              304,670  $226,271
   Remittances..................................    (24,548)  (10,970)
   Investment income............................    165,884   212,226    19,327
   Fair market value adjustments................    275,000    85,000
                                                 ----------  --------  --------
   Carrying value, end of year.................. $1,252,860  $836,524  $245,598
                                                 ==========  ========  ========
</TABLE>
 
  Although the Company believes it has made reasonable estimates of the fair
value of the pass-through certificates likely to be realized, the rate of
prepayments and the amount of defaults utilized by the Company are estimates
and actual experience may vary. Higher than anticipated rates of loan
prepayments or losses would require the Company to reduce the fair value of
the pass-through certificates, adversely impacting earnings.
 
  The Company assumes prepayment rates and defaults based upon the seasoning
of its existing securitization receivable portfolio. As of September 30, 1998
and 1997, the Company's underlying assumptions used in determining the fair
value of its pass-through certificates are as follows:
 
  Estimated annual prepayment rate: 15.0% to 23.0% based on actual
  experience;
 
  Default reserve: 1.25% of the amount initially securitized;
 
  Annual discount rate: 12.0% to 15.0% to determine the present value of cash
  flows from pass-through certificates.
 
  Through September 30, 1998, actual cash flows from the Company's
securitization trusts have either met or exceeded management's expectations.
 
  All bonds held at September 30, 1998 were performing in accordance with
their terms.
 
  During the year ended September 30, 1997, the Company reclassified
available-for-sale securities with a carrying value of approximately
$1,560,000 to the trading classification. At the date of transfer, an
unrealized gain of approximately $85,000 was recognized in the consolidated
statement of income.
 
  During the year ended September 30, 1996, proceeds from sales of available-
for-sale securities of $999,790 were received, resulting in gross realized
gains of $583.
 
  During the year ended September 30, 1996, in accordance with a Special
Report issued by the Financial Accounting Standards Board, the Company
reassessed and reclassified held-to-maturity debt securities with a carrying
value of approximately $999,000 to the available-for-sale classification. At
the date of the transfer, the debt securities were valued at fair value of
approximately $999,000.
 
                                     F-15
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  The following aggregate investments with individual issuers (excluding U.S.
government bonds) held by the Company at September 30, 1998 and 1997 were in
excess of ten percent of stockholders' equity:
 
<TABLE>
<CAPTION>
                                                                     AGGREGATE
                                                                      CARRYING
   ISSUER                                                              AMOUNT
   ------                                                            ----------
   <S>                                                               <C>
   1998:
     Pass-through certificates:
       Metropolitan Asset Funding, Inc.............................. $5,589,219
       Triad Auto Receivables Trust.................................  1,238,528
   1997:
     Pass-through certificates:
       Triad Auto Receivables Trust................................. $1,910,718
       Metropolitan Asset Funding, Inc..............................  1,277,488
     Corporate bonds:
       Wal-Mart stores..............................................  1,000,569
</TABLE>
 
  The amortized costs and estimated market values of available-for-sale and
held-to-maturity debt securities at September 30, 1998, by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.
 
<TABLE>
<CAPTION>
                                                                     ESTIMATED
                                                          AMORTIZED    MARKET
   AVAILABLE-FOR-SALE SECURITIES                             COST      VALUE
   -----------------------------                          ---------- ----------
   <S>                                                    <C>        <C>
   Due after one year through five years................. $3,998,561 $4,118,124
   Pass-through certificates.............................  1,219,070  1,238,528
                                                          ---------- ----------
                                                          $5,217,631 $5,356,652
                                                          ========== ==========
 
<CAPTION>
                                                                     ESTIMATED
                                                          AMORTIZED    MARKET
   HELD-TO-MATURITY SECURITIES                               COST      VALUE
   ---------------------------                            ---------- ----------
   <S>                                                    <C>        <C>
   Due in one year or less............................... $1,505,385 $1,511,407
   Due after one year through five years.................    499,824    506,875
                                                          ---------- ----------
                                                          $2,005,209 $2,018,282
                                                          ========== ==========
</TABLE>
 
  The Company intends to maintain an available-for-sale portfolio which may be
shifted between investments of differing types and maturities to attempt to
maximize market returns without assuming unacceptable levels of credit risk.
Future purchases assigned to the held-to-maturity portfolio will be to replace
maturing investments, or increase the overall size of the portfolio while
maintaining its overall composition.
 
                                     F-16
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
4. REAL ESTATE CONTRACTS AND MORTGAGE NOTES RECEIVABLE:
 
  Real estate contracts and mortgage notes receivable include receivables
collateralized by property located throughout the United States. At September
30, 1998, the Company held first position liens associated with real estate
contracts and mortgage notes receivable with a face value of approximately
$118,379,000 (92%) and second position or lower liens of approximately
$9,771,000 (8%).
 
  The Company's real estate contracts and mortgage notes receivable at
September 30, 1998 and 1997 are collateralized by property concentrated in the
following geographic regions:
 
<TABLE>
<CAPTION>
                                                                    1998  1997
                                                                    ----  ----
   <S>                                                              <C>   <C>
   Pacific Northwest (Washington, Alaska, Idaho, Montana and
    Oregon)........................................................  31%   27%
   Pacific Southwest (California, Nevada and Arizona)..............  26    18
   North Atlantic (Connecticut, New Jersey, New York and
    Pennsylvania)..................................................   8    13
   Southwest (Texas, Louisiana and New Mexico).....................   7    12
   Southeast (Florida, Georgia, North Carolina and South
    Carolina)......................................................   6     9
   Other...........................................................  22    21
                                                                    ---   ---
                                                                    100%  100%
                                                                    ===   ===
</TABLE>
 
  The value of real estate properties in these geographic regions will be
affected by changes in the economic environment of that region. 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.
 
  The following is a reconciliation of the face value of the real estate
contracts and mortgage notes receivable to the Company's carrying value at
September 30, 1998 and 1997.
 
<TABLE>
<CAPTION>
                                                       1998          1997
                                                   ------------  ------------
   <S>                                             <C>           <C>
   Face value of discounted receivables........... $ 72,733,711  $ 99,493,067
   Face value of originated and nondiscounted
    receivables...................................   55,416,736     9,548,371
   Unrealized discounts, net of unamortized
    acquisition costs.............................   (5,042,703)   (5,958,564)
   Allowance for losses...........................   (1,843,055)   (1,153,278)
   Accrued interest receivable....................      515,713     1,694,132
                                                   ------------  ------------
   Carrying value................................. $121,780,402  $103,623,728
                                                   ============  ============
</TABLE>
 
  The originated receivables are collateralized primarily by first position
liens and result from loans originated by the Company on commercial real
estate and loans to facilitate the sale of its repossessed property. No
unrealized discounts are attributable to originated receivables.
 
  The face value of the Company's real estate contracts and mortgage notes
receivable as of September 30, 1998 and 1997 is grouped by the following
dollar ranges:
 
<TABLE>
<CAPTION>
                                                           1998         1997
                                                       ------------ ------------
   <S>                                                 <C>          <C>
   Under $15,001...................................... $  7,976,716 $  4,653,217
   $15,001 to $40,000.................................   17,408,511   23,044,404
   $40,001 to $80,000.................................   24,473,691   32,595,257
   $80,001 to $150,000................................   18,553,173   22,970,999
   Greater than $150,000..............................   59,738,356   25,777,561
                                                       ------------ ------------
                                                       $128,150,447 $109,041,438
                                                       ============ ============
</TABLE>
 
                                     F-17
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  The increase in the amount of real estate contracts and mortgage notes
receivable with balances in excess of $150,000 is principally due to the
Company commencing origination of loans collateralized by commercial real
estate in fiscal 1998. The Company originated approximately $19.9 million of
such loans in fiscal 1998.
 
  Contractual interest rates on the face value of the Company's real estate
contracts and mortgage notes receivable as of September 30, 1998 and 1997 are
as follows:
 
<TABLE>
<CAPTION>
                                                           1998         1997
                                                       ------------ ------------
   <S>                                                 <C>          <C>
   Less than 8.00%.................................... $ 16,386,613 $ 23,202,059
   8.00% to 8.99%.....................................   20,106,867   26,641,555
   9.00% to 9.99%.....................................   22,350,549   26,409,005
   10.00% to 10.99%...................................   14,047,349   19,244,422
   11.00% to 11.99%...................................    6,226,350    2,833,468
   12.00% to 12.99%...................................   28,024,319    5,950,964
   13% or higher......................................   21,008,400    4,759,965
                                                       ------------ ------------
                                                       $128,150,447 $109,041,438
                                                       ============ ============
</TABLE>
 
  The weighted-average contractual interest rate on these receivables at
September 30, 1998 is approximately 10.1%. Maturity dates range from 1998 to
2028. The constant effective yield on contracts purchased and loans originated
during the years ended September 30, 1998 and 1997 was approximately 12.6% and
10.4%, respectively. The increase in the constant effective yield in fiscal
1998 was due principally to the origination of loans collateralized by
commercial real properties which generally bear higher interest rates than
contracts collateralized by residential real estate.
 
  The following is an analysis of the allowance for losses on real estate
contracts and mortgage notes receivable.
 
<TABLE>
<CAPTION>
                                                       September 30,
                                               --------------------------------
                                                  1998        1997       1996
                                               ----------  ----------  --------
   <S>                                         <C>         <C>         <C>
   Beginning balance.......................... $1,153,278  $  974,487  $765,130
   Provision for losses.......................  1,243,044     386,525   212,600
   Charge-offs................................   (553,267)   (207,734)   (3,243)
                                               ----------  ----------  --------
   Ending balance............................. $1,843,055  $1,153,278  $974,487
                                               ==========  ==========  ========
</TABLE>
 
  There was no impairment in the carrying value of real estate contracts and
mortgage notes receivable at September 30, 1998. At September 30, 1997, the
net investment in real estate contracts and mortgage notes receivable for
which impairment has been recognized was approximately $118,000, of which
approximately $21,000, representing the amounts by which the net carrying
value of the receivable exceeds the fair value of the collateral, has been
specifically included in the allowance for losses on real estate assets.
 
  During the years ended September 30, 1998, 1997 and 1996, the average
recorded investment in impaired receivables was approximately $87,000,
$113,000 and $82,000, respectively. During the years ended September 30, 1998,
1997 and 1996, interest income in the approximate amount of $9,000, $10,000
and $7,000, respectively, was recognized on these receivables during the
period in which they were impaired.
 
  The principal amount of receivables with required principal or interest
payments being in arrears for more than three months was approximately
$4,641,000 and $4,586,000 at September 30, 1998 and 1997, respectively.
 
                                     F-18
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  Aggregate amounts of contractual maturities of receivables at their face
value are as follows:
 
<TABLE>
<CAPTION>
   Fiscal Year Ending
    September 30,
   ------------------
   <S>                                                              <C>
     1999.........................................................  $ 34,579,000
     2000.........................................................     6,137,000
     2001.........................................................     8,643,000
     2002.........................................................     6,305,000
     2003.........................................................    10,336,000
     Thereafter...................................................    62,150,447
                                                                    ------------
     Total........................................................  $128,150,447
                                                                    ============
</TABLE>
 
  Actual repayments of receivables will likely differ from contractual amounts
due to prepayments.
 
  The Company acquires certain real estate contracts and mortgage notes
receivable for the purpose of sale or securitization.
 
  The Company entered into securitization transactions during the years ended
September 30, 1998, 1997 and 1996. The Company participates in these
securitization transactions with its subsidiaries, Metropolitan and
Metropolitan's subsidiaries. These receivables are structured in classes by
credit rating and transferred to a trust, which sells pass-through
certificates to third parties. These securitizations are recorded as sales of
receivables and gains, net of transaction expenses, are recognized in the
consolidated statements of income as each class is sold.
 
  During the years ended September 30, 1998, 1997 and 1996, proceeds from
securitization transactions were approximately $22,707,000, $17,863,000 and
$7,009,000 and resulted in gains of approximately $1,400,500, $735,500 and
$297,300, respectively. The gains realized during the years ended September
30, 1998, 1997 and 1996 included approximately $150,100, $204,300 and $99,500,
respectively, associated with the estimated fair value of the mortgage
servicing rights retained on the pools. The fair value of these rights was
determined based on the estimated present value of future net servicing cash
flows, including float interest and late fees, adjusted for anticipated
prepayments. The servicing rights associated with the securitization
transactions were subsequently sold to an affiliated entity at the Company's
carrying value.
 
  Of the receivables securitized, the Company has retained investments in
certain classes of the securities having a fair value of approximately
$1,867,000 and $1,744,000 at September 30, 1998 and 1997, respectively. These
securities were transferred to the Company's investment portfolio and
classified as trading securities.
 
  In October 1998, the FASB issued Statement of Financial Accounting Standard
No. 134, "Accounting for Mortgage-Banking Enterprise" which requires that
after the securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities
or other retained interests based on its ability and intent to sell or hold
those investments. This Statement conforms the subsequent accounting for
securities retained after the securitization of mortgage loans by a mortgage
banking enterprise with the subsequent accounting for securities retained
after the securitization of other types of assets by a non-mortgage banking
enterprise. This Statement is effective for the first fiscal quarter beginning
after December 15, 1998. The Company has not yet determined the effect of the
application of this statement on its financial statements.
 
                                     F-19
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
6. 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 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 constant effective yield on these receivables at September
30, 1998 and 1997 was approximately 9.9% and 13.5%, respectively. Contractual
maturities range from 1999 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, 1998 and 1997.
 
<TABLE>
<CAPTION>
                                                       1998          1997
                                                   ------------  ------------
   <S>                                             <C>           <C>
   Face value of receivables...................... $ 41,174,949  $ 33,898,409
   Unrealized discounts, net of unamortized
    acquisition costs.............................  (14,231,876)  (13,310,207)
                                                   ------------  ------------
   Carrying value................................. $ 26,943,073  $ 20,588,202
                                                   ============  ============
</TABLE>
 
  All such receivables were performing in accordance with their contractual
terms at September 30, 1998.
 
  During the years ended September 30, 1998, 1997 and 1996, the Company sold
receivables with a carrying value of approximately $10,879,000, $2,961,000 and
$11,741,000, respectively, without recourse and recognized gains of
approximately $702,000, $124,600 and $680,100, respectively.
 
  The following other receivable investments, by obligor, were in excess of
ten percent of stockholders' equity at September 30, 1998 and 1997.
 
<TABLE>
<CAPTION>
                                                                     AGGREGATE
                                                                      CARRYING
   ISSUER                                                              AMOUNT
   ------                                                            ----------
   <S>                                                               <C>
   1998:
     Select Assets Trust 98B........................................ $9,752,987
     Met Lottery Trust 97LA.........................................  2,468,693
     Met Lottery Trust 97NA.........................................  1,805,419
   1997:
     Safeco Life Insurance Company.................................. $2,311,119
     Michigan State Agency..........................................  1,605,133
     Transamerica Occidental Insurance Company......................  1,489,019
     Metropolitan Life Insurance Company............................  1,289,871
     Allstate Life Insurance Company................................  1,255,758
     First Colony Life Insurance Company............................  1,088,952
     New York State Agency..........................................  1,013,265
</TABLE>
 
                                     F-20
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  Aggregate amounts of contractual maturities of other receivables at their
face amounts are as follows:
 
<TABLE>
<CAPTION>
      Fiscal Year Ending
        September 30,
      ------------------
      <S>                                                            <C>
        1999........................................................ $ 5,531,000
        2000........................................................   4,836,000
        2001........................................................   4,542,000
        2002........................................................   4,043,000
        2003........................................................   4,333,000
        Thereafter..................................................  17,889,949
                                                                     -----------
          Total..................................................... $41,174,949
                                                                     ===========
</TABLE>
 
7. DEFERRED COSTS:
 
  An analysis of deferred costs related to annuity acquisition and investment
certificate issuance for the years ended September 30, 1998, 1997 and 1996 is
as follows:
 
<TABLE>
<CAPTION>
                                           Annuity     Investment
                                         Acquisition  Certificates    Total
                                         -----------  ------------ -----------
   <S>                                   <C>          <C>          <C>
   Balance, September 30, 1995.......... $ 2,755,523   $  826,679  $ 3,582,202
     Deferred during the period:
       Commissions......................     722,861      390,713    1,113,574
       Other expense....................     459,525      194,485      654,010
                                         -----------   ----------  -----------
     Total deferred costs...............   3,937,909    1,411,877    5,349,786
     Amortization during the period.....     (84,773)    (402,967)    (487,740)
                                         -----------   ----------  -----------
   Balance, September 30, 1996..........   3,853,136    1,008,910    4,862,046
     Deferred during the period:
       Commissions......................   2,517,323      434,795    2,952,118
       Other expense....................     555,961      216,655      772,616
                                         -----------   ----------  -----------
     Total deferred costs...............   6,926,420    1,660,360    8,586,780
     Amortization during the period.....    (422,386)    (529,695)    (952,081)
                                         -----------   ----------  -----------
   Balance, September 30, 1997..........   6,504,034    1,130,665    7,634,699
     Deferred during the period:
       Commissions......................   1,991,890      433,515    2,425,405
       Other expense....................     621,800      248,713      870,513
                                         -----------   ----------  -----------
     Total deferred costs...............   9,117,724    1,812,893   10,930,617
     Amortization during the period.....  (1,195,000)    (542,119)  (1,737,119)
                                         -----------   ----------  -----------
   Balance, September 30, 1998.......... $ 7,922,724   $1,270,774  $ 9,193,498
                                         ===========   ==========  ===========
</TABLE>
 
  The amortization of deferred policy acquisition costs, which is based on the
estimated gross profits of the underlying life and annuity products, could be
changed significantly in the near term due to changes in the interest rate
environment. As a result, the recoverability of these costs may be adversely
affected in the near term.
 
8. ANNUITY RESERVES:
 
  Annuity reserves are based upon contractual amounts due the annuity holder
including credited interest. Annuity contract interest rates ranged from 4.7%
to 8.1% during the year ended September 30, 1998, 5.0% to 9.9% during the year
ended September 30, 1997 and 5.4% to 10.4% during the year ended September 30,
1996.
 
                                     F-21
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Beginning in fiscal 1997, OSL agreed to reinsure certain single premium
deferred annuity contracts underwritten by Western. Annuity premiums received
under this arrangement were approximately $25,449,000 and $28,007,000 during
the years ended September 30, 1998 and 1997, respectively. The amount of
deferred annuity contracts reinsured by OSL and included in annuity reserves
totaled approximately $52,787,000 and $28,358,800 at September 30, 1998 and
1997, respectively.
 
9. GUARANTY FUND ASSESSMENTS:
 
  All states in which the Company's life 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 insurers 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.
 
  The net amount expensed by the Company's life insurance subsidiaries for
guaranty fund assessments and amounts estimated to be assessed for the years
ended September 30, 1998, 1997 and 1996 were $119,000, $120,000 and $90,000,
respectively. The Company's estimate of these liabilities is based upon
updated information from the National Organization of Life and Health
Insurance Guaranty Associations regarding insolvencies occurring during the
years 1990 through 1996. These estimates are subject to future revisions based
upon the ultimate resolution of the insolvencies and resultant losses. As a
result of these uncertainties, the Company's estimate of future assessments
could change in the near term. The Company does not believe that the amount of
future assessments associated with known insolvencies after 1996 will be
material to its financial condition or results of operations. As a result of
these uncertainties, the Company's estimate of future assessments could change
in the near term. At September 30, 1998 and 1997, an estimated future guaranty
fund assessment of approximately $451,000 and $429,000, respectively, has been
recorded, which is net of a 7% discount rate applied to the estimated payment
term of approximately seven years. The remaining unamortized discount
associated with this accrual was approximately $86,000 at September 30, 1998.
 
10. INVESTMENT CERTIFICATES:
 
  At September 30, 1998 and 1997, investment certificates consist of:
 
<TABLE>
<CAPTION>
   ANNUAL INTEREST RATES                                   1998        1997
   ---------------------                                ----------- -----------
   <S>                                                  <C>         <C>
    6% to 7%........................................... $ 2,408,575 $   758,446
    7% to 8%...........................................   1,145,184   2,368,671
    8% to 9%...........................................  35,281,596  30,951,990
    9% to 10%..........................................  10,662,392  10,672,322
    10% to 11%.........................................     183,121     143,396
                                                        ----------- -----------
                                                         49,680,868  44,894,825
    Compound and accrued interest......................   6,213,225   5,512,166
                                                        ----------- -----------
    Totals............................................. $55,894,093 $50,406,991
                                                        =========== ===========
</TABLE>
 
  The weighted average interest rate on outstanding investment certificates
was approximately 8.4% and 8.5% at September 30, 1998 and 1997, respectively.
 
                                     F-22
<PAGE>
 
                    SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Investment certificates (including principal and compound and accrued
interest) mature as follows:
 
<TABLE>
<CAPTION>
   FISCAL YEAR ENDING
    SEPTEMBER 30,
   ------------------
   <S>                                                               <C>
     1999........................................................... $11,652,000
     2000...........................................................   8,027,000
     2001...........................................................  12,056,000
     2002...........................................................   8,438,000
     2003...........................................................   9,191,000
     Thereafter.....................................................   6,530,093
                                                                     -----------
     Total.......................................................... $55,894,093
                                                                     ===========
</TABLE>
 
11. DEBT PAYABLE:
 
  At September 30, 1998 and 1997, debt payable consists of:
 
<TABLE>
<CAPTION>
                                                                 1998     1997
                                                               -------- --------
   <S>                                                         <C>      <C>
   Real estate contracts and mortgage notes payable, interest
    rates ranging from 6.5% to 8.0%, due in installments
    through 2008, collateralized by senior liens on certain
    of the Company's real estate contracts, mortgage notes
    receivable and real estate held for sale.................  $183,105 $199,286
   Accrued interest payable..................................     1,316    1,706
                                                               -------- --------
                                                               $184,421 $200,992
                                                               ======== ========
</TABLE>
 
  Aggregate amounts of principal and accrued interest due on debt payable are
as follows:
 
<TABLE>
<CAPTION>
   FISCAL YEAR ENDING
    SEPTEMBER 30,
   ------------------
   <S>                                                                  <C>
   1999................................................................ $ 23,845
   2001................................................................   41,227
   Thereafter..........................................................  119,349
                                                                        --------
   Total............................................................... $184,421
                                                                        ========
</TABLE>
 
12. INCOME TAXES:
 
  The tax effect of the temporary differences giving rise to the Company's
deferred tax assets and liabilities as of September 30, 1998 and 1997 is as
follows:
 
<TABLE>
<CAPTION>
   1998                                                   ASSETS   LIABILITIES
   ----                                                 ---------- -----------
   <S>                                                  <C>        <C>
   Guaranty fund assessments........................... $  146,550
   Annuity reserves....................................    588,801
   Management fee payable..............................            $   64,086
   Allowance for losses on real estate and
    receivables........................................    971,910
   Deferred policy acquisition costs...................             2,495,318
   Deferred contract acquisition costs and discount
    yield recognition..................................               753,098
   Net operating loss carryforwards....................    586,626
   Other...............................................               395,495
                                                        ---------- ----------
   Total deferred income taxes......................... $2,293,887 $3,707,997
                                                        ========== ==========
</TABLE>
 
                                      F-23
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
<TABLE>
<CAPTION>
   1997                                                   ASSETS   LIABILITIES
   ----                                                 ---------- -----------
   <S>                                                  <C>        <C>
   Mark to market for investment securities............            $   33,542
   Guaranty fund assessments........................... $  145,848
   Annuity reserves....................................    784,934
   Management fee payable..............................               105,566
   Allowance for losses on real estate and
    receivables........................................    675,995
   Deferred policy acquisition costs...................             2,099,193
   Deferred contract acquisition costs and discount
    yield recognition..................................             1,108,556
   Net operating loss carryforwards....................    627,309
   Other...............................................               234,040
                                                        ---------- ----------
   Total deferred income taxes......................... $2,234,086 $3,580,897
                                                        ========== ==========
</TABLE>
 
  No valuation allowance has been established to reduce the 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. 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 near term if
estimates of future taxable income during the carryforward period are reduced.
 
  At September 30, 1998, the Company's remaining net operating loss
carryforwards of approximately $1,800,000 expire in years 2006 through 2012.
Due to the Company's previous change in ownership, approximately $1,000,000 of
these operating losses, representing those generated prior to the change in
ownership, are subject to the provisions of Internal Revenue Code Section 382,
which limits the annual utilization of net operating losses to approximately
$200,000 per year plus any unused limitation carried over from the prior
years.
 
  The components of the provision for income taxes for the years ended
September 30, 1998, 1997 and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                       1998     1997      1996
                                                     -------- --------  --------
   <S>                                               <C>      <C>       <C>
   Current.......................................... $476,735 $206,173  $103,074
   Deferred.........................................   67,299  (79,268)  134,877
                                                     -------- --------  --------
                                                     $544,034 $126,905  $237,951
                                                     ======== ========  ========
</TABLE>
 
  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, 1998, 1997 and 1996.
 
<TABLE>
<CAPTION>
                                   1998            1997            1996
                              ---------------  --------------  --------------
   <S>                        <C>         <C>  <C>        <C>  <C>        <C>
   Federal income tax at
    statutory rate........... $1,043,141   34% $ 672,569   34% $ 504,041   34%
   Affiliate corporate
    dividend received
    deduction................    (51,016)  (1)   (57,184)  (3)   (47,661)  (3)
   Small life insurance
    company deduction........   (481,602) (16)  (497,449) (25)  (225,669) (15)
   Other.....................     33,511    1      8,969           7,240
                              ----------  ---  ---------  ---  ---------  ---
   Income tax provision...... $  544,034   18% $ 126,905    6% $ 237,951   16%
                              ==========  ===  =========  ===  =========  ===
</TABLE>
 
                                     F-24
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
13. STOCKHOLDERS' EQUITY:
 
  A summary of preferred and common stock at September 30, 1998 and 1997 is as
follows:
 
<TABLE>
<CAPTION>
                                                 ISSUED AND OUTSTANDING SHARES
                                                -------------------------------
                             AUTHORIZED SHARES       1998            1997
                            ------------------- --------------- ---------------
                              1998      1997    SHARES  AMOUNT  SHARES  AMOUNT
                            --------- --------- ------ -------- ------ --------
   <S>                      <C>       <C>       <C>    <C>      <C>    <C>
   Registered preferred
    stock:
     Series S-1............   185,000   185,000 37,225 $372,246 37,022 $370,224
     Series S-2............   150,000   150,000  8,375   83,752  8,136   81,357
     Series S-RP...........    80,000    80,000  2,560   25,600  2,560   25,600
     Series S-3............   200,000   150,000 18,427  184,270  6,099   60,988
                            --------- --------- ------ -------- ------ --------
                              615,000   565,000 66,587 $665,868 53,817 $538,169
                            ========= ========= ====== ======== ====== ========
   Common stock............ 2,000,000 2,000,000 10,000 $100,000 10,000 $100,000
                            ========= ========= ====== ======== ====== ========
</TABLE>
 
  The Company has authorized 10,000,000 total shares of Series S 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, S-3 and S-RP preferred stock is cumulative and the holders
thereof are entitled to receive monthly dividends at an annual rate equal to
the highest of the "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. 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 S-1, S-2, S-3 and S-RP 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, S-3 and S-RP shares are callable at the sole option of the board of
directors at $100 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.
 
  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 (see Note 14). Dividends can only be paid out of
earned surplus. Earned surplus includes accumulated statutory basis earnings
of the Company and surplus arising from unrealized capital gains or the
revaluation of assets.
 
                                     F-25
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
14. STATUTORY ACCOUNTING:
 
  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 for the insurance subsidiaries as of and for the years
ended September 30, 1998, 1997 and 1996, respectively, are as follows:
 
<TABLE>
<CAPTION>
                                                       STATUTORY      GAAP
                                                      -----------  -----------
   <S>                                                <C>          <C>
   Stockholders' equity:
     1998............................................ $16,159,565  $23,619,367
     1997............................................  11,804,030   16,614,551
     1996............................................   9,505,116   11,396,286
   Net income:
     1998............................................ $   901,562  $ 3,211,935
     1997............................................     160,293    2,409,260
     1996............................................     374,703    1,285,135
   Unassigned statutory surplus (deficit) and
    retained earnings (deficit):
     1998............................................ $  (847,875) $ 6,520,214
     1997............................................  (1,453,370)   3,308,279
     1996............................................  (1,002,284)   1,138,886
</TABLE>
 
  The Idaho Insurance Code presently requires the life insurance subsidiary
domiciled in the state of Idaho to maintain $1 million in common stock and $1
million in contributed surplus. The life insurance subsidiary domiciled in
this state had an unassigned statutory surplus of approximately $574,000 at
September 30, 1998 and thus, is currently not restricted from paying
dividends.
 
  The Arizona Insurance Code presently requires the life insurance subsidiary
domiciled in the state of Arizona to maintain $450,000 in common stock and
contributed surplus. This life insurance subsidiary domiciled in this state
had an unassigned statutory deficit of approximately $1,422,000 at September
30, 1998 and thus, is currently restricted from paying dividends.
 
  The National Association of Insurance Commissioners (the NAIC) currently is
in the process of finalizing its project to codify statutory accounting
practices, the result of which is expected to constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project, which
was adopted by the NAIC in 1998, will likely change, to some extent,
prescribed statutory accounting practices that insurance enterprises use to
prepare their statutory financial statements. The adoption of the codified
statutory accounting practices could have a significant impact on the
presentation of the Company's life insurance subsidiaries' statutory financial
statements.
 
  The Insurance Department of the State of Idaho has agreed to allow OSL to
capitalize the underwriting fees charged by Metropolitan and to amortize these
fees as an adjustment of the yield on acquired receivables. Statutory
accounting practices prescribed by the state of Idaho do not describe the
accounting required for this type of transaction. As of September 30, 1998 and
1997, this permitted accounting practice increased statutory surplus by
approximately $81,000 and $165,000, respectively, over what it would have been
had prescribed practices disallowed this accounting treatment.
 
  The regulatory authorities 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
 
                                     F-26
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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. The RBC measure of the life
insurance subsidiaries at September 30, 1998 was above the minimum standards.
 
15. SUPPLEMENTAL DISCLOSURES FOR STATEMENTS OF CASH FLOWS:
 
  Supplemental information on interest and income taxes paid during the years
ended September 30, 1998, 1997 and 1996 is as follows:
 
<TABLE>
<CAPTION>
                                                  1998       1997       1996
                                               ---------- ---------- ----------
   <S>                                         <C>        <C>        <C>
   Interest paid.............................. $3,695,984 $2,864,831 $3,914,390
   Income taxes paid (refunded)...............    455,214    370,569    (62,591)
</TABLE>
 
  Non-cash investing and financing activities of the Company during the years
ended September 30, 1998, 1997 and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                  1998       1997       1996
                                               ---------- ---------- ----------
   <S>                                         <C>        <C>        <C>
   Assumption of other debt payable in
    conjunction with purchase of real estate
    contracts and mortgage notes receivable... $   16,942 $  171,435 $   26,823
   Real estate acquired through foreclosure...  2,555,076  2,256,460  1,474,233
   Receivables originated to facilitate the
    sale of real estate.......................  3,033,829    344,798  1,013,314
   Transfer of securities from available-for-
    sale to trading...........................             1,559,962
   Increase in assets and liabilities
    associated with purchase of subsidiaries:
     Held-to-maturity investment securities...                          493,695
     Other assets.............................                          268,044
</TABLE>
 
16. BUSINESS SEGMENT REPORTING:
 
  The Company principally operates in one industry segment which encompasses
the investing in real estate contracts and mortgage notes receivable, other
receivables and investment securities with funds generated from the issuance
of investment certificates, preferred stock and annuity contracts.
Additionally, the Company, through a wholly owned subsidiary, operates a
property development division, which provides services related to the selling,
marketing, designing, subdividing and coordinating of real estate development
properties.
 
  Information about the Company's separate business segments and in total as
of and for the years ended September 30, 1998, 1997 and 1996 is as follows:
 
<TABLE>
<CAPTION>
                                                          1998
                                          -------------------------------------
                                                        PROPERTY
                                            PRIMARY    DEVELOPMENT
                                           OPERATIONS  OPERATIONS     TOTAL
                                          ------------ ----------- ------------
   <S>                                    <C>          <C>         <C>
   Revenues.............................. $ 28,114,958 $1,850,589  $ 29,965,547
   Income from operations................    2,803,997    264,064     3,068,061
   Identifiable assets, net..............  206,197,347    396,887   206,594,234
   Depreciation and amortization.........    1,763,543      8,387     1,771,930
   Capital expenditures..................       17,061      7,094        24,155
</TABLE>
 
                                     F-27
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
<TABLE>
<CAPTION>
                                                          1997
                                          -------------------------------------
                                                        PROPERTY
                                            PRIMARY    DEVELOPMENT
                                           OPERATIONS  OPERATIONS     TOTAL
                                          ------------ ----------- ------------
   <S>                                    <C>          <C>         <C>
   Revenues.............................. $ 17,940,255 $1,845,207  $ 19,785,462
   Income from operations................    1,773,182    204,963     1,978,145
   Identifiable assets, net..............  165,696,627    657,443   166,354,070
   Depreciation and amortization.........      962,129      5,253       967,382
   Capital expenditures..................       29,599     21,369        50,968
<CAPTION>
                                                          1996
                                          -------------------------------------
                                                        PROPERTY
                                            PRIMARY    DEVELOPMENT
                                           OPERATIONS  OPERATIONS     TOTAL
                                          ------------ ----------- ------------
   <S>                                    <C>          <C>         <C>
   Revenues.............................. $ 12,309,367 $2,047,082  $ 14,356,449
   Income from operations................    1,269,143    213,330     1,482,473
   Identifiable assets, net..............  116,817,327    449,353   117,266,680
   Depreciation and amortization.........      490,890      2,616       493,506
   Capital expenditures..................       26,063     47,528        73,591
</TABLE>
 
  In June 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," (SFAS No. 131) was issued. SFAS No. 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. This Statement supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," but retains the requirement
to report information about major customers. This Statement is effective for
financial statements for periods beginning after December 15, 1997. The
Company has not yet determined the effect that the application of this
Statement will have on the disclosures of its business segments.
 
17. RELATED-PARTY TRANSACTIONS:
 
  The Company receives accounting, data processing, contract servicing and
other administrative services from Metropolitan. Charges for these services
were approximately $891,000, $706,000 and $586,000 in the years ended
September 30, 1998, 1997 and 1996, respectively, and were assessed based on
the number of real estate contracts and mortgage notes receivable serviced by
Metropolitan on the Company's behalf. Other indirect services provided by
Metropolitan to the Company, such as management and regulatory compliance,
were not directly charged to the Company.
 
  Management believes that these charges are reasonable and result in the
reimbursement to Metropolitan of all significant direct expenses incurred on
behalf of the Company and its subsidiaries. Currently, management anticipates
that Metropolitan will continue to supply these services in the future.
 
                                     F-28
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  The Company had the following related-party transactions with Metropolitan
and its affiliates during the years ended September 30, 1998, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                               1998        1997        1996
                                            ----------- ----------- -----------
   <S>                                      <C>         <C>         <C>
   Real estate contracts and mortgage
    notes receivable and other receivable
    investments purchased through
    Metropolitan or affiliates............  $36,268,548 $63,980,678 $45,734,241
   Capitalized acquisition costs charged
    to the Company on purchased
    receivables, including management
    underwriting fees.....................      899,999   3,384,542   1,753,206
                                            ----------- ----------- -----------
   Total cost of receivables purchased
    through Metropolitan..................  $37,168,547 $67,365,220 $47,487,447
                                            =========== =========== ===========
   Real estate contracts and mortgage
    notes receivable and other receivable
    investments sold to Metropolitan or
    its affiliates........................  $ 9,350,960 $ 3,815,973
   Gains on real estate contracts and
    mortgage notes receivable and other
    receivable investments sold to
    Metropolitan or its affiliates........      749,085     103,947
   Service fees charged to Metropolitan
    for property development assistance...    1,844,026   1,845,207 $ 2,038,202
   Servicing and collection fees charged
    by a Metropolitan affiliate...........      500,832     341,000
   Commissions and service fees charged to
    Metropolitan on sale of Metropolitan's
    debentures and preferred stock........    2,448,075   1,307,110     369,080
   Note receivable from Metropolitan......    2,560,000
   Interest received on note receivable
    from Metropolitan.....................       80,028
   Dividends received on affiliated
    companies' stock investments..........      214,354     240,267     200,256
   Direct reinsurance premiums received
    from affiliate (Note 8)...............   25,448,538  28,006,722
</TABLE>
 
  Receivables from Metropolitan or its affiliates of $10,985,805 and $870,255
at September 30, 1998 and 1997, respectively, represent amounts owed to the
Company related primarily to collections on real estate contract and mortgage
note receivables and reinsurance premiums due.
 
  The Company receives management, receivable acquisition and receivable
collections services from Metropolitan for a fee pursuant to the terms of the
Management, Receivable Acquisition and Servicing Agreement. The receivable
acquisition fees are based upon yield requirements established by the Company.
The Company pays, as its receivable acquisition service fee, the difference
between the yield requirement and the yield which Metropolitan actually
negotiates when the receivable is acquired. During the years ended September
30, 1998, 1997 and 1996, the Company incurred service fees for receivable
acquisition from Metropolitan of approximately $900,000, $3,385,000 and
$1,753,000, respectively. The agreements are non-exclusive and may be
terminated in whole or part by either party upon notice to the other party.
 
  MIS is a securities broker/dealer and member of the National Association of
Securities Dealers. It markets the securities products of Summit and of
Metropolitan. MIS charges commissions ranging from .25% to 6% of the face
value of the security sold. The commission rate 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. Commissions and
 
                                     F-29
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
service fees charged to Metropolitan during the years ended September 30,
1998, 1997 and 1996 were approximately $2,448,000, $1,307,000 and $369,000,
respectively.
 
  Summit Property Development, Inc., a wholly owned subsidiary of Summit,
provides real estate development services for a fee. Currently its principal
client is Metropolitan. 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. The
fees charged to Metropolitan for these services were approximately $1,844,000,
$1,845,000 and $2,038,000 during the years ended September 30, 1998, 1997 and
1996, respectively.
 
  The Company's employees are included in the Metropolitan Mortgage &
Securities Co., Inc. 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 employees over the age of 21 upon completion of six months of
service in which he or she has earned 500 hours of service. Employees may
defer from 1% to 15% of their compensation in multiples of whole percentages.
The Company matches contributions equal to 50% of pre-tax contributions up to
a maximum of 6% of compensation. This match is made only if the Company has a
net profit during the preceding fiscal year. For services performed, the
contribution relating to the Company's employees was made by Metropolitan
during the years ended September 30, 1998, 1997 and 1996.
 
18. 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.
 
    Investments in Affiliated Companies--Fair value is estimated by
  management to equal carrying amounts. The preferred shares are not publicly
  traded; however, preferred share dividends are paid at variable rates.
 
    Publicly Traded Investment Securities--Fair value is determined by quoted
  market prices.
 
    Non-Publicly Traded Investment Securities--Fair value is determined based
  upon quoted market prices for securities with similar characteristics and
  risks.
 
    Real Estate Contracts and Mortgage Notes Receivable--For receivables, 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. 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.
 
    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.
 
    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.
 
                                     F-30
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
    The estimated fair values of the following financial instruments as of
  September 30, 1998 and 1997 are as follows:
 
<TABLE>
<CAPTION>
                                                                1998
                                                      -------------------------
                                                        CARRYING
                                                        AMOUNTS     FAIR VALUE
                                                      ------------ ------------
   <S>                                                <C>          <C>
   Financial assets:
     Cash and cash equivalents......................  $ 14,168,191 $ 14,168,191
     Investments:
       Affiliated companies.........................     4,522,425    4,522,425
       Trading securities...........................     6,049,823    6,049,823
       Available-for-sale securities................     5,356,652    5,356,652
       Held-to-maturity securities..................     2,005,209    2,018,282
     Real estate contracts and mortgage notes
      receivable....................................   123,107,744  135,190,084
     Other receivable investments...................    26,943,073   29,319,884
   Financial liabilities:
     Investment certificates--principal and compound
      interest......................................    55,037,297   55,934,405
     Debt payable--principal........................       183,105      186,090
</TABLE>
 
18. FAIR VALUE OF FINANCIAL INSTRUMENTS:
 
<TABLE>
<CAPTION>
                                                                1997
                                                      -------------------------
                                                        CARRYING
                                                        AMOUNTS     FAIR VALUE
                                                      ------------ ------------
   <S>                                                <C>          <C>
   Financial assets:
     Cash and cash equivalents......................  $  8,461,101 $  8,461,101
     Investments:
       Affiliated companies.........................     4,522,425    4,522,425
       Trading securities...........................     1,743,836    1,743,836
       Available-for-sale securities................     5,959,470    5,959,470
       Held-to-maturity securities..................     7,241,209    7,206,543
     Real estate contracts and mortgage notes
      receivable....................................   103,082,874  107,809,335
     Other receivable investments...................    20,588,202   22,382,133
   Financial liabilities:
     Investment certificates--principal and compound
      interest......................................    49,627,286   52,714,599
     Debt payable--principal........................       199,286      211,684
</TABLE>
 
  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.
 
19. SUBSEQUENT EVENTS:
 
  On November 24, 1998, the Company participated in a securitization
transaction with Metropolitan, its subsidiaries and its affiliates. The
Company contributed real estate contracts and mortgage notes receivable with a
face value of approximately $12,029,000 to the pool and realized a pre-tax
gain of approximately $934,000.
 
                                     F-31
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  On December 29, 1998, the Company participated in a securitization
transaction with Metropolitan. The Company contributed other receivables with
an aggregate face value of approximately $24,792,000 to the pool and realized
a pre-tax gain of approximately $546,000.
 
20. PARENT COMPANY ONLY FINANCIAL STATEMENTS:
 
  The condensed balance sheets of Summit Securities, Inc. ("Summit" or the
"parent company") at September 30, 1998 and 1997 are as follows:
 
<TABLE>
<CAPTION>
                                                            1998        1997
                                                         ----------- -----------
   <S>                                                   <C>         <C>
                          ASSETS
 
   Cash and cash equivalents...........................  $ 1,814,803 $   803,669
   Investments.........................................    8,405,975   5,433,522
   Real estate contracts and mortgage notes receivable
    and other receivable investments, net..............   31,322,746  35,302,772
   Real estate held for sale, net (including foreclosed
    real estate received in satisfaction of debt of
    $918,903 and $639,158).............................    1,310,714   1,810,050
   Equity in subsidiary companies......................   19,911,362  13,838,358
   Deferred costs, net.................................    1,518,636   1,335,661
   Other assets, net...................................    1,995,748     557,096
   Deferred income taxes...............................      690,343     307,276
   Receivables from affiliates.........................      185,652
                                                         ----------- -----------
     Total assets......................................  $67,155,979 $59,388,404
                                                         =========== ===========
 
                       LIABILITIES
 
   Investment certificates and accrued interest........  $55,894,093 $50,406,991
   Debt payable........................................       38,811      56,453
   Accounts payable and accrued expenses...............      539,011     341,522
   Payable to affiliates...............................                  826,795
                                                         ----------- -----------
     Total liabilities.................................  $56,471,915 $51,631,761
                                                         =========== ===========
 
                   STOCKHOLDERS' EQUITY
 
   Preferred stock, $10 par (liquidation preference,
    $6,658,680 and $5,381,690).........................  $   665,868 $   538,169
   Common stock, $10 par...............................      100,000     100,000
   Additional paid-in capital..........................    4,405,604   3,326,007
   Retained earnings...................................    5,420,838   3,741,613
   Net unrealized gains on investments.................       91,754      50,854
                                                         ----------- -----------
     Total stockholders' equity........................   10,684,064   7,756,643
                                                         ----------- -----------
     Total liabilities and stockholders' equity........  $67,155,979 $59,388,404
                                                         =========== ===========
</TABLE>
 
                                     F-32
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  Summit's condensed statements of income for the years ended September 30,
1998, 1997 and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                              1998         1997        1996
                                           -----------  ----------  ----------
   <S>                                     <C>          <C>         <C>
   Revenues:
     Interest and earned discounts.......  $ 4,194,680  $4,048,087  $4,006,818
     Dividends...........................      214,354     240,267     200,256
     Fees, commissions, service and other
      income.............................       78,773      95,751      83,375
     Real estate sales...................    4,333,321   1,342,030     434,500
     Net gains on investments and
      receivables........................      871,980     289,880     167,301
                                           -----------  ----------  ----------
       Total revenues....................    9,693,108   6,016,015   4,892,250
                                           ===========  ==========  ==========
   Expenses:
     Interest expense....................    4,768,082   4,269,214   3,710,164
     Cost of real estate sold............    4,487,903   1,443,014     479,038
     Provision for losses on real estate
      assets.............................      841,060     289,308       7,353
     Salaries and employee benefits......      116,134     107,941      70,368
     Other operating expenses............      877,382     844,978     665,204
                                           -----------  ----------  ----------
       Total expenses....................   11,090,561   6,954,455   4,932,127
                                           ===========  ==========  ==========
   Loss from operations before income
    taxes and equity in net income of
    subsidiaries.........................   (1,397,453)   (938,440)    (39,877)
   Income tax benefit....................      516,356     404,837      55,956
                                           -----------  ----------  ----------
   Income (loss) before equity in net
    income of subsidiaries...............     (881,097)   (533,603)     16,079
   Equity in net income of subsidiaries..    3,405,124   2,384,843   1,228,443
                                           -----------  ----------  ----------
   Net income............................  $ 2,524,027  $1,851,240  $1,244,522
                                           ===========  ==========  ==========
</TABLE>
 
                                     F-33
<PAGE>
 
                    SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Summit's condensed statements of cash flows for the years ended September 30,
1998, 1997 and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                           1998          1997          1996
                                        -----------  ------------  ------------
   <S>                                  <C>          <C>           <C>
   Cash flows from operating
    activities:
     Net income.......................  $ 2,524,027  $  1,851,240  $  1,244,522
     Adjustments to reconcile net
      income to net cash from
      operating activities............   (3,092,688)   (1,230,286)   (2,343,987)
                                        -----------  ------------  ------------
       Net cash from operating
        activities....................     (568,661)      620,954    (1,099,465)
                                        -----------  ------------  ------------
   Cash flows from investing
    activities:
     Principal payments on real estate
      contracts and mortgage notes
      receivable and other receivable
      investments.....................    6,250,637     5,711,139     7,334,388
     Proceeds from sales of real
      estate contracts and mortgage
      notes receivable and other
      receivable investments..........    6,597,635     7,047,780    11,684,033
     Acquisition of real estate
      contracts and mortgage notes and
      other receivable investments....   (6,790,468)  (18,740,065)  (13,719,365)
     Proceeds from real estate sales..    1,299,492       768,695        37,323
     Purchase of investments..........                   (715,277)   (1,582,774)
     Additions to real estate held for
      sale............................   (3,048,240)   (1,910,347)     (211,464)
     Net change in investment in and
      advances to subsidiaries........   (7,085,451)      284,308    (6,819,434)
                                        -----------  ------------  ------------
       Net cash from investing
        activities....................   (2,776,395)   (7,553,767)   (3,277,293)
                                        -----------  ------------  ------------
   Cash flows from financing
    activities:
     Repayments to banks and others...      (17,249)      (14,719)      (93,016)
     Debt issuance costs..............     (775,095)     (651,450)     (662,402)
     Proceeds from issuance of
      investment certificates.........   14,168,688    13,262,761    13,291,967
     Repayments of investment
      certificates....................   (9,382,646)   (6,812,643)   (8,571,918)
     Contingent purchase price paid on
      subsidiary purchased from
      related party...................     (135,569)     (249,721)
     Issuance of preferred stock, net
      of redemptions..................    1,207,296     1,181,922       539,041
     Cash dividends...................     (709,235)     (446,560)     (333,606)
                                        -----------  ------------  ------------
       Net cash from financing
        activities....................    4,356,190     6,269,590     4,170,066
                                        -----------  ------------  ------------
   Net change in cash and cash
    equivalents.......................    1,011,134      (663,223)     (206,692)
   Cash and cash equivalents at
    beginning of year.................      803,669     1,466,892     1,673,584
                                        -----------  ------------  ------------
   Cash and cash equivalents at end of
    year..............................  $ 1,814,803  $    803,669  $  1,466,892
                                        ===========  ============  ============
</TABLE>
 
                                      F-34
<PAGE>
 
                   SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Non-cash investing and financing activities not included in Summit's
condensed statements of cash flows for the years ended September 30, 1998,
1997 and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                      1998      1997     1996
                                                   ---------- -------- --------
   <S>                                             <C>        <C>      <C>
   Receivables originated to facilitate the sale
    of real estate................................ $3,033,829 $573,335 $297,177
   Real estate acquired through foreclosure.......  1,157,640  834,620  901,175
   Assumption of debt payable in conjunction with
    acquisition of real estate contracts and
    mortgage notes receivable or foreclosure of
    real estate...................................              32,755   26,823
   Transfer of securities from available-for-sale
    to trading....................................             908,484
</TABLE>
 
  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, 1998 and 1997, Summit's debt payable consists of the
following:
 
<TABLE>
<CAPTION>
                                                                 1998    1997
                                                                ------- -------
   <S>                                                          <C>     <C>
   Real estate contracts and mortgage notes payable, interest
    rates ranging from 6.5% to 8.0%, due in installments
    through 2008; collateralized by senior liens on certain of
    the Company's real estate contracts, mortgage notes and
    real estate held for sale.................................. $38,338 $55,587
   Accrued interest payable....................................     473     866
                                                                ------- -------
                                                                $38,811 $56,453
                                                                ======= =======
</TABLE>
 
  Aggregate amounts of principal and accrued interest due on the parent
company's debt payable are expected to be as follows:
 
<TABLE>
<CAPTION>
   FISCAL YEAR ENDING
    SEPTEMBER 30,
   ------------------
   <S>                                                                   <C>
     1999............................................................... $ 1,613
     Thereafter.........................................................  37,198
                                                                         -------
                                                                         $38,811
                                                                         =======
</TABLE>
 
  At September 30, 1998 and 1997, Summit's investment certificates consisted
of the following:
 
<TABLE>
<CAPTION>
   ANNUAL INTEREST RATES                                   1998        1997
   ---------------------                                ----------- -----------
   <S>                                                  <C>         <C>
     6% to 7%.......................................... $ 2,408,575 $   758,446
     7% to 8%..........................................   1,145,184   2,368,671
     8% to 9%..........................................  35,281,596  30,951,990
     9% to 10%.........................................  10,662,392  10,672,322
     10% to 11%........................................     183,121     143,396
                                                        ----------- -----------
                                                         49,680,868  44,894,825
     Compound and accrued interest.....................   6,213,225   5,512,166
                                                        ----------- -----------
                                                        $55,894,093 $50,406,991
                                                        =========== ===========
</TABLE>
 
                                     F-35
<PAGE>
 
                    SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  Maturities of the parent company's investment certificates are as follows:
 
<TABLE>
<CAPTION>
   Fiscal Year Ending
    September 30,
   ------------------
   <S>                                                               <C>
     1999........................................................... $11,652,000
     2000...........................................................   8,027,000
     2001...........................................................  12,056,000
     2002...........................................................   8,438,000
     2003...........................................................   9,191,000
     Thereafter.....................................................   6,530,093
                                                                     -----------
                                                                     $55,894,093
                                                                     ===========
</TABLE>
 
  Summit had the following related-party transactions with its various
subsidiaries and affiliated entities:
 
<TABLE>
<CAPTION>
                                                 1998       1997        1996
                                              ---------- ----------- -----------
   <S>                                        <C>        <C>         <C>
   Real estate contracts, mortgage notes and
    other receivable investments purchased
    through Metropolitan or affiliates......  $4,230,050 $16,771,405 $12,098,944
   Contract acquisition costs charged to the
    Company on purchased real estate
    contracts, mortgage notes and other
    receivable investments, including
    management underwriting fees............     267,950     709,875     531,643
                                              ---------- ----------- -----------
   Total costs of real estate contracts,
    mortgage notes and other receivable
    investments purchased through
    Metropolitan............................  $4,498,000 $17,481,280 $12,630,587
                                              ========== =========== ===========
   Proceeds on sales of real estate
    contracts, mortgage notes and other
    receivable investments to Metropolitan
    affiliates..............................  $9,350,960 $ 4,054,130 $   555,633
   Realized net gains on sale of receivables
    to Metropolitan affiliates..............     749,085      59,251         --
   Dividends received on affiliated
    companies' stock investments............     214,354     240,267     200,256
   Note receivable from Metropolitan........   2,560,000
   Interest received on note receivable from
    Metropolitan............................      80,078
   Servicing and collection fees charged by
    a Metropolitan affiliate................     224,064
</TABLE>
 
                                      F-36
<PAGE>
 
                                                                      SCHEDULE I
 
                            SUMMIT SECURITIES, INC.
 
        SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
 
                               September 30, 1998
 
<TABLE>
<CAPTION>
               Column A                   Column B    Column C      Column D
               --------                 ------------ ----------- --------------
                                                                   Amount At
                                         Amortized     Market    Which Shown On
          Type of Investments               Cost        Value    Balance Sheet
          -------------------           ------------ ----------- --------------
<S>                                     <C>          <C>         <C>
FIXED MATURITIES
Investments:
  U.S. Government and Government
   Agencies and Authorities............ $  6,003,770 $ 6,136,406  $  6,123,333
  Mortgage Backed Bonds................    6,811,668   7,288,351     7,288,351
                                        ------------ -----------  ------------
TOTAL FIXED MATURITIES................. $ 12,815,438 $13,424,757  $ 13,424,757
                                        ============ ===========  ============
Real Estate Contracts and Mortgage
 Notes Receivables..................... $121,780,402              $121,780,402
                                        ============              ============
Other Investment Receivables........... $ 26,943,073              $ 26,943,073
                                        ============              ============
Real Estate Held for Sale.............. $  2,645,773              $  2,645,773
                                        ============              ============
Other Assets-Policy Loans.............. $      8,097              $      8,097
                                        ============              ============
TOTAL INVESTMENTS...................... $164,192,783              $164,192,783
                                        ============              ============
</TABLE>
 
                                      F-37
<PAGE>
 
                                                                     SCHEDULE II
 
                    SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
 
                 Years Ended September 30, 1998, 1997, and 1996
 
<TABLE>
<CAPTION>
                                             Additions   Deductions
                                            (Reductions)     and
                                 Balance at  Charged to   Accounts    Balance
                                 Beginning   Costs and   Written Off   at End
          Description             of Year     Expenses   (Recovery)   of Year
          -----------            ---------- ------------ ----------- ----------
<S>                              <C>        <C>          <C>         <C>
Allowance for losses deducted
 from real estate contracts and
 mortgage notes receivable on
 balance sheet
  1998.........................  $1,153,278  $1,243,044   $553,267   $1,843,055
  1997.........................     974,487     386,525    207,734    1,153,278
  1996.........................     765,130     212,600      3,243      974,487
Allowance for losses deducted
 from real estate held for sale
 on balance sheet
  1998.........................  $  457,427  $  556,129   $395,802   $  617,754
  1997.........................     206,785     599,910    349,268      457,427
  1996.........................      91,139     277,482    161,836      206,785
Allowance for losses on
 accounts and notes receivable
 deducted from other assets on
 balance sheet
  1998.........................  $   22,375  $    9,500   $     --   $   31,875
  1997.........................      10,375       9,500     (2,500)      22,375
  1996.........................         408      12,000      2,033       10,375
</TABLE>
 
                                      F-38
<PAGE>
 
                                                                    SCHEDULE III
                                                                     Page 1 of 2
 
                    SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
                      SUPPLEMENTARY INSURANCE INFORMATION
 
<TABLE>
<CAPTION>
                                           Future Policy
                                Deferred      Benefits                 Other
                                 Policy    Losses, Claims          Policy Claims
                               Acquisition    and Loss    Unearned  and Benefits
                                  Cost        Expenses    Premiums    Payable
                               ----------- -------------- -------- -------------
<S>                            <C>         <C>            <C>      <C>
September 30, 1998
   Annuities.................. $7,922,724   $136,362,403   $ --        $ --
September 30, 1997
   Annuities.................. $6,504,034   $105,339,688   $ --        $ --
September 30, 1996
   Annuities.................. $3,853,136   $ 62,439,855   $ --        $ --
</TABLE>
 
 
                                      F-39
<PAGE>
 
                                                                    SCHEDULE III
                                                                     Page 2 of 2
 
                    SUMMIT SECURITIES, INC. AND SUBSIDIARIES
 
                      SUPPLEMENTARY INSURANCE INFORMATION
 
<TABLE>
<CAPTION>
                                                Benefits  Amortization
                                                 Claims   of Deferred
                                       Net     Losses and    Policy      Other
                          Premium  Investment  Settlement Acquisition  Operating
                          Revenue    Income     Expenses      Costs    Expenses
                          -------- ----------- ---------- ------------ ---------
<S>                       <C>      <C>         <C>        <C>          <C>
September 30, 1998
   Annuities............. $148,958 $21,568,306 $6,953,757  $1,195,000  $417,042
September 30, 1997
   Annuities............. $111,999 $ 8,555,418 $5,071,732  $  422,386  $295,114
September 30, 1996
   Annuities............. $ 45,348 $ 5,163,811 $3,702,324  $   84,773  $345,892
</TABLE>
 
 
                                      F-40
<PAGE>
 
                                                                    SCHEDULE IV
                                                                    Page 1 of 3
 
                            SUMMIT SECURITIES, INC.
 
                         MORTGAGE LOANS ON REAL ESTATE
 
                              September 30, 1998
 
  Less than 1% of the contracts are subject to variable interest rates.
Interest rates range from 0% to 19% with rates principally (71% of face value)
within the range of 8% to 12%. The following table segregates the Consolidated
Group's Receivable portfolio by type, size, and lien position.
 
<TABLE>
<CAPTION>
                                                                                        Non     Number of
                                      Interest     Carrying   Delinquent  Number of   Accrual      Non
                          Number of     Rates     Amount of   Principal  Delinquent  Principal   Accrual
      Description        Receivables Principally Receivables    Amount   Receivables  Amount   Receivables
      -----------        ----------- ----------- ------------ ---------- ----------- --------- -----------
<S>                      <C>         <C>         <C>          <C>        <C>         <C>       <C>
RESIDENTIAL
First Mortgage greater
 than $75,000...........     116         7-10%   $ 18,550,671 $1,351,289       7        --         --
First Mortgage greater
 than $40,000...........     276         7-10%     15,703,404    998,383      19        --         --
First Mortgage less
 than $40,000...........     568         8-12%     12,307,560    417,260      19        --         --
Second or Lower greater
 than $75,000...........       8         8-12%      1,010,378        --      --         --         --
Second or Lower greater
 than $40,000...........      31         8-10%      1,734,344     85,762       2        --         --
Second or Lower less
 than $40,000...........     157         8-11%      3,259,829     66,406       5        --         --
COMMERCIAL
First Mortgage greater
 than $75,000...........     123         8-13%     47,777,727  1,052,781       5        --         --
First Mortgage greater
 than $40,000...........      51         8-10%      3,161,885    111,797       2        --         --
First Mortgage less
 than $40,000...........      76         8-18%      1,277,752        --      --         --         --
Second or Lower greater
 than $75,000...........       9        10-15%      2,484,904        --      --         --         --
Second or Lower greater
 than $40,000...........       8         9-11%        474,404    170,674       3        --         --
Second or Lower less
 than $40,000...........      13        10-11%        298,089        --      --         --         --
FARM, LAND AND OTHER
First Mortgage greater
 than $75,000...........      36         8-12%     10,201,534        --      --         --         --
First Mortgage greater
 than $40,000...........      37         8-10%      2,137,455     72,050       1        --         --
First Mortgage less
 than $40,000...........     881         8-12%      7,261,547    128,792      12        --         --
Second or Lower greater
 than $75,000...........       1         8-10%        201,014    186,406       1        --         --
Second or Lower greater
 than $40,000...........       2         9-12%        109,886        --      --         --         --
Second or Lower less
 than $40,000...........      10         8-10%        198,064        --      --         --         --
Unrealized discounts,
 net of unamortized
 acquisition costs, on
 Receivables purchased
 at a discount..........                           (5,042,703)
Accrued Interest
 Receivable.............                              515,713
Allowance for Losses....                           (1,843,055)
                                                 ------------ ----------
CARRYING VALUE..........                         $121,780,402 $4,641,000
                                                 ============ ==========
</TABLE>
 
  The principal amount of Receivables subject to delinquent principal or
interest is defined as being in arrears for more than three months but which
are still accruing interest.
 
                                     F-41
<PAGE>
 
                                                                     SCHEDULE IV
                                                                     Page 2 of 3
 
                            SUMMIT SECURITIES, INC.
 
                         MORTGAGE LOANS ON REAL ESTATE
 
                               September 30, 1998
 
  The future maturities of the aggregate amounts of Receivables (face amount)
are as follows:
 
<TABLE>
<CAPTION>
                         Residential Commercial    Farm, Land,
                          Principal   Principal  Other Principal Total Principal
                         ----------- ----------- --------------- ---------------
<S>                      <C>         <C>         <C>             <C>
October 1998--September
 2001................... $ 9,669,524 $29,930,719   $ 9,142,530    $ 48,742,773
October 2001--September
 2003...................   6,802,800   7,399,990     2,053,363      16,256,153
October 2003--September
 2005...................   5,311,275   6,873,094     4,727,787      16,912,156
October 2005--September
 2008...................   9,084,129   4,998,753     1,264,013      15,346,895
October 2008--September
 2013...................  10,648,215   3,947,295     1,128,836      15,724,346
October 2013--September
 2018...................   5,316,004     674,323     1,253,091       7,243,418
October 2018--
 Thereafter.............   5,734,239   1,650,585       539,880       7,924,706
                         ----------- -----------   -----------    ------------
                         $52,566,186 $55,474,761   $20,109,500    $128,150,447
                         =========== ===========   ===========    ============
</TABLE>
 
                                      F-42
<PAGE>
 
                                                                     SCHEDULE IV
                                                                     Page 3 of 3
 
                            SUMMIT SECURITIES, INC.
                         MORTGAGE LOANS ON REAL ESTATE
 
                               September 30, 1998
 
<TABLE>
<CAPTION>
                                            For the Years Ended September 30,
                                          -------------------------------------
                                              1998         1997        1996
                                          ------------ ------------ -----------
<S>                                       <C>          <C>          <C>
Balance at beginning of period........... $103,623,728 $ 80,008,753 $60,117,219
                                          ------------ ------------ -----------
Additions during period
  New Receivables--cash..................   58,146,826   59,193,794  40,100,330
  Loans to facilitate the sale of real
   estate held--non cash.................    3,033,829      344,798   1,013,314
  Assumption of other debt payable in
   conjunction with acquisition of new
   Receivables--non cash.................       16,942      171,435      26,823
  Increase in accrued interest...........      731,102          --    1,005,273
                                          ------------ ------------ -----------
Total additions..........................   61,928,699   59,710,027  42,145,740
                                          ------------ ------------ -----------
Deductions during period
  Collections of principal--cash.........   18,781,579   13,034,662  13,874,707
  Cost of Receivables sold...............   21,306,086   20,297,105   6,711,562
  Foreclosures--non cash.................    2,994,583    2,426,690   1,458,580
  Decrease in accrued interest...........          --       157,804         --
  Increase in allowances for losses......      689,777      178,791     209,357
                                          ------------ ------------ -----------
Total deductions.........................   43,772,025   36,095,052  22,254,206
                                          ------------ ------------ -----------
Balance at end of period................. $121,780,402 $103,623,728 $80,008,753
                                          ============ ============ ===========
</TABLE>
 
                                      F-43