<PAGE>  1

                         United States
               SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C. 20549
                           FORM 10-K

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

      For the fiscal year ended September 30, 1997

                              OR

/ /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

      For the transition period from ____________ to ____________

                  Commission file number 2-63708

           METROPOLITAN MORTGAGE & SECURITIES CO., INC.

A WASHINGTON CORPORATION            IRS EMPLOYER NO.:  91-0609840

       929 WEST SPRAGUE AVENUE, SPOKANE, WASHINGTON  99201
                          (509)838-3111

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

Securities registered pursuant to Section 12(g) of the Act:

Preferred Stock Series:

Variable Rate Cumulative Preferred Stock, Series C
Variable Rate Cumulative Preferred Stock, Series D
Variable Rate Cumulative Preferred Stock, Series E-1
Variable Rate Cumulative Preferred Stock, Series E-2
Variable Rate Cumulative Preferred Stock, Series E-3
Variable Rate Cumulative Preferred Stock, Series E-4
Variable Rate Cumulative Preferred Stock, Series E-5
Variable Rate Cumulative Preferred Stock, Series E-6
Variable Rate Cumulative Preferred Stock, Series E-7

__________________________________________________________________
                               (Title of Class)

      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

<PAGE>  2

 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 sixty days prior to the date of filing.

      Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of September 30, 1997.

      Class A Common Stock: 130

      Documents incorporated by reference:  None



<PAGE>  3

                                    PART I

ITEM 1.     BUSINESS

      For ease of reading, the following is a compilation of several of the
defined terms which appear regularly within this document.

      Consolidated Group:  This term refers to the combined businesses
consisting of Metropolitan and all of its subsidiaries.

      Debentures:  This term refers jointly to all Series of Debentures issued
by Metropolitan.

      Metropolitan:  This term refers to the parent company, Metropolitan
Mortgage & Securities, Co., Inc., exclusive of its subsidiaries.

      Metwest:  Metwest Mortgage Services, Inc., a subsidiary of Metropolitan.

      Preferred Stock:  This term refers jointly to all Series of Preferred
Stock issued by Metropolitan.

      Receivables:  Investments in cash flows, consisting of obligations
collateralized by real estate, structured settlements, annuities, lottery
prizes and other investments.

      Western United:  Western United Life Assurance Company, a subsidiary of
Metropolitan.

      Affiliated Companies:  The following companies are affiliated with
Metropolitan through the common control of C. Paul Sandifur, Jr.  Metropolitan
and its subsidiaries provide services to these companies for a fee and engage
in various business transactions with these companies.  See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" under Item 13.

            Arizona Life:  Arizona Life Insurance Company

            MIS:  Metropolitan Investment Securities, Inc.

            Old Standard:  Old Standard Life Insurance Company.

            Summit:  Summit Securities, Inc.

            Summit PD:  Summit Property Development, Inc.



<PAGE>  4

                       ORGANIZATIONAL CHART
                    (as of September 30, 1997)

           METROPOLITAN MORTGAGE & SECURITIES CO., INC.
_________________________________|________________________________
              |                  |                |
             100%                |              96.5%*
       Metwest Mortgage          |         Consumers Group
        Services, Inc.           |         Holding Co, Inc.
                                 |                |
                                 |              100%
                                 |       Consumers Insurance
                                 |            Co., Inc.
                                 |                |
                                 |              75.5%
                               24.5% ->     Western United
                                          Life Assurance Co.

      The above chart lists the Consolidated Group's principal operating
subsidiaries and their ownership.
      
      Metropolitan Mortgage & Securities Co., Inc.:  Parent organization,
invests in Receivables and other investments, including real estate
development, with proceeds from Receivable investments, other investments, and
securities offerings.
      
      Consumers Group Holding Co., Inc.:  A holding company, its sole business
activity currently being that of a shareholder of Consumers Insurance Co.,
Inc.
      
      Consumers Insurance Co., Inc.:  Inactive property and casualty insurer,
its principal business activity currently being that of a shareholder of
Western United Life Assurance Company.
      
      Western United Life Assurance Company:  Metropolitan's largest active
subsidiary and the largest active company within the Consolidated Group, is
engaged in investing in Receivables and other investments principally funded
by life insurance policy and annuity contract sales.
      
      Metwest Mortgage Services, Inc.:  Performs loan origination, collection
and servicing functions.  It is an FHA/HUD licensed servicer and lender, and
is licensed as a Fannie Mae seller/servicer.

      * The remaining 3.5% of Consumers Group Holding Co., Inc. is owned by
Summit.



<PAGE>  5

                                   BUSINESS

OVERVIEW

      Metropolitan was established in 1953.  Through growth and acquisitions,
it has developed into a diversified institution, with assets exceeding $1
billion.  Its principal subsidiaries are Western United, an annuity and life
insurance company, and Metwest, a Receivable servicer and loan originator.

      The Consolidated Group's principal business activity is investing in
Receivables.  The Receivables primarily consist of real estate contracts and
promissory notes collateralized by first liens on real estate.  The
Consolidated Group predominantly invests in Receivables where the borrower or
the collateral does not qualify for conventional financing.  This market is
commonly referred to as the non-conventional or "B/C" market.  See "BUSINESS-
Receivable Investments."  In addition to investing in existing Receivables,
the Consolidated Group began originating "B/C" loans during late fiscal 1996
through Metwest.  See "BUSINESS-Receivable Investments-Loan Originations
Sources."  Metropolitan and its subsidiaries also acquire other types of
Receivables, including but not limited to lottery prizes, structured
settlements and annuities.  See "BUSINESS-Receivable Investments-Lotteries,
Structured Settlements and Annuities Sources."

      All Receivables are purchased at prices calculated to provide a desired
yield.  Often, in order to obtain the desired yield, a Receivable will be
purchased at a discount from its face amount, or at a discount from its
present value.  See "BUSINESS-Yield and Discount Considerations."  The
Consolidated Group strives to achieve a positive spread between its
investments and its cost of funds.

      Metwest performs all Receivable servicing and collections for itself,
Metropolitan, Western United, and for others.  See "BUSINESS-Receivable
Investments-Servicing and Collection Procedures, and Delinquency Experience" &
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" under Item 13.

      In addition to the Consolidated Group's Receivable investments, Western
United and to a lesser extent Metropolitan invest funds in securities which
predominantly consist of corporate bonds, U.S. Treasury and government agency
obligations, mortgage-backed securities and other securities, including
security hedging investments and the subordinate certificates and residual
interests created out of Receivable securitizations.  See

<PAGE>  6

 "BUSINESS-Securities Investments" & "BUSINESS-Receivable Investments-
Receivable Sales."

      The Consolidated Group has developed several funding sources.  These
sources include the sale of assets including sales through securitizations;
collateralized borrowing; Receivable investment income; the issuance of
annuity and life insurance policies; the sale of debentures and preferred
stock; and the sale of real estate and securities portfolio earnings.  See
"BUSINESS-Method of Financing."

      Metropolitan also sells and develops real estate primarily as the result
of repossessions of Receivables.  In addition, Metropolitan is the developer
of a timeshare resort, Lawai Beach Resort, located on Kauai, Hawaii.  See
"BUSINESS-Real Estate Development."

RECEIVABLE INVESTMENTS

Introduction

      Metropolitan has been investing in Receivables for its own account for
over forty years.  Metropolitan also provides Receivable acquisition and
underwriting services to its subsidiary, Western United, and to Old Standard,
Summit and Arizona Life.  See "BUSINESS-Receivable Investments-Management and
Receivable Acquisition Services," & "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" under Item 13.  The evaluation, underwriting and closing is
performed at Metropolitan's headquarters in Spokane, Washington.  The
following information describes the Consolidated Group's Receivable
acquisition and underwriting procedures as of the date of this prospectus.
These practices may be amended, supplemented and changed at any time at the
discretion of the Consolidated Group.

      Types of Receivables

      The Consolidated Group's Receivable acquisitions include two principal
types of Receivables: 1) Receivables collateralized by real estate (both the
acquisition of existing loans and the origination of loans) and 2) lottery
prizes, structured settlements, annuities, and other cash flows.

      Secondary Mortgage Markets

      The market for the acquisition of existing real estate Receivables is
commonly referred to as the secondary mortgage market.  The private secondary
mortgage market consists of individual Receivables or small pools of
Receivables which are

<PAGE>  7

 held and sold by individual investors.  These Receivables are typically the
result of seller-financed sales of real estate.  The institutional secondary
mortgage market consists of the sale and resale of Receivables which were
originated or acquired by a financial institution and which are sold in
groups, commonly called pools.  The Consolidated Group acquires Receivables
through both the private and the institutional secondary mortgage markets.
      
      Receivable Acquisition Volume
      
      Metropolitan's Receivable acquisition activities (total activities for
itself and for others), grew from approximately $259.8 million in 1995, to
$382.1 million in 1996 and $390.0 million in 1997.  During 1997, the average
monthly acquisition volume was approximately $32.5 million.  At the same time,
Metropolitan's median closing time decreased to approximately 14 days by
September 30, 1997, in comparison to 20 days in 1996 and 23 days in 1995.
Management considers closing time to be an important factor in a seller's
decision to sell a Receivable to Metropolitan.
      
Receivables Acquisitions:  Sources, Strategies and Underwriting

      Metropolitan has developed marketing techniques and sources, and
underwriting practices for each of the different types of Receivables.  In
general, the real estate Receivables acquired or originated by the
Consolidated Group consist of non-conventional, "B/C" 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.  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 also, to a lesser extent, the ability of the borrower
to repay.

      Private Secondary Mortgage Market Sources

      Historically, the majority of the Consolidated Group's Receivables are
acquired through the private secondary mortgage market.  See "BUSINESS-
Receivable Investments-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 private secondary market acquisition strategy is designed
to provide flexible structuring and pricing alternatives to the Receivable
seller, and quick closing times.  Metropolitan believes these are key factors
to Metropolitan's

<PAGE>  8

 ability to attract and purchase quality Receivables.  In order to enhance its
position in this market, Metropolitan has implemented the following
acquisition strategies: 1) centralizing acquisition activities, 2) expanding
the use of Metropolitan's Receivable submission software, BrokerNet, 3)
flexible and strategic pricing and closing programs, and 4) 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.

      Institutional Secondary Mortgage Market Sources

      Approximately $47.7 million or 15% of total Receivables acquired during
fiscal 1997 were acquisitions of pools of Receivables.  These portfolios of
real estate Receivables are generally acquired from banks, savings and loan
organizations, the Resolution Trust Corporation, the Federal Deposit Insurance
Corporation and other financial institutions.

      An institutional seller typically offers a loan pool for sale in order
to provide liquidity, to meet regulatory requirements, to liquidate assets, or
for other business reasons.  Over the years, Metropolitan has built
relationships with several brokers and lenders who provide a regular flow of
potential acquisitions to the institutional secondary 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.

      Institutional acquisitions are typically negotiated through direct
contact with the portfolio departments at the various selling institutions, or
acquired through bidding at an auction.  The closing costs per loan for
institutional acquisitions is generally lower than private secondary mortgage
market acquisitions.  However, the investment yield is also generally 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 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.  Metwest is
currently licensed as a lender or is exempt from licensing in twenty-nine
states.


<PAGE>  9


      Metwest originates 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 the fiscal year ended September 30, 1997, Metwest originated an
average of approximately 47 loans per month.  This volume was below original
projections.  In an effort to increase its volume, Metwest has changed
management staff and is adding additional sales staff.  Also, Metwest has
developed several new pricing programs for loan originations.  Management can
give no assurance that these efforts will increase origination volume.

      Correspondent Lending

      During 1996, Metropolitan began acquiring loans through loan
correspondent agreements.  Under these agreements, Metropolitan agrees to
acquire loans at a specified yield immediately after their origination, so
long as they comply with Metropolitan's underwriting guidelines as specified
in the agreements.  In addition, loan correspondents may also submit loans
which do not meet established underwriting guidelines for individual
evaluation and pricing.  Metropolitan has added staff to support growth in its
correspondent lending activities.  Management can give no assurance that these
efforts will increase correspondent lending volumes.

      Real Estate Receivable Underwriting and Pricing

      Metropolitan's loan correspondent underwriting guidelines, and Metwest's
loan origination guidelines apply criteria which include the following:
evaluating the borrower's credit and 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, loans with higher loan to value ratios, mortgage
insurance is required.  In addition, title insurance in an amount equal to the
original loan amount is 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.  Unlike the Receivables purchased in the
private secondary mortgage market, the loans originated by Metwest and the
loans purchased through Metropolitan's loan correspondent program have
standardized documentation and terms.

      Lotteries, Structured Settlements and Annuities Sources


<PAGE>  10


      Metropolitan also negotiates the purchase of Receivables which are not
collateralized by real estate, such as structured settlements, annuities and
lottery prizes.  The lottery prizes generally arise out of state operated
lottery games 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 cashed in 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 the annuity policy, related
documents, the credit rating of the annuity seller, the credit rating of the
annuity payor (generally an insurance company), and a review of other factors
relevant to the risk of purchasing a particular annuity as deemed appropriate
by management in each circumstance.  In the case of structured settlement
annuity purchases, the underwriting guidelines of Metropolitan generally also
include a review of the settlement agreement.

      In the case of lottery prizes, the underwriting guidelines generally
include a review of the documents providing proof of the prize, and a review
of the credit rating of the insurance company, or other entity, making the
lottery prize payments.  Where the lottery prize is from a state run lottery,
the underwriting guidelines generally include a confirmation with the
respective lottery commission of the prize winner's right to sell the prize,
and acknowledgment from the lottery commission of their receipt of notice of
the sale.  In many states, in order to sell a state lottery prize, the winner
must 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 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.

<PAGE>  11



Yield and Discount Considerations

      Metropolitan negotiates all Receivable acquisitions at prices calculated
to provide a desired yield.  Often this results in a purchase price less than
the Receivable's unpaid balance, or less than its present value (assuming a
fixed discount rate).  The difference between the unpaid balance and the
purchase price is the "discount."  The amount of the discount will vary in any
given transaction depending upon the purchasing company's yield requirements
at the time of the purchase.  Yield requirements are established in light of
capital costs, market conditions, the characteristics of particular classes or
types of Receivables and the risk of default by the Receivable payor.

      For Receivables of all types, the discounts originating at the time of
purchase, net of capitalized acquisition costs, are amortized using the level
yield (interest) method over the remaining contractual term of the Receivable.
For Receivables which were acquired after September 30, 1992, these net
purchase discounts are amortized on an individual basis using the level yield
method over the remaining life of the Receivable.  For those Receivables
acquired before October 1, 1992, these net purchase discounts were pooled by
the fiscal year of purchase and by similar contract types, and amortized on a
pool basis using the level yield method over the expected remaining life of
the pool.  For these Receivables, the amortization period, which is
approximately 78 months, is based on an estimated constant prepayment rate of
10-12 percent per year on scheduled payments, which is consistent with the
Consolidated Group's prior experience with similar loans and the Consolidated
Group's expectations.

      A greater effective yield can also 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 maintained or accelerated, the latter of
which increases the yield realized on a Receivable purchased at a discount
from its face value.

Current Mix of Receivable Investment Holdings

      The Consolidated Group's investments in Receivables is concentrated in
Receivables collateralized by first liens on single-family residential
property.  Management believes that this concentration in residential real
estate presents a lower credit risk than would a portfolio predominantly
collateralized by commercial property or unimproved land, and that much of the
risk in the portfolio is further dissipated by the large numbers of

<PAGE>  12

 relatively small Receivables, the geographic dispersion of the collateral,
and the collateral value to investment amount requirements.

      At the time of acquisition, the face value of all Receivables
collateralized by real estate generally range in size from approximately
$15,000 to $300,000.  During the fiscal year ended September 30, 1997, the
average Receivable balance at the time of acquisition by the Consolidated
Group was approximately $51,000.  See Note 3 to the Consolidated Financial
Statements under Item 8.

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

      The following charts present information on the Consolidated Group's
portfolio of outstanding real estate Receivables as of September 30, 1997
regarding geographical distribution, type of real estate collateral and lien
position:

      PIE CHARTS SHOWING BREAKDOWNS OF RECEIVABLES BY TYPE, SECURITY POSITION,
AND ASSET TYPE:

1.    Distribution of Receivable By Collateral Type (September 30, 1997)

      Residential             70%
      Commercial              14%
      Farms, Land, Other      16%
      
2.    Distribution of Receivables (collateralized by real estate) by Security
      Position (September 30, 1997)
      
      First Lien Position                  99%
      Second Lien or Lower Position         1%
      
3.    Distribution of Assets as a Percentage of Total Assets
      
      Cash and Cash Equivalents                      5%
      Investments                                   17%
      Receivables Collateralized by Real Estate     45%
      Other Receivables (structured settlements,
        lotteries and annuities)                    15%
      Real Estate Held                               7%
      Deferred Costs                                 7%
      Other                                          4%

      GRAPH SHOWING MAP OF THE UNITED STATES AND DISTRIBUTION OF
      
      <PAGE>  13
      
      
RECEIVABLE INVESTMENTS BY STATE:

2.    This graph contains a map of the United States which identifies the
      percent of distribution by state of the principal amount of Receivable
      investments (collateralized by real estate) as of September 30, 1997,
      for the states with 1% or more invested:

      The following amounts are shown for the following states:

      Washington        16%
      Texas             14%
      California        10%
      Arizona            9%
      Florida            7%
      New York           5%
      Oregon             5%
      Idaho              3%
      New Mexico         3%
      Hawaii             2%
      Michigan           2%
      Montana            2%
      New Jersey         2%
      Alaska             1%
      Colorado           1%
      Connecticut        1%
      Georgia            1%
      Nevada             1%



<PAGE>  14

          METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
                              LOANS ON REAL ESTATE
                               September 30, 1997

      At September 30, 1997, the Consolidated Group held first position liens
associated with contracts and mortgage notes receivable with a face value of
approximately $520.6 million (99%) and second or lower position liens of
approximately $7.6 million (1%).  Approximately 28% of the face value of the
Consolidated Group's real estate Receivables are collateralized by property
located in the Pacific Northwest (Washington, Alaska, Idaho, Montana and
Oregon), approximately 20% by property located in the Pacific Southwest
(California, Arizona and Nevada), approximately 9% in the Southeast (Florida,
Georgia, North Carolina and South Carolina), approximately 9% in the North
Atlantic (New York, Pennsylvania, New Jersey, Connecticut and Maryland) and
approximately 17% by property located in the Southwest (Texas and New Mexico).
The face value of the real estate Receivables range principally from $15,000 to
$300,000 with 56 real estate Receivables, aggregating approximately $34.7
million in excess of this range.  No individual contract or note is in excess
of 0.5% of the total carrying value of real estate Receivables, and less than
4% of the contracts are subject to variable interest rates.  Contractual
interest rates principally range from 6% to 13% per annum with approximately
89% of the face value of these receivables within this range.  The weighted
average contractual interest rate on these real estate Receivables at September
30, 1997 is approximately 9.4%.  Maturity dates range from 1997 to 2027.

<TABLE>
<CAPTION>
                                                                                      Non            
                                           Interest     Carrying     Delinquent     Accrual     Number of
                            Number of       Rates      Amount of      Principal    Principal   Non Accrual
Description                Receivables   Principally  Receivables      Amount        Amount    Receivables
___________                ___________   ___________  ____________   ___________   __________  ___________
<S>                        <C>           <C>          <C>            <C>           <C>         <C>
RESIDENTIAL                                                                                    
First Mortgage > $100,000       509          6-13%    $ 78,734,868   $ 7,535,954   $1,506,750        9
First Mortgage > $50,000      1,580          6-13%     107,372,840     6,765,551        --          --
First Mortgage < $50,000      8,687          6-13%     181,186,443    13,178,218        --          --
Second or Lower > $100,000        4          8-11%         659,050       156,878        --          --
Second or Lower > $50,000         7          7-12%         480,016        65,686        --          --
Second or Lower < $50,000       220          6-13%       3,337,545        96,903        --          --
                                                                                               
                                                                                               
<PAGE>  15                                                                                     
                                                                                               
COMMERCIAL                                                                                     
First Mortgage > $100,000       209          6-13%      48,492,725     3,887,374      482,817        2
First Mortgage > $50,000        182          6-13%      13,199,135       677,704        --          --
First Mortgage < $50,000        317          6-13%       7,917,653       262,922        --          --
Second or Lower > $100,000        4          5-11%       1,559,883         --           --          --
Second or Lower > $50,000         5          7-12%         407,624         --           --          --
Second or Lower < $50,000        10          8-11%         303,122         --           --          --
                                                                                               
FARM, LAND AND OTHER                                                                           
First Mortgage > $100,000        84          8-15%      27,214,026     1,326,710        --          --
First Mortgage > $50,000        178          6-13%      11,513,233       313,881        --          --
First Mortgage < $50,000      2,487          6-13%      45,195,703     1,620,079        --          --
Second or Lower > $100,000        1            14%         100,000       100,000        --          --
Second or Lower > $50,000         3          9-10%         227,634         --           --          --
Second or Lower < $50,000        30          9-12%         306,057        12,140        --          --
Unrealized discounts, net                                                                        
  of unamortized                                                                               
  acquisition costs, on                                                                        
  Receivables purchased                                                                        
  at a discount                                        (24,642,792)                            
Accrued Interest                                                                               
  Receivable                                             9,299,336                             
                                                      ____________   ___________   __________  
CARRYING VALUE                                        $512,864,101   $36,000,000   $1,989,567  
                                                      ============   ===========   ==========  

<FN>
The principal amounts of Receivables subject to delinquent principal or
interest is defined as being in arrears for more than three months.
</TABLE>



<PAGE>  16

<TABLE>
<CAPTION>
       The  contractual  maturities of the aggregate amounts  of  Receivables
(face amount) are as follows:

                                       Residential       Commercial        Farm, Land,          Total
                                        Principal         Principal      Other Principal      Principal
                                     ________________  _______________   _______________   ________________
<S>                                  <C>               <C>               <C>               <C>
October 1997 - September 2000          $ 40,400,913      $11,167,553       $22,990,756       $ 74,559,222
October 2000 - September 2002            33,771,278        9,163,174         9,742,636         52,677,088
October 2002 - September 2004            32,216,791        6,381,830         6,795,393         45,394,014
October 2004 - September 2007            46,889,093       11,374,072        12,310,724         70,573,889
October 2007 - September 2012            68,260,410       13,429,000        16,920,159         98,609,569
October 2012 - September 2017            44,494,614        5,288,840         6,384,637         56,168,091
October 2017 - Thereafter               105,737,663       15,075,673         9,412,348        130,225,684
                                       ____________      ___________       ___________       ____________
                                       $371,770,762      $71,880,142       $84,556,653       $528,207,557
                                       ============      ===========       ===========       ============
</TABLE>



<PAGE>  17

          METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
                              LOANS ON REAL ESTATE
                               September 30, 1996

      At September 30, 1996, the Consolidated Group held first position liens
associated with contracts and mortgage notes receivable with a face value of
approximately $675 million (99%) and second or lower position liens of
approximately $6 million (1%).  Approximately 23% of the face value of the
Consolidated Group's real estate Receivables are collateralized by property
located in the Pacific Northwest (Washington, Alaska, Idaho, Montana and
Oregon), approximately 20% by property located in the Pacific Southwest
(California, Arizona and Nevada), approximately 10% in the Southeast (Florida,
Georgia, North Carolina and South Carolina), approximately 10% in Atlantic
Northeast (New York, Pennsylvania, New Jersey, Connecticut and Maryland) and
approximately 16% by property located in the Southwest (Texas and New Mexico).
The face value of the real estate Receivables range principally from $15,000 to
$300,000 with 52 real estate Receivables, aggregating approximately $29.4
million in excess of this range.  No individual contract or note is in excess
of 0.4% of the total carrying value of real estate Receivables, and less than
3% of the contracts are subject to variable interest rates.  Contractual
interest rates principally range from 6% to 13% per annum with approximately
91% of the face value of these receivables within this range.  The weighted
average contractual interest rate on these real estate Receivables at September
30, 1996 is approximately 9.4%.  Maturity dates range from 1996 to 2026.

<TABLE>
<CAPTION>
                                                                                      Non            
                                           Interest     Carrying     Delinquent     Accrual     Number of
                            Number of       Rates      Amount of      Principal    Principal   Non Accrual
Description                Receivables   Principally  Receivables      Amount        Amount    Receivables
___________                ___________   ___________  ____________   ___________   __________  ___________
<S>                        <C>           <C>          <C>            <C>           <C>         <C>
RESIDENTIAL                                                                                    
First Mortgage > $100,000       738         6%-13%    $108,873,697   $ 5,687,601   $1,548,124        7
First Mortgage > $50,000      2,500         6%-13%     161,285,463     7,443,607       --           --
First Mortgage < $50,000     13,568         6%-13%     261,018,755     9,129,035       --           --
Second or Lower > $100,000        1           7.5%         243,213        --           --           --
Second or Lower > $50,000         6         9%-10%         384,654        --           --           --
Second or Lower < $50,000       358         6%-13%       3,487,974       191,504       --           --
                                                                                               
                                                                                               
<PAGE>  18                                                                                     
                                                                                               
COMMERCIAL                                                                                     
First Mortgage > $100,000       248         6%-13%      52,072,095     1,248,896       --           --
First Mortgage > $50,000        252         6%-13%      18,218,639       500,571       --           --
First Mortgage < $50,000        447         6%-13%      11,837,475       107,111       --           --
Second or Lower > $100,000        4       9%-10.5%       1,564,708        --           --           --
Second or Lower > $50,000         3        8%-9.5%         204,917        --           --           --
Second or Lower < $50,000         9         8%-11%         192,717        --           --           --
                                                                                               
FARM, LAND AND OTHER                                                                           
First Mortgage > $100,000        67         8%-12%      14,551,734     1,101,876    1,101,876        2
First Mortgage > $50,000        151         6%-13%       9,697,972       220,731       --           --
First Mortgage < $50,000      2,178         6%-13%      36,929,717       841,020       --           --
Second or Lower > $100,000        1            14%         100,000        --           --           --
Second or Lower > $50,000         2         9%-10%         164,743        --           --           --
Second or Lower < $50,000        40         9%-12%         349,674        28,048       --           --
Unrealized discounts, net                                                                        
  of unamortized                                                                               
  acquisition costs, on                                                                        
  Receivables purchased                                                                        
  at a discount                                        (38,607,376)                            
Accrued Interest                                                                                 
  Receivable                                             8,362,559                             
                                                      ____________   ___________   __________  
CARRYING VALUE                                        $650,933,330   $26,500,000   $2,642,000  
                                                      ============   ===========   ==========  
</TABLE>



<PAGE>  19

<TABLE>
<CAPTION>
       The  contractual  maturities of the aggregate amounts  of  Receivables
(face amount) are as follows:

                                       Residential       Commercial        Farm, Land,          Total
                                        Principal         Principal      Other Principal      Principal
                                     ________________  _______________   _______________   ________________
<S>                                  <C>               <C>               <C>               <C>
October 1996 - September 1999          $ 43,589,264      $10,647,400        $10,083,453      $ 64,320,117
October 1999 - September 2001            50,673,223       10,160,940          8,005,953        68,840,116
October 2001 - September 2003            53,408,352        8,270,489          5,145,528        66,824,369
October 2003 - September 2006            62,945,018       15,076,814         10,890,593        88,912,425
October 2006 - September 2011           100,196,799       13,896,939         13,898,207       127,991,945
October 2011 - September 2016            72,017,732        7,719,548          6,273,944        86,011,224
October 2016 - Thereafter               152,463,368       18,318,421          7,496,162       178,277,951
                                       ____________      ___________        ___________      ____________
                                       $535,293,756      $84,090,551        $61,793,840      $681,178,147
                                       ============      ===========        ===========      ============
</TABLE>




<PAGE>  20

<TABLE>
<CAPTION>
      The following tables present certain statistical information about the
Consolidated Group's Receivable investment activity during the three fiscal
years ended September 30, 1997.

                                          Year Ended or at September 30
                                      _____________________________________
                                         1997         1996         1995
                                      __________   __________   __________
                                              (Dollars in Thousands)
<S>                                   <C>          <C>          <C>
DISOUNTED REAL ESTATE RECEIVABLES                               
  PURCHASED DURING PERIOD
  Number                                   5,919        4,969        4,130
  Average Face Amount                 $       51   $       52   $       45
                                      __________   __________   __________
  Face Amount                         $  300,450   $  256,486   $  187,305
  Unrealized Discounts, Net of                                  
    Acquisition Costs                    (16,918)     (24,718)     (15,338)
  Underlying Obligations Assumed(1)       (1,810)      (3,634)        (527)
                                      __________   __________   __________
                                      $  281,722   $  228,134   $  171,440
                                      ==========   ==========   ==========
DISCOUNTED REAL ESTATE RECEIVABLES                              
  OUTSTANDING AT END OF PERIOD
  Number                                  10,733       13,358       13,436
                                      __________   __________   __________
  Face Amount                         $  442,958   $  548,538   $  505,441
  Unrealized Discounts, Net of                                  
    Unamortized Acquisition Costs        (24,643)     (38,607)     (37,354)
                                      __________   __________   __________
  Net Balance                         $  418,315   $  509,931   $  468,087
                                      ==========   ==========   ==========
TOTAL REAL ESTATE RECEIVABLES                                   
  OUTSTANDING AT END OF PERIOD(2)
  Number                                  14,517       20,573       19,608
                                      __________   __________   __________
  Face Amount Discounted Receivables  $  442,958   $  548,538   $  505,441
  Face Amount Non-Discounted                                    
    Receivables                           85,250      132,641      112,072
                                      __________   __________   __________
  Total Outstanding Receivables          528,208      681,179      617,513
  Unrealized Discounts Net of                                   
    Unamortized Acquisition Costs        (24,643)     (38,607)     (37,354)
  Accrued Interest Receivable              9,299        8,361        7,335
                                      __________   __________   __________
  Net Balance                         $  512,864   $  650,933   $  587,494
                                      ==========   ==========   ==========
  Average Net Balance per Receivable                            
    (Excluding Accrued Interest)      $     34.7   $     31.2   $     29.6
  Average Annual Yield on Discounted                            
    Receivables(3)                          11.5%        11.9%        12.8%

<FN>
(1)   Consisting of pre-existing first lien position Receivables which remain
      when the Consolidated Group invests in second lien position Receivables.

<PAGE>  21



(2)   Approximately 16% of the portfolio at September 30, 1997, 19% of the
      portfolio at September 30, 1996 and 18% of the portfolio at September
      30, 1995 represented financing for resales of repossessed properties and
      other non-discounted Receivables.

(3)   Yield on real estate Receivables represent gross interest and earned
      discount revenues, net of amortized acquisition costs, prior to any
      overhead allocation and losses recorded following foreclosure.  The
      reasons for changes in yield are (i) fluctuations in the rate of actual
      prepayments; (ii) securitization and sale of Receivables; (iii) the
      changing mix of Receivable purchases between those originated from
      Metropolitan's network of offices and those purchased in bulk; (iv) the
      amortization of the existing portfolio; and (v) the amount of discount
      on Receivables purchased.

      At September 30, 1997, the average contractual interest rate on
Receivables collateralized by real estate (weighted by principal balances) was
approximately 9.4%.




<PAGE>  22

Servicing and Collection Procedures, and Delinquency Experience

      The servicing and collection of Receivables of all types owned by the
Consolidated Group is performed by Metwest.  Metwest also services the
Receivables of Summit, Old Standard, and Arizona Life, and the Receivables
sold through prior securitizations.  Metwest uses a flexible computer software
program, Sanchez, to monitor and service the Receivables.  The Consolidated
Group considers consistent and timely collection activity to be critical to
successful servicing and minimization of foreclosure losses for its
Receivables portfolio.

      Fees for providing servicing and collection services to Metropolitan and
Western United had no impact on the results of operations of the Consolidated
Group.  Fees for providing servicing and collection services to the trusts
holding previously securitized pools and to Summit, Old Standard and Arizona
Life were approximately $341,000 during 1997.  These charges to parties
outside the Consolidated Group provide income to the Consolidated Group.

      The principal amount of Receivables collateralized by real estate, held
by the Consolidated Group (as a percentage of the total outstanding principal
amount of Receivables) which was in arrears for more than ninety days at the
end of the following fiscal years was:

      1997  ---  6.8%
      1996  ---  3.9%
      1995  ---  2.8%

      The real estate Receivables purchased by the Consolidated Group are
predominantly medium and lower credit Receivables.  Accordingly, higher
delinquency rates are expected which Management believes are 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 as described below.  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.  See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Provision for Losses on Real
Estate Assets" under Item 7.

      When a real estate Receivable becomes delinquent, the payor is initially
contacted by letter approximately seven days after the delinquency date.  If
the delinquency is not cured, the payor

<PAGE>  23

 is contacted by telephone (generally between the 10th and 15th day following
the payment due date).  If the default is still not cured (generally within
three to six days after the initial call), additional collection activity,
including further written correspondence and further telephone contact, is
pursued.  If these collection procedures are unsuccessful, the account is
referred to a committee who analyzes 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.  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, attorney fees, costs, expenses and late charges are generally
collected from the payor, or added to the Receivable balance, as a condition
of reinstatement.

      When a lottery, structured settlement, or annuity becomes delinquent,
Metwest attempts to commence collection efforts within 4 days from 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 Real Estate Assets

      The Consolidated Group establishes an allowance for expected losses on
real estate assets (both Receivables collateralized by real estate and
repossessed real estate).  This allowance is based upon a statistical
valuation or traditional appraisal of the Consolidated Group's real estate
holdings for each delinquent Receivable having a principal balance greater
than $100,000.  In addition, the Consolidated Group calculates an allowance
for losses on delinquent Receivables having a principal balance below the
$100,000 threshold based upon its historical loss experience.  The
Consolidated Group reviews the results of its resales of repossessed real
estate, to identify any market trends and to document the Group's historical
experience on such sales.  The Consolidated Group adjusts its allowance for
losses requirement as appropriate, based upon such observed trends in
delinquencies and resales.  See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Provision for Losses on Real
Estate Assets" under Item 7.



<PAGE>  24


      The following table outlines the Consolidated Group's changes in the
allowance for losses on real estate assets:


</TABLE>
<TABLE>
<CAPTION>
                                    1997           1996            1995
                                ____________   ____________    ____________
<S>                             <C>            <C>             <C>
Beginning Balance               $ 10,192,584   $  8,116,065    $  9,108,383
Provisions                         8,131,101      6,360,072       4,174,644
Charge-Offs                       (5,996,587)    (4,283,553)     (5,166,962)
                                ____________   ____________    ____________
Ending Balance                  $ 12,327,098   $ 10,192,584    $  8,116,065
                                ============   ============    ============
Percentage of Ending                                           
  Balance of Allowances                                        
  to Outstanding Real                                          
  Estate Assets                          2.1%           1.4%            1.2%
                                ============   ============    ============
Ratio of Net Charge-Offs to                                    
  Average Real Estate                                          
  Assets Outstanding During                                    
  the Period                             0.9%           0.6%            0.8%
                                ============   ============    ============
</TABLE>

Repossessions

      In the course of its Receivable investment activity, the Consolidated
Group acquires various parcels of real estate as a result of foreclosures
and/or voluntary repossessions.  It is the Consolidated Group's general policy
to attempt to resell such properties at the earliest possible time following
its acquisition.  Improvements are made to certain properties for the purposes
of preservation or restoration to maximize the resale price.  The marketing
status of all properties is reviewed at least monthly by a committee which
includes both sales personnel and management.  Generally, repossessed
properties are resold within less than one year from their dates of
repossession.

      The carrying value of a repossessed property is determined as of the
date of repossession of the property and is based on a statistical valuation,
a Broker Price Opinion, an appraisal by a licensed independent appraiser or by
one of Metropolitan's licensed staff appraisers either at the time the
Receivable was purchased or at the time the property was repossessed.  In
addition, a new appraisal is obtained not less frequently than every year on
all real estate holdings previously valued at $100,000 or more, and every two
years on real estate holdings previously valued below $100,000.  Internal
valuation reviews on all repossessed properties are performed at least
annually based on management's knowledge of market conditions and comparable
property sales.

<PAGE>  25



      The following table presents specific information about the Consolidated
Group's repossessed properties with carrying values of $100,000 or more which
were held at September 30, 1997 and/or September 30, 1996.  The carrying
values of certain properties may reflect additional costs incurred, such as
taxes and improvements, when such costs are estimated to be recoverable in the
sale of the repossessed property.

<TABLE>
<CAPTION>
                                                                   
    Property       Carrying    Carrying    Market                    Gross
   Type/State       Value       Value       Value       Year of     Monthly
    Location       9/30/96     9/30/97     9/30/97    Foreclosure    Income
________________  __________  __________  __________  ___________  __________
<S>               <C>         <C>         <C>         <C>          <C>
26.73 Commercial                                                   
  Acres           $  238,036  $  244,094  $  244,094    1983(1)    $   --
Farm/Ranch 1,927                                                   
  Acres, WA          285,690  SOLD     A                1988           --
34 Acres, WA       3,145,113   3,182,500   3,350,000    1991(2)        --
Land, CA             225,360     117,000     130,000    1994           --
K-5 Grade                                                          
  School, CA         202,500      54,000      60,000    1994           --
House, CA            110,700  SOLD     B                1995           --
House, CT            114,750  SOLD     C                1995           --
14 Unit                                                            
  Apartment                                                        
  Building, WA       108,000     108,000     120,000    1996           --
House, MD            108,000  SOLD     D                1996           --
Condo, CA            137,105  SOLD     E                1996           --
Multi-unit                                                         
  Professional                                                     
  Building, NJ       162,000  SOLD     F                1996           --
House, CA            261,000  SOLD     G                1996           --
House, WA            126,000  SOLD     H                1996           --
House, WA            115,885  SOLD     I                1996           --
House, FL            120,706  SOLD     J                1996           --
House, NY            100,800  SOLD     K                1996           --
House, CA            113,207  SOLD     L                1996           --
House, MA            124,200  SOLD     M                1996           --
House, CA                        270,000     300,000    1997           --
House, CA                        148,647     165,163    1997           --
House, CA                        133,200     148,000    1997           --
House, CA                        107,260     119,178    1997           --
House, MO                        151,921     168,801    1997           --
House, NJ                        132,715     147,460    1997           --
House, NV                        147,723     164,137    1997           --
House, NY                        167,495     186,105    1997           --
House, OR                        180,000     200,000    1997           --
Motel, PA                        225,000     250,000    1997           --
Land, SD                         468,238     520,265    1997           --
House, TX                        419,679     466,310    1997           --
House, TX                        134,567     149,519    1997           --
House, TX                        107,100     119,000    1997           --
House, WA                        114,408     127,120    1997           --
                  __________  __________  __________               __________
                                                                   
                                                                   
<PAGE>  26                                                         
                  $5,799,052  $6,613,546  $7,135,152               $   --
                  ==========  ==========  ==========               ==========

<FN>
The sales prices of the referenced properties were as follows:
A   $375,000
B    125,000
C    127,500
D    118,500
E    125,000
F     80,000
G    210,000
H    110,000
I    180,000
J    123,400
K     39,500
L    115,000
M    138,000

(1)   Located in Pasco, Washington, the commercial property is in the area of a
      planned freeway interchange.

(2)   See "BUSINESS-Real Estate Development-Other Development Properties-Renton."
</TABLE>

      For information regarding the Consolidated Group's activity in
properties held for development, See "BUSINESS-Real Estate Development."

Management and Receivable Acquisition Services

      Metropolitan provides management, and Receivable acquisition services to
its subsidiaries and to Summit, Old Standard and Arizona Life.  The Receivable
acquisitions satisfy underwriting and yield requirements established by the
purchasing company.  The difference between the yield requirement and the
yield which Metropolitan actually negotiates is retained by Metropolitan as
its compensation for providing acquisition services.

      In the case of Western United, beginning in 1994, the yield requirement
established by Western United is guaranteed by Metropolitan, and an
intercompany reserve is established to support the guarantee.  Because of the
guarantee, and the corresponding decrease in risk, Western United's stated
yield requirement is relatively lower than the other companies.  The reserve
established in 1997 on purchases of $267.4 million, including origination
expenses, net of purchase discount was $9.53 million.  Metropolitan remains
liable to Western United for any losses in excess of the reserve.  While this
charge has the effect

<PAGE>  27

 of reducing the Receivable yield of the insurance subsidiary, there is a
corresponding positive effect on the fee earned by Metropolitan.  With the
elimination of these intercompany guarantees and yield adjustments in
consolidation, the yields recognized by the Consolidated Group are the same as
though there were no guarantee or yield adjustments.

      The excess yield retained by Metropolitan is amortized into
Metropolitan's income, over the same period and in the same amount as they are
amortized into expenses by the insurance subsidiary.  During 1997, 1996 and
1995, Metropolitan charged Western United fees of approximately $20.1 million,
$29.4 million and $14.6 million, respectively.  The 1997, 1996, and 1995
charge was before loss reserves of $9.53 million, $12.54 million and $6.95
million, respectively.  Underwriting fees charged to Summit, Old Standard and
Arizona Life are recognized as revenues when the related fees are charged to
those companies.  During 1997, Metropolitan charged Summit, Old Standard and
Arizona Life fees of $730,000, $2,112,000 and $577,000, respectively.  The
service agreements with Western United has no effect upon the consolidated
financial results of the Consolidated Group.  The service agreement with
companies outside the Consolidated Group, including Summit, Old Standard and
Arizona Life provided fee income to Metropolitan.  See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS" under Item 13.

Receivable Sales

      The Consolidated Group sells pools of Receivables when it considers it
profitable to do so.  Such sales generally occur through one of two methods:
(1) securitization or (2) 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, provide liquidity and may provide lower cost of funds.  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 single purpose trust.  The trust issues certificates which
represent an undivided ownership interest in the Receivables transferred to
the trust.  The certificates consist of different classes, which include
classes of senior certificates, and a residual interest and may also include
intermediate classes of subordinated certificates.  The rights of the senior
certificate holders can be enhanced through several methods which include
subordination of the rights of the subordinate and residual interests to
receive distributions, or the establishment of a reserve fund.  In connection
with securitizations, the senior certificates are sold to investors,

<PAGE>  28

 generally institutional 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 may also receive an interest in any
unsold subordinate certificates, and an interest in any residual interest.
Such interests are generally apportioned based upon the respective companies
contribution of Receivables to the pool of Receivables sold to the trust.

      Through September 30, 1997, the Consolidated Group (principally
Metropolitan and Western United) has participated as a co-sponsor in three
real estate Receivable securitizations with affiliates, Summit and Old
Standard.  The affiliates' 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 the entire transaction.  The price to the
affiliates at settlement for each securitization includes their proportionate
share of hedging transactions related to each securitization.  Also See Note 1
to the Consolidated Financial Statements under Item 8.

      In the typical securitization structure, the Receivable payments are
distributed first to the senior certificates, next to the subordinated
certificates, if any, and last to the residual interests.  As a result, the
residual interest is the interest first affected by any loss due to the
failure of the Receivables to pay as scheduled.  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 loss or gain.
      
      In the securitizations which the Consolidated Group has participated in,
the rights of the senior certificate holders were enhanced through
subordinating the rights of subordinate and residual interests 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, 1997, the value of residual
interests held by the Consolidated Group was $18.8 million.

      In addition to sales through securitizations, the Consolidated Group
sells 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

<PAGE>  29

 conform to the representations and warranties made at the time of sale.

      During the year ended September 30, 1997, the Consolidated Group sold
portfolios of real estate Receivables through both direct sales and
securitizations with proceeds of approximately $382.7 million and gains of
$21.7 million.  During that same period, the Consolidated Group sold other
Receivables with proceeds of approximately $7.8 million and gains of $37,000.

      During 1996, the Consolidated Group sold portfolios of real estate
Receivables through securitizations with proceeds of approximately $108.4
million and gains of $8.6 million.  During that same period, the Consolidated
Group sold other Receivables with proceeds of approximately $73.8 million and
gains of $4.1 million.

      Currently, all lottery acquisitions are purchased by Trusts which are
owned by the company interested in acquiring the corresponding Receivables.
These Trusts are designed to facilitate any potential future resale of these
assets.

LIFE INSURANCE AND ANNUITY OPERATIONS

Introduction

      The Consolidated Group's principal subsidiary is Western United.
Western United was incorporated in Washington State in 1963.  As of September
30, 1997, Western United owned approximately $958.4 million in assets, or
approximately 85% of the Consolidated Group's total assets.  Based on its
assets, Western United ranks sixth in size among the life insurance companies
domiciled in the State of Washington.

      Western United markets its annuity and life insurance products through
approximately 1,400 independent sales representatives under contract.  These
representatives may also sell life insurance and/or annuity products for other
companies.  Western United is licensed as an insurer in the states of Alaska,
Arizona, Hawaii, Idaho, Montana, Nebraska, Nevada, North Dakota, Oregon, South
Dakota, Texas, Utah, Washington, and Wyoming.  During 1996, the most recent
year for which statistical information is available, Western United's annuity
market share was 4.2% (ranking it fifth in production) in the six states in
which approximately 85% of its annuity business was produced:  Washington,
Oregon, Idaho, Montana, North Dakota and Utah.

      Management intends to expand the operations of Western United into other
states as opportunities arise, which may include the acquisition of other
existing insurance companies.  Western United

<PAGE>  30

 currently has insurance license applications pending in the states of
Colorado, Indiana, Minnesota, New Mexico and Oklahoma.

      Western United may invest up to 65% of its statutory assets in real
estate related Receivables.  The balance of Western United's investments are
principally invested in government and investment-grade securities, but may be
invested into a variety of other areas as permitted by applicable insurance
regulations.  See "BUSINESS-Securities Investments" & "BUSINESS-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 and instrumentalities can be acquired.  As a
result, Western United can acquire qualifying real estate Receivables in
amounts which exceed the above referenced 65% limitation.  Such acquisitions
are also exempt from other state insurance regulations including loan to value
and appraisal regulations.

Annuities

      Western United has actively marketed single and flexible premium
deferred annuities since 1980.  During the past three years, over 98% of
Western United's premiums were derived from annuity sales.

      Western United's annuities also qualify as investments under several of
the tax advantaged programs such as Individual Retirement Accounts and related
programs.

      Western United prices its new annuity products and renewals in order to
achieve a positive spread between its annuity costs and available Receivable
investments, while also considering current annuity market rates of interest
and competitive pressures.  Flexible and single premium annuities are offered
with surrender charges for periods varying from one year to ten years.

      Western United is currently developing several new annuity product
types.  One of the new products is an equity-indexed annuity.  The interest
which is credited on this product will vary as a selected equity index
(currently expected to be the S & P 500) performs.  This product type is
designed to meet the needs of investors who are reluctant to make a long-term
fixed interest annuity investments during the current economic period of
relatively lower interest rates.


<PAGE>  31


      At September 30, 1997, deferred policy acquisition costs were
approximately 8.4% of life and annuity reserves.  Increasing termination rates
may have an adverse impact on Western United's earnings through requiring
faster amortization of these costs.  Management believes that this potentially
adverse impact is mitigated by higher annuity interest spreads, which are
estimated to be about 250 basis points in future years.  This spread analysis
is shown in the following table, which applies to the results of Western
United during the past three calendar years, based on insurance regulatory
report filings:

<TABLE>
<CAPTION>
                                                                  Three Year
                                   1996       1995       1994      Average
                                 ________   ________   ________   __________
<S>                              <C>        <C>        <C>        <C>
Net Investment Earnings Rate        8.15%      8.30%      8.49%        8.31%
Average Credited Interest Rate      6.03%      6.06%      5.59%        5.89%
Spread                              2.12%      2.24%      2.90%        2.42%
</TABLE>

      During 1997, 1996, and 1995, amortization of deferred policy acquisition
costs was $9.4 million, $9.1 million and $10.3 million, respectively.  All
calculations have been reviewed by an actuary.

      Annuity lapse rates are calculated by dividing cash outflows related to
benefits and payments by average annuity reserves.  For the calendar years
1996, 1995 and 1994, lapse rates were 14.7%, 18.9% and 21.5%, respectively.
Based upon results for the nine months ended September 30, 1997, lapse rates
were 16.7%.

Life Insurance

      During the year ended September 30, 1997, approximately 2% of Western
United's statutory premiums were derived from the sale of interest sensitive
whole life insurance and term life insurance policies.  As of September 30,
1997, the face amount of life insurance policies written and outstanding
totaled $277,877,000, net of amounts ceded to reinsurers.  As with annuities,
gross profits are determined by the difference between interest rates credited
on outstanding policies and interest earned on investment of premiums.  In
addition, profitability is affected by mortality experience (i.e. the
frequency of claims resulting from deaths of policyholders).  Although Western
United's mortality rates to date have been substantially lower than expected,
higher credited interest rates and higher issuing expenses combined with low
volume have resulted in lower profits than those experienced with its annuity
products.


<PAGE>  32


      Presently, Western United is negotiating the possible reinsurance,
coinsurance, or similar transaction whereby it would effectively sell
approximately 50% to 100% of its current life business.  Currently,
negotiations are at preliminary stages and it is not possible to predict the
final structure of this proposed transaction, or the likelihood that it will
occur.

      The following table sets forth certain key financial information
regarding the Consolidated Group's insurance subsidiaries.  The information
includes Western United for all periods and Old Standard through May 31, 1995,
the date on which it was sold.

<TABLE>
<CAPTION>
                                         Year Ended at September 30,
                                  _________________________________________
                                     1997            1996           1995
                                  ___________     ___________    ___________
                                           (Dollars in Thousands)
<S>                               <C>             <C>            <C>
Insurance In Force                                               
  Individual Life                 $   330,205     $   354,371    $   373,573
  Less Ceded to other Companies       (52,328)        (58,679)       (62,906)
                                  ___________     ___________    ___________
                                  $   277,877     $   295,692    $   310,667
                                  ===========     ===========    ===========
Life Insurance Premiums           $     3,352     $     3,355    $     3,365
Less Ceded Premiums                      (352)           (355)          (365)
                                  ___________     ___________    ___________
Net Life Insurance Premiums       $     3,000     $     3,000    $     3,000
                                  ===========     ===========    ===========
Net Investment Income             $    65,760     $    65,561    $    64,970
                                  ===========     ===========    ===========
Benefits, Claim Losses and                                       
  Settlement Expenses             $    50,455     $    48,301    $    45,484
                                  ===========     ===========    ===========
Deferred Policy Acquisition Costs $    69,730     $    71,933    $    71,131
                                  ===========     ===========    ===========
Reserves for Future Policy                                       
  Benefits, Losses, Claims and                                   
  Loss Expenses                   $   825,369     $   837,366    $   781,716
                                  ===========     ===========    ===========
Total Assets                      $   953,249     $ 1,128,237    $   922,556
                                  ===========     ===========    ===========
Capital and Surplus               $    86,230     $    81,606    $    78,827
                                  ===========     ===========    ===========
</TABLE>

Reinsurance

      Reinsurance is the practice whereby an insurance company enters into
agreements (termed "treaties") with other insurance companies in order to
assign some of its insured risk, for which a premium is paid, while retaining
the remaining risk.  Although reinsurance treaties provide a contractual basis
for shifting a
      
      <PAGE>  33
      
       portion of the insured risk to other insurers, the primary liability
for payment of claims remains with the original insurer.  Life insurers
commonly obtain reinsurance on a portion of their risks in the ordinary course
of business.

      Annuity Reinsurance

      Western United has entered into a reinsurance agreement with Old
Standard whereby Western United reinsured 75% of the risk on six different
annuity products through Old Standard.  This agreement became effective
January 23, 1997 and continued through September 30, 1997, during which time
approximately $28 million in premiums were reinsured through Old Standard.
This agreement allows Western United to continue its market presence and
relationship with its insurance agents, while moderating its rate of growth.
Western United is currently negotiating a second similar reinsurance agreement
with Old Standard, which is expected to become effective early calendar year
1998.  It is anticipated that approximately $3-$5 million per month will be
ceded during fiscal 1998, during the months the new agreement is effective.

      Life Policy Reinsurance

      Western United reinsured $52,328,000 of life insurance risk at September
30, 1997 which equaled all risk in excess of $100,000 on each whole life
policy and all risk in excess of $50,000 on each term life policy.  Life
insurance in force at that time was $330,205,000.  Western United is a party
to seventeen separate reinsurance treaties with seven reinsurance companies,
the largest treaty (with Lincoln National Life Insurance Company) providing,
at September 30, 1997, approximately $26,683,000 of reinsurance coverage.  The
majority of the remaining coverage is with Business Mens Assurance Company of
America and Phoenix Home Life Mutual Insurance Company.  Total reinsurance
premiums paid by Western United during the fiscal year ended September 30,
1997 were $352,311.

Reserves

      Western United's reserves for both annuities and life insurance are
actuarially determined and prescribed by its state of domicile and other
states in which it does business through laws which are designed to protect
annuity contract owners and policy owners.  The amount of these reserves
required for compliance with state law are reviewed by an actuary.  These
reserves are amounts which, at certain assumed rates, are calculated to be
sufficient to meet Western United's future obligations under annuity contacts
and life insurance policies currently in force.  At September 30, 1997, such
reserves were $825,369,000.  Reserves are recalculated each year to reflect
      
      <PAGE>  34
      
       amounts of reinsurance in force, issue ages of new policy holders,
duration of policies and variations in policy terms.  Since such reserves are
based on actuarial assumptions, no representation is made that ultimate
liability will not exceed these reserves.

Insurance Accounting Practices

      Western United is required to file statutory financial statements with
its state of domicile, Washington.  Accounting principles used to prepare its
statutory financial statement differ from generally accepted accounting
principles (GAAP).  A reconciliation of GAAP net income to statutory net
income for the years ended September 30, 1997, 1996 and 1995, respectively, is
as follows:

<TABLE>
<CAPTION>
                                          1997         1996         1995
                                       __________   __________   __________
<S>                                    <C>          <C>          <C>
Net Income - GAAP                      $4,051,900   $3,076,252   $2,717,893
Adjustments to reconcile:                                        
  Deferred policy acquisition costs       717,718     (774,906)    (807,667)
  State insurance guaranty fund           110,290      257,686      105,753
  Annuity reserves and benefits        (2,714,024)    (304,688)  (5,759,009)
  Capital gains and IMR amortization     (379,910)     336,258    3,790,892
  Allowance for losses                  5,166,518    3,046,274    1,923,161
  Federal income taxes                   (140,864)   1,587,522    1,154,586
  Other                                     --             (39)    (458,943)
                                       __________   __________   __________
Net Income - Statutory                 $6,811,628   $7,224,359   $2,666,666
                                       ==========   ==========   ==========
</TABLE>

SECURITIES INVESTMENTS

      At September 30, 1997, 1996 and 1995, 84.5% 94.3% and 96.8%,
respectively, of the Consolidated Group's securities investments were held by
Western United.

      The following table outlines the nature and carrying value of securities
investments held by Western United at September 30, 1997:

<TABLE>
<CAPTION>
                                  Available-  Held-to-               
                      Trading     For-Sale    Maturity    
                     Portfolio    Portfolio   Portfolio     Total
                     _________   ___________  _________   _________  
                                 (Dollars in Thousands)              
<S>                  <C>         <C>          <C>         <C>        <C>
Total Amount         $  13,474   $    30,722  $ 111,986   $ 156,182  100.0%
                     =========   ===========  =========   =========  =====
                                                                     
                                                                     
<PAGE>  35                                                           
                                                                     
% Invested in:                                                       
  Fixed Income       $  13,474   $    30,716  $ 111,986   $ 156,176  100.0%
  Equities                --               6       --             6    0.0%
                     _________   ___________  _________   _________  _____
                     $  13,474   $    30,722  $ 111,986   $ 156,182  100.0%
                     =========   ===========  =========   =========  =====
                                                                     
% Fixed Income:                                                      
  Taxable            $  13,474   $    30,716  $ 111,986   $ 156,176  100.0%
  Non-taxable             --            --         --          --      0.0%
                     _________   ___________  _________   _________  _____
                     $  13,474   $    30,716  $ 111,986   $ 156,176  100.0%
                     =========   ===========  =========   =========  =====
                                                                     
% Taxable:                                                           
  Government/Agency  $    --     $     6,812  $  57,459   $  64,271   41.2%
  Corporate             13,474        23,904     54,527      91,905   58.8%
                     _________   ___________  _________   _________  _____
                     $  13,474   $    30,716  $ 111,986   $ 156,176  100.0%
                     =========   ===========  =========   =========  =====
                                                                     
% Corporate Bonds:                                                   
  AAA                $    --     $      --    $  34,297   $  34,297   37.3%
  AA                      --            --        1,999       1,999    2.2%
  A                       --          12,236      5,493      17,729   19.3%
  BBB                     --           8,656      1,998      10,654   11.6%
  Below Investment                                                   
    Grade               13,474         3,012     10,740      27,226   29.6%
                     _________   ___________  _________   _________  _____
                     $  13,474   $    23,904  $  54,527   $  91,905  100.0%
                     =========   ===========  =========   =========  =====
                                                                     
% Corporate:                                                         
  Mortgage-backed    $  13,474   $     3,194  $  42,687   $  59,355   64.6%
  Asset-backed            --           6,721      2,350       9,071    9.9%
  Finance                 --           7,015      5,493      12,508   13.6%
  Industrial              --           3,980       --         3,980    4.3%
  Utility                 --           2,994      3,997       6,991    7.6%
                     _________   ___________  _________   _________  _____
                     $  13,474   $    23,904  $  54,527   $  91,905  100.0%
                     =========   ===========  =========   =========  =====
</TABLE>

      Investments of Western United are subject to the direction and control
of an investment committee appointed by its Board of Directors.  All such
investments must comply with applicable state insurance laws and regulations.
See "BUSINESS-Regulation."

      Metropolitan is authorized by its Board of Directors 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

<PAGE>  36

 means of hedging interest rate risk, to benefit from an anticipated movement
in the financial markets.  See "BUSINESS-Receivable Investments-Receivable
Sales."  At September 30, 1996 there were seven open short sale positions with
a carrying value of $132,652,000, while at September 30, 1997 the Consolidated
Group had no open short sale positions.

      During the twelve month period ended September 30, 1995, the
Consolidated Group engaged in hedging activities to protect a portion of its
held-to-maturity securities portfolio from a potential increase in interest
rates.  The portfolio being protected by the hedge position generally improved
in value due to a decrease in interest rates while the position in financial
futures contracts declined in value by approximately $1.6 million.  This loss
is being amortized using the interest method over the remaining life of the
securities which were being covered by the financial futures position, a term
of approximately eight years.

      The Consolidated Group purchases collateralized mortgage obligations
(CMO's) for its investment portfolio.  Such purchases have been limited to
tranches that perform in concert with the underlying mortgages, i.e.,
improving in value with falling interest rates and declining in value with
rising interest rates.  The Consolidated Group 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, 1997, the
Consolidated Group was not a party to any derivative financial instruments.

      At September 30, 1997, amounts in the trading portfolio on a
consolidated basis, at market, were $34.5 million.  At September 30, 1997,
1996 and 1995, amounts in the available-for-sale portfolio on a consolidated
basis were $36.6 million, $38.6 million and $31.8 million, respectively.  The
available-for-sale portfolio had net unrealized losses of approximately
$759,000 at September 30, 1997, $946,000 at September 30, 1996, and $423,000
at September 30, 1995, respectively.  In the held-to-maturity portfolio, net
unrealized losses were approximately $1,019,000 at September 30, 1997,
$5,548,000 at September 30, 1996 and $6,010,000 at September 30, 1995,
respectively.  See Note 2 to the Consolidated Financial Statements under Item
8.

METHOD OF FINANCING

      The Consolidated Group finances its business operations and growth with
the proceeds from the sale and securitization of Receivables, collateralized
borrowing, Receivable cash flows, the sale of life insurance and annuity
products, the sale of debentures and preferred stock, and the sale of real
estate and

<PAGE>  37

 securities portfolio earnings.  Metropolitan engages in a substantially
continuous public offering of debt securities (debentures) and preferred
stock.  Western United markets annuities and life insurance policies.  See
"BUSINESS-Life Insurance and Annuity Operations."

      The following table presents information about the debentures issued by
the Consolidated Group:

<TABLE>
<CAPTION>
                                                As of September 30
                                        __________________________________
                                          1997         1996        1995
                                        ________     ________    ________
                                              (Dollars in Thousands)
<S>                                     <C>          <C>         <C>
Principal Amount Outstanding            $159,169     $163,034    $176,815
Compound and Accrued Interest             26,045       29,140      24,497
                                        ________     ________    ________
TOTAL                                   $185,214     $192,174    $201,312
                                        ========     ========    ========
Weighted Average Interest Rate              7.99%        8.18%       8.24%
                                        ========     ========    ========
Range of Interest Rates                  5% - 11%     5% - 11%    5% - 11%
                                        ========     ========    ========
</TABLE>

      Substantially all of the debentures outstanding at September 30, 1997
will mature during the five-year period ending September 30, 2002.  Management
expects to fund net retirements of debentures maturing during that period with
cash flow generated by Receivable investments, sales of real estate and
issuances of securities.  During the year ended September 30, 1997,
approximately 50% of Metropolitan's debentures were reinvested at maturity.
Principal payments received from the Consolidated Group's Receivable portfolio
and proceeds from sales of real estate and Receivables were as follows for the
periods indicated:

            Fiscal 1997:      $511,692,000
            Fiscal 1996:      $302,474,000
            Fiscal 1995:      $198,733,000

      Proceeds of preferred stock issuances less redemptions were $1,241,000
in 1997, $1,765,000 in 1996 and $4,250,000 in 1995.  The liquidation
preference of outstanding preferred stock at September 30, 1997 was
$50,729,000.  Preferred shareholders are entitled to monthly distributions at
a variable rate based on U.S. Treasury obligations.  The average monthly
distribution rate during fiscal 1997 was 8.1%.  Preferred stock distributions
paid by Metropolitan were $4,113,000 in 1997, $3,868,000 in 1996 and
$4,038,000 in 1995.


<PAGE>  38


      The following table summarizes Metropolitan's anticipated annual cash
principal and interest obligations on debentures, other debt payable and
anticipated annual cash dividend requirements on preferred stock for the
indicated periods based on outstanding debt and securities at September 30,
1997, assuming no reinvestments of maturing debentures:

<TABLE>
<CAPTION>
 Fiscal Year                                    Preferred      
   Ending         Debenture     Other Debt        Stock        
September 30,       Bonds         Payable       Dividends        Total
_____________     _________     __________     ___________     _________
                             (Dollars in Thousands)
<S>               <C>           <C>            <C>             <C>
1998              $  62,507     $    3,898     $     4,351     $  70,756
1999                 51,782            377           4,351        56,510
2000                 50,403            233           4,351        54,987
2001                  8,331            269           4,351        12,951
2002                 34,604            152           4,351        39,107
                  _________     __________     ___________     _________
                  $ 207,627     $    4,929     $    21,755     $ 234,311
                  =========     ==========     ===========     =========
</TABLE>

      In addition to these contractual cash flow requirements, a certain
amount of the insurance subsidiary's annuities may reprice annually which
could cause termination of such annuities subject to a surrender charge.  See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-Asset/Liability Management" under Item 7.  Management believes that
cash flows will remain adequate during the next year to satisfy all
obligations Metropolitan owes to holders of its securities.

REAL ESTATE DEVELOPMENT

                              Lawai Beach Resort

Description

      Metropolitan is the owner and developer of Lawai Beach Resort on the
island of Kauai, Hawaii.  Metropolitan also owns other condominium units
adjoining the resort and another subsidiary, the Southshore Corporation, which
owns a restaurant property adjacent to the Lawai Beach Resort.

      Lawai Beach Resort is located on 8.7 acres of deeded ocean-front
property on the south shore of Kauai near the area known as Poipu Beach.  It
consists of three four-story buildings containing

<PAGE>  39

 a total of 170 residential condominium units.  Related amenities include
swimming pools, tennis courts, a 180 car parking garage, exercise facilities
and a sewage treatment plant.  Construction costs were financed entirely with
Metropolitan's internally generated funds and the property remains
unencumbered by external debt.  Metropolitan's total investment (carrying
value) in Lawai Beach Resort as of September 30, 1997 was $9,695,000.

      Additional properties, all of which adjoin the Lawai Beach Resort,
include 11 condominium units in the Prince Kuhio Condominiums with an
aggregate carrying value of $1,001,000, a four-plex condominium timeshare
building with 3 weekly intervals remaining and a carrying value of
approximately $14,000; and a restaurant site with a carrying value (land and
building) of approximately $3,644,000 as of September 30, 1997.  The
restaurant is currently operated by Pacific Cafe.  The restaurant rental
income was $172,000 in fiscal 1997.

Marketing

      Metropolitan engaged an affiliate of the Shell Group, Chicago, Illinois,
Shell-Lawai ("Shell"), to provide management services and sell timeshare units
at Lawai Beach.  In 1995, timeshare sales totaled approximately $23.1 million
for monthly average sales of over $1.9 million.  In 1996, timeshare sales
totaled approximately $22.8 million for monthly average sales of $1.9 million.
In 1997, timeshare sales totaled approximately $13.8 million for monthly
average sales of over $1.1 million.  Management believes that the sales
decrease in 1997 and 1996 was primarily due to increased competition,
principally due to the addition of several new time share resorts within the
Poipu area of Kauai.  Although there can be no assurance that sales will
continue at the present pace, if the present pace does continue, the remaining
timeshares units would be completely sold by approximately late 1998.

Additional Information

      The tables below set forth additional historical information about the
timeshare sales and revenue of Lawai Beach Resort.  It is Metropolitan's
intention to sell the timeshares at favorable prices in order to convert the
inventory into cash or other interest earning assets.

<TABLE>
<CAPTION>
                                    For the Years Ended September 30,
                              _____________________________________________
                                  1997            1996            1995
                              _____________   _____________   _____________
<S>                           <C>             <C>             <C>
                                                              
                                                              
<PAGE>  40                                                    
TIMESHARE SALES                                               
  Number of Sales                       909           1,441           1,485
  Amount of Sales             $  13,837,687   $  22,799,107   $  23,120,888
  Costs                          (3,930,281)     (8,051,102)     (7,353,510)
  Expenses                      (11,116,543)    (15,480,230)    (14,996,260)
                              _____________   _____________   _____________
  Profit(Loss)                $  (1,209,137)  $    (732,225)  $     771,118
                              =============   =============   =============
WHOLE-UNIT CONDOMINIUM                                        
  SALES
  Number of Units                    --              --                   1
  Amount of Sales             $      --       $      --       $     500,000
  Costs                              --              --            (321,855)
  Expenses                           --              --              (1,787)
                              _____________   _____________   _____________
  Operating Profit            $      --       $      --       $     176,358
                              =============   =============   =============
</TABLE>

Receivable Financing

      Most purchasers of timeshare weeks at Lawai Beach Resort finance a
portion of the purchase price through Metropolitan, subject to approved
credit.  On September 29, 1997, Metropolitan sold approximately $29.7 million
in time share Receivables, through a securitization.  As of September 30,
1997, Metropolitan's outstanding Lawai Beach Resort timeshare Receivables
balance was approximately $6.2 million.  The loan delinquency rate (based on
the principal balances of loans more than ninety days in arrears) on that date
was approximately 43%.

                              Skier's Edge Resort

      Metropolitan, owns approximately 127 timeshare use periods at Skier's
Edge, a timeshare condominium located near Breckenridge, Colorado, together
with approximately eighteen acres of undeveloped land adjoining the resort.
The carrying value at September 30, 1997 was $416,322.  The total timeshare
use periods in the project were approximately 1,200 at September 30, 1997.
Unsold timeshares, while being held for sale, are included in a rental pool
operated by the resort owner's association.  Net rental revenue was $7,093 in
1997, $6,629 in 1996 and $21,956 in 1995.  The market value of the property is
estimated at $542,500 at September 30, 1997 based upon Metropolitan's review
of the assessed valuation of the property for tax purposes and an analysis of
prior timeshare sales.

                         Other Development Properties

      In addition to the resort properties described above, the Consolidated
Group (principally Metropolitan), is engaged in the development of various
other properties.  These development properties were generally acquired in the
ordinary course of

<PAGE>  41

 business, generally through repossessions.  In addition, the Consolidated
Group may acquire property for development.  These acquisitions may include
properties adjoining one already owned in order to enhance the value of the
original parcel, or the acquisition of properties unrelated to existing
holdings.  The development or improvement of properties is undertaken for the
purposes of enhancing values, to increase salability and to maximize profit
potential.

      Substantially all of the Development activity is performed for the
Consolidated Group by Summit Property Development, a subsidiary of Summit.
During 1997, approximately $1.8 million in fees were paid to Summit Property
Development for property development activities.

      Significant development properties, sales activities for 1997 and plans
for 1998 are described below.  There can be no assurance that the Consolidated
Group will be successful in its 1998 development and sales plans and the
Consolidated Group may modify its plans at its sole discretion.

The Liberty Lake Properties

      Located just east of Spokane, Washington near Liberty Lake, this land
was acquired by Metropolitan between 1989 and 1997 primarily utilizing
repossessed properties as consideration.  During fiscal 1997, the property
included one residential development parcel and one business parcel, which is
described more fully below.  The area where these parcels are located includes
residential, commercial and industrial properties including a business park.

      Liberty Lake Center (formerly MeadowWood Business Park - Phase II):
Liberty Lake Center includes 17.12 acres of industrial-zoned property acquired
by exchange in 1990.  During June 1997, Metropolitan exercised its option to
purchase 62.10 acres at $10,500 per acre.  An additional 19.26 acres were
purchased from Olivetti North America in December 1996.  Also, 6.40 acres of
former railroad right-of-way was purchased from Spokane County in 1996.  This
brings the total land area of Liberty Lake Center (excluding subsequently
dedicated road right-of-ways) to 100.24 acres.

      A Final Binding Site Plan was filed on the property in July 1997.  The
first sale of 2.5 acres occurred in September 1997 to Land Rover for an auto
sales facility.  The sale was for $299,475.  At September 30, 1997, the
carrying value of the remaining property was $5,674,277.  Installation of the
first phase of roads and landscape improvements was completed in the fall of
1997.


<PAGE>  42


      MeadowWood Residential:  This residential parcel, The Glen, consisted of
37 acres of which 32 acres were sold in February 1996 for $755,000.  At
September 30, 1997, Metropolitan's carrying value for the remaining five acres
was $146,682.

The Summit Property

      This property consists of approximately 76.35 acres in downtown Spokane
adjacent to the central business district and is located along the north bank
of the Spokane River.  It contains several parcels which were purchased
between 1982 and 1996.  The property is zoned for mixed use from medium
density residential to office and retail.  A final Environmental Impact
Statement on the proposed project was published in 1993.  The master plan and
Shoreline Substantial Development Use Permit were approved by the City of
Spokane in 1995.  Demolition of several vacant buildings located on the
property began during the fall of 1997.  At September 30, 1997, the carrying
value of the property was $11,844,386.

Airway Business Centre

      Airway Business Centre consists of two phases of commercial/industrial-
zoned property.  The property is located in the City of Airway Heights,
Washington approximately 10 miles west of downtown Spokane.  The project is
part of a 440 acre parcel originally purchased in 1979.

      Phase One of the Centre had a Final Binding Site Plan consisting of 13
lots with a total area of 47.24 acres,  approved in 1994.  The property has
approximately one-quarter mile of frontage on U.S. Highway 2, a regional
east/west transportation route.  Current improvements to the property include
the extension of private streets within the western portion of the project, a
right-turn access off of Highway 2, utility extensions to serve interior
parcels, and a traffic signal at the project's main intersection.

      Four lot sales have occurred in Phase One with a total sales price of
$489,400.  Two other lots were traded for properties of equal value.  The
carrying value of Phase One as of September 30, 1997 was $2,080,948.

      Phase Two of the Centre had a Final Binding Site Plan approved in 1997.
This portion included the extension of two public streets to serve the
project.  A total of 45.19 acres of the project have an approved Binding Site
Plan, while 21.23 acres await City approval of further subdivision.  The
carrying value as of September 30, 1997 was $570,598.


<PAGE>  43


      Also within Phase Two is a 1.61 acre lot upon which Metropolitan
constructed a new headquarters for Spokane County Fire District #10.  The
facility was completed in May 1997.  The total sales price for this project
was $1,270,653.

Airway Heights Residential

      This site is 33 acres located adjacent to the Airway Business Centre in
the City of Airway Heights.  This property is zoned residential.  During 1995,
Metropolitan sold an option to purchase the property which was exercised
during 1997.  The sales price was $257,000, which resulted in a gain of
$85,000.

Spokane Valley Plaza

      The property is located near the Sullivan Road and Interstate 90 freeway
interchange just east of Spokane and consists of 33 acres of commercial-zoned
land.  The property was acquired in 1990 using repossessed property as
consideration.  County approval for a 348,000 square foot shopping center was
received in 1991.  During 1996, Metropolitan sold a 12.85 acre portion of this
parcel to Wal-Mart for $2,798,351.  As part of the consideration for the sale,
Metropolitan entered into a co-development agreement to develop on-site
infrastructure at a cost to Metropolitan of approximately $900,000.  An
additional 2.75 acres was sold to Toys 'R Us in June 1997.  The sales price
was $1,256,860.  The carrying value as of September 30, 1997 was $5,275,288.

Broadmoor Park (Pasco)

      This property, acquired through repossession in 1988, consists of 368
acres of land, at a freeway interchange in Pasco, Washington.  The property
was zoned in 1994 for mixed residential and commercial use.  Water and sewer
have been extended to the property.  Access to the property has been improved
by construction of interior roads.

      Broadmoor Factory Outlet Mall:  The Broadmoor Factory Outlet Mall is
24.5 acres located on the north side of the freeway.  The Mall is 107,000
square feet, and over 95% leased as of September 30, 1997.  The carrying value
of the property as of September 30, 1997 is $10,221,377.  The appraised value
was $13,325,000 as of December 15, 1995.  Lease payments from the initial
tenants commenced August, 1995.  The mall generated approximately $24,000 of
rental income in fiscal 1995, approximately $695,000 during fiscal 1996, and
approximately $1,001,000 in fiscal 1997.

      Broadmoor Park General:  The remaining 344 acres is zoned for
development as hotels, motels, fast food restaurants, gas stations, a variety
of stores, land for development of both single

<PAGE>  44

 and multi-family residential housing, and civic uses.  Two parcels were sold
during fiscal 1996 for $569,765.  The carrying value as of September 30, 1997
is $5,474,835.  The appraised value was $10,800,000 as of September 30, 1996.
The appraised value of substantially unimproved land is subject to a number of
assumptions.  Actual results may differ substantially from such appraisals.

      Two new facilities were constructed on the property by Metropolitan in
1997.  A call center for lease by Dakotah Direct, a national telemarketing
firm, was completed and occupied in April.  The building was subsequently sold
to an investor for $1,200,000.  The second facility was built for lease to
Broadmoor RV & Truck Center.  The project was completed and opened for
business in June.  Monthly lease payments are $10,000.  Also, construction of
a 64 room motel began on one of the parcels previously sold.  Construction is
scheduled for completion in October 1997.

Puyallup

      This property is approximately 20 acres of land zoned for commercial and
multi-family development in Puyallup, Pierce County, Washington and is located
adjacent to a major shopping area.  Sewer capacity issues are currently
impacting the marketability of this property.  The city of Puyallup has
indicated that the property can be fully served by city facilities by the fall
of 1999.  At September 30, 1997, the carrying value was $1,377,500.  Its
appraised value was $1,740,000 as of September 30, 1996.

Everett

      This property is a 98 acre parcel of industrial-zoned property located
adjacent to Boeing's Paine Field plant at Everett, Washington.  Studies of
utility services, access requirements and environmental issues are ongoing as
are discussions with several parties to sell and/or jointly develop the
property.  At September 30, 1997, the carrying value in the property was
$4,988,291.  The appraised value is $7,635,000 as of September 30, 1996.

Renton

      This property is approximately 35 acres.  It is characterized by heavily
vegetated terrain and is zoned residential.  The City of Renton has annexed
and rezoned the property increasing its density from just over 100 residential
units to over 200 residential units.  At September 30, 1997, the carrying
value in

<PAGE>  45

 the property was $3,182,500.  The appraised value was $3,425,000 as of
September 30, 1997.

      Risks associated with holding these properties for development include
possible adverse changes in zoning and land use regulations and local economic
changes each of which could preclude development or resale.  Because most of
the properties are located in Washington State, which is currently
experiencing relatively stable economic conditions, a regional economic
downturn could have a material negative impact on Metropolitan's ability to
timely develop and sell a significant portion of them.

      The appraised value of substantially unimproved land is subject to a
number of assumptions.  Actual sales results may differ substantially from
such appraisals.  There can be no assurance that the sales prices as indicated
by the appraisals will be realized.

      The total development property sales were $3,131,388 during fiscal 1997.

      The following table presents additional information about the
Consolidated Group's investments in and sales of real estate held for sale and
development:

<TABLE>
<CAPTION>
                                              Year Ended or at September 30,
                                              ______________________________
                                                1997       1996      1995
                                              ________   ________  ________
                                                   (Dollars in Thousands)
<S>                                           <C>        <C>       <C>
REAL ESTATE HELD FOR SALES AND DEVELOPMENT                         
  Investment Property Held for Sale and                            
    Development                               $ 47,413   $ 48,175  $ 53,101
  Real Estate Acquired in Satisfaction of                          
    Debt and Foreclosures in Process            34,389     36,158    38,000
                                              ________   ________  ________
  Net Balance                                 $ 81,802   $ 84,333  $ 91,105
                                              ========   ========  ========
                                                                   
SUMMARY OF CHANGES                                                 
  Balance at Beginning of Year                $ 84,333   $ 91,105  $ 76,766
  Additions and Improvements:                                      
    Condominiums                                11,664     18,795    26,276
    Repossessed and Development Real Estate     22,460     21,392    24,644
    Transfer from Fixed and Other Assets          --       --         1,599
    Depreciation                                (4,986)    (3,048)   (1,731)
  Cost of Real Estate Sold:                                        
    Condominium Units                          (16,028)   (23,531)  (22,674)
    Real Estate                                (15,641)   (20,380)  (13,775)
                                              ________   ________  ________
Balance at End of Year                        $ 81,802   $ 84,333  $ 91,105
                                              ========   ========  ========
                                                                   
                                                                   
<PAGE>  46                                                         
                                                                   
GAIN (LOSS) ON SALE OF REAL ESTATE                                 
  Condominiums:                                                    
    Sales                                     $ 14,719   $ 22,799  $ 23,621
    Unit Costs                                  (4,486)    (8,051)   (7,676)
    Associated Selling Costs                   (11,542)   (15,480)  (14,998)
                                              ________   ________  ________
  Condominium-Gain (Loss)                       (1,309)      (732)      947
                                              ________   ________  ________
  Real Estate:                                                     
    Sales                                       16,701     22,849    15,767
    Equity Basis                               (15,641)   (20,380)  (13,775)
                                              ________   ________  ________
    Real Estate-Gain                             1,060      2,469     1,992
                                              ________   ________  ________
    Total Gain(Loss) on Sale of Real Estate   $   (249)  $  1,737  $  2,939
                                              ========   ========  ========
</TABLE>

COMPETITION

      The Consolidated Group competes with other financial institutions
including 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 number of competitors are a multitude
of individual investors.  In all areas of Receivable acquisitions, the
Consolidated Group competes with financial institutions many of which are
larger, have access to more resources, and 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 the Consolidated Group include its access to markets throughout the United
States; Metropolitan's BrokerNet software; its flexibility in structuring
Receivable acquisitions; its long history in the business; and its in-house
capabilities for processing and funding transactions.  To the extent other
competing Receivable investors may develop faster closing procedures, more
flexible investment policies, or other attributes that are more desirable to
Receivable sellers, they may experience a competitive advantage.

      Management believes the Consolidated Group to be one of the largest
investors in such seller-financed Receivables in the United States.

      Metropolitan competes with other investors in its lottery, structured
settlement and annuity acquisitions.  Competitive forces have substantially
decreased the yields available on new lottery acquisitions, and may have the
same impact on structured settlements and annuities in the future.


<PAGE>  47


      Metwest competes with other lending institutions in its loan origination
program and pool acquisition program.  Metropolitan competes with other
lending institutions in its correspondent lending program.  The lending market
is a multi-billion dollar market including competitors with vastly greater
resources, economies of scale and name recognition.  Metwest and Metropolitan
believe that their flexible underwriting and pricing guidelines enhance their
ability to compete in these markets.  To date, Metwest's growth in these
activities has been below projections.  Management has implemented several new
programs in an effort to expand these activities.  See "BUSINESS-Receivable
Investments."  There can be no assurance that these programs will be
successful in expanding these activities, nor that they will be profitable if
expanded.

      Metropolitan and Western United compete in the secondary market as
sellers of pools of receivables (both direct sales and sales through
securitization).  This market is a multi-billion dollar market and includes
competitors with access to greater resources, greater volumes and economies of
scale, and better name recognition.

      Metropolitan's securities products face competition for investors from
other securities issuers many of which are much larger, and have greater name
recognition.

      The life insurance and annuity business is highly competitive.  Western
United competes with other financial institutions including ones with greater
resources and greater name recognition.  Premium rates, annuity yields and
commissions to agents are particularly sensitive to competitive forces.
Western United's management believes that it is in an advantageous position in
this regard because of its earning capability through investments in
Receivables compared to that of most other life insurance companies.  From
June, 1986 until June, 1995, Western United had been assigned a "B+ (Very
Good)" rating by A. M. Best Co., a nationally recognized insurance company
rating organization.  During June, 1995, Western United's Best rating was
revised to B.  Best bases its rating on a number of complex financial ratios,
the length of time a company has been in business, the nature, quality, and
liquidity 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

      The Consolidated Group is subject to laws of the State of Washington
which regulate "debenture companies" in part because it obtains capital for
its activities through offerings of debt

<PAGE>  48

 securities to residents of the State of Washington.  These laws, known as the
Debenture Company Act (the "Act"), are administered by the Securities Division
of the State Department of Financial Institutions (the Department).  Designed
to protect the interests of investors,  the Act limits the amount of debt
securities Metropolitan may issue by requiring the maintenance of certain
ratios of net worth to outstanding debt securities.  The required ratio
depends on the amount of debt securities outstanding, declining from 20% for
amounts of $1,000,000 or less, to 10% for amounts between $1,000,000 and
$100,000,000, and to 5% for amounts in excess of $100,000,000.  At September
30, 1997, Metropolitan's required net worth for this purpose was approximately
$14,361,000 while its actual net worth (stockholders' equity) was
approximately $54,113,000.  The Act requires that 50% of the required net
worth amount be maintained in cash or other liquid assets.  In addition, the
Act limits equity investments by Metropolitan in a single project or
subsidiary to the greater of net worth or 10% of assets; aggregate equity
investments, with certain exceptions, to 20% of assets; loans to any single
borrower, with certain exceptions, to 2.5% of assets; and investments in
unsecured loans to 20% of assets.  Other provisions of the Act prohibit
Metropolitan from issuing more than 50% of its debentures for terms of two
years or less; prohibit transfer of control of Metropolitan without regulatory
approval; prohibit common control of another debenture company, bank or trust
company; and prohibit officers, directors and controlling shareholders from
directly or indirectly borrowing funds of Metropolitan and from participating
in certain other preferential transactions with it.  Metropolitan is required
to notify its debentureholders in writing fifteen to forty-five days in
advance of the maturity dates of their investments and to provide all
debentureholders with copies of its annual financial statements.  The Act also
provides for periodic examinations of the accounts, books and records of
debenture companies such as Metropolitan to ascertain compliance with the law.
Finally, the Act and other applicable laws and regulations provide the
Department with authority to take regulatory enforcement actions in the event
of a violation of such laws and regulations.

      Throughout the securities offering which expired January 31, 1998,
Metropolitan's aggregate principal amount of outstanding debentures, including
accrued and compound interest, and its aggregate amount of preferred stock
outstanding were limited to $295,800,000, by the terms of the securities sales
permits issued by the State of Washington pending improvement in
Metropolitan's ratio of earnings to its fixed charges and preferred stock
dividends.  For the purposes of this calculation, the earnings of subsidiaries
are excluded unless actually paid to Metropolitan as dividends.  These
limitations did not restrict Metropolitan's ability to sell debentures and
preferred stock during the 12 month

<PAGE>  49

 offering period ending January 31, 1998.  However, lower restrictions in
prior years have limited Metropolitan's ability to sell debentures and
preferred stock.  See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-Liquidity and Capital Resources" under
Item 7.

      All areas of the Consolidated Group's Receivable acquisition and
servicing activities are highly regulated by Federal and State laws designed
principally to protect the payor.  Metwest's lending and servicing activities
must comply with, among other regulations, Truth in Lending Act (TILA), Real
Estate Settlement Procedures Act (RESPA), Regulation X, and Z.  Metwest is
licensed as an FHA/HUD servicer/lender and a Fannie Mae seller/servicer; as
such, it must comply with applicable FHA, HUD, and Fannie Mae regulations and
guidelines.

      Metropolitan is subject to certain federal and Hawaii state laws and
regulations governing timeshare marketing procedures, licensing requirements
and interest rates.  Hawaii also requires the registration and periodic
renewal of timeshare condominium projects prior to the commencement or
continuation of sales in the state.  The law also provides timeshare
purchasers with a seven-day right of rescission following execution of an
agreement to purchase.

      Western United and Metropolitan are subject to the Insurance Holding
Company Act as administered by the Office of the State Insurance Commissioner
of the State of Washington.  The act regulates transactions between insurance
companies and their affiliates.  It requires that Metropolitan provide
notification to the Insurance Commissioner of certain transactions between the
insurance company and affiliates.  In certain instances, the Commissioner's
approval is required before a transaction with an affiliate can be
consummated.

      Western United is subject to extensive regulation and supervision by the
Office of the State Insurance Commissioner of the State of Washington as a
Washington domiciled insurer, and to a lesser extent by all of the other
states in which it operates.  These regulations are directed toward
supervision of such things as granting and revoking licenses to transact
business on both the insurance company and agency 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
contractholders and policy owners, rather than investors in an insurance
company.

      All states in which Western United operates have laws requiring solvent
life insurance companies to pay assessments to

<PAGE>  50

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

      The net amounts expensed by Western United for guaranty fund assessments
and charged to operations for the years ended September 30, 1997, 1996 and
1995 were $480,000, $900,000 and $782,000, respectively.  These estimates were
based on information provided by the National Organization of Life and Health
Insurance Guaranty Associations regarding insolvencies occurring during 1988
through 1995.  Management does not believe that the amount of future
assessments associated with known insolvencies after 1995 will be material to
its financial condition or results of operations.  During the year ended
September 30, 1997, Western United reduced their estimate of these losses by
$401,000 based upon updated information from the National Organization of Life
and Health Guaranty Associations.  During the years ended September 30, 1996
and 1995, Western United did not make an adjustment based on updated
information.  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.  The
amount of guaranty fund assessment that was originally accrued in 1993 has
been recorded net of a 8.25% discount rate applied to the estimated payment
term of approximately seven years.  The remaining unamortized discount
associated with this accrual was approximately $412,000 at September 30, 1997.

      Dividend restrictions are imposed by regulatory authorities on Western
United.  The unrestricted statutory surplus of Western United totaled
approximately $8,597,000 as of September 30, 1997, $5,567,000 as of September
30, 1996 and $1,986,000 as of September 30, 1995.  The principal reason for
the increase during 1997 was the generation of net income.

      For statutory purposes, Western United's capital and surplus and its
ratio of capital and surplus to admitted assets were as follows for the dates
indicated:

<TABLE>
<CAPTION>
                                                       As of December 31,
                                       As of          _____________________
                                 September 30, 1997   1996    1995    1994
                                 __________________   _____   _____   _____
                                                                      
                                                                      
<PAGE>  51                                                            
<S>                              <C>                  <C>     <C>     <C>
Capital and Surplus(Millions)          $51.8          $50.1   $46.2   $43.8
Ratio of Capital and Surplus to                                       
  Admitted Assets                        5.8%           5.5%    5.3%    5.5%
</TABLE>

      Although the State of Washington requires only $4,000,000 in capital and
surplus to conduct insurance business, Western United has attempted to
maintain a capital and surplus ratio of at least 5% which management considers
adequate for regulatory and rating purposes.

      In 1993, Washington State 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.  Western United's capital and surplus
levels exceed the calculated minimum requirements at September 30, 1997.



<PAGE>  52

ITEM 2.     PROPERTIES

      Metropolitan Mortgage & Securities Co., Inc. (Metropolitan) was
established and incorporated in the State of Washington in January, 1953.  Its
principal executive offices are located at 929 West Sprague Avenue, Spokane,
WA 99201.  Its mailing address is P.O. Box 2162, Spokane, WA 99210-2162 and
its telephone number is (509) 838-3111.  On November 14, 1997, Metropolitan
acquired an approximately 200,000 square foot office building located at 601
West First Avenue, Spokane, Washington, approximately three blocks from the
current headquarters.  Approximately 50% of the building is currently leased
by other tenants.  Metropolitan anticipates moving its headquarters to this
building in late spring 1998.

      See "BUSINESS-Receivable Investments" & "BUSINESS-Real Estate
Development" under Item 1.

ITEM 3.     LEGAL PROCEEDINGS

      There are no material legal proceedings or actions pending or threatened
against Metropolitan Mortgage & Securities Co., Inc., or to which its property
is subject.

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

      None.



<PAGE>  53

                                    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:  There were 5 Class A Common stockholders as of September
            30, 1997.

    (c)     Dividends:  There were no dividends declared on the Registrant's
            single class of common equity during the last two years.

            While dividends have not been paid in the recent past, the
            Registrant may pay dividends in the future.  At the date of this
            Form 10-K, the Registrant has made no determination as to the
            likelihood that it will or will not pay common dividends in the
            future.

2.          Recent Sales of Unregistered Securities:  None.



<PAGE>  54

ITEM 6.     SELECTED FINANCIAL DATA

                      SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
      The consolidated financial data shown below as of September 30, 1997 and
1996 and for the years ended September 30, 1997, 1996 and 1995 (other than the
ratio of earnings to fixed charges and preferred stock dividends) have been
derived from, and should be read in conjunction with, Metropolitan's
consolidated financial statements, related notes, and Management's Discussion
and Analysis of Financial Condition and Results of Operations appearing
elsewhere herein.  The consolidated financial data shown as of September 30,
1995, 1994 and 1993 and for the years ended September 30, 1994 and 1993 have
been derived from audited financial statements not included herein.  The
consolidated financial data shown below as of September 30, 1995, 1994 and 1993
and for the years ended September 30, 1994 and 1993 have been derived from the
consolidated financial statements not included elsewhere herein.

                                                        Year Ended September 30,
                                ________________________________________________________________________
                                   1997           1996            1995           1994            1993
                                __________     __________      __________     __________      __________
                                             (Dollars in Thousands Except Per Share Amounts)
<S>                             <C>            <C>             <C>            <C>             <C>
CONSOLIDATED STATEMENTS OF                                                                    
  INCOME DATA:
Revenues                        $  155,135     $  156,672      $  138,107     $  138,186      $  133,113
                                ==========     ==========      ==========     ==========      ==========
Income before minority                                                                        
  interest and cumulative                                                                     
  effect of change in                                                                         
  accounting principle          $    9,791     $    8,146      $    6,376     $    5,702      $    8,558
Income allocated to                                                                             
  minority interests                  (123)          (108)            (73)          (224)           (255)
                                __________     __________      __________     __________      __________
Income before cumulative                                                                      
  effect of change in                                                                         
  accounting for income                                                                       
  taxes                              9,668          8,038           6,303          5,478           8,303
                                                                                              
                                                                                              
<PAGE>  55                                                                                    
Cumulative effect of                                                                          
  change in accounting                                                                        
  for income taxes(1)               --             --              --             --              (4,300)
                                __________     __________      __________     __________      __________
Net income                           9,668          8,038           6,303          5,478           4,003
Preferred stock dividends           (4,113)        (3,868)         (4,038)        (3,423)         (3,313)
                                __________     __________      __________     __________      __________
Income applicable to                                                                            
  common stockholders           $    5,555     $    4,170      $    2,265     $    2,055      $      690
                                ==========     ==========      ==========     ==========      ==========
Ratio of earnings to fixed                                                                    
  charges                             1.77           1.46            1.35           1.29            1.43
Ratio of earnings to fixed                                                                      
  charges and preferred stock                                                                 
  dividends(3)                        1.31           1.14            1.03           1.04            1.17
PER COMMON SHARE DATA(2):                                                                     
Income before cumulative                                                                      
  effect of change in                                                                         
  accounting principle          $   42,733     $   32,073      $   17,288     $   14,996      $   37,239
Cumulative effect of change                                                                     
  in accounting principle(1)        --             --              --             --             (32,089)
                                __________     __________      __________     __________      __________
Income applicable to                                                                            
  common stockholders(4)        $   42,733     $   32,073      $   17,288     $   14,996      $    5,150
                                ==========     ==========      ==========     ==========      ==========
Weighted average number of                                                                      
  common shares outstanding(2)         130            130             131            137             134
                                ==========     ==========      ==========     ==========      ==========
Cash dividends per common                                                                       
  share                         $   --         $   --          $    3,800     $      675      $      675
                                ==========     ==========      ==========     ==========      ==========
CONSOLIDATED BALANCE SHEET                                                                    
  DATA:
Total assets                    $1,112,389     $1,282,659      $1,078,468     $1,063,290      $1,031,958
Debentures, other debt                                                                          
  payable and securities sold,                                                                
  not owned                        190,131        363,427         226,864        261,500         234,497
Stockholders' equity                54,113         46,343          40,570         32,625          32,781

<FN>
(1)   Change in accounting principles reflects the adoption of Statement of
      Financial Accounting Standards No. 109-"Accounting for Income Taxes."


<PAGE>  56


(2)   All information retroactively reflects the reverse common stock split of
      2,250:1 which occurred during the fiscal year ended September 30, 1994.

(3)   The consolidated ratio of earnings to fixed charges and preferred stock
      dividends was 1.31, 1.14, 1.03, 1.04 and 1.17 for the years ended
      September 30, 1997, 1996, 1995, 1994 and 1993, respectively.

      Assuming no benefit from the earnings of its subsidiaries with the
      exception of direct dividend payments, the ratio of earnings to fixed
      charges and preferred dividends for Metropolitan alone was 1.01, 1.11,
      1.05, 1.34 and 1.06 for the years ended September 30, 1997, 1996, 1995,
      1994 and 1993, respectively.

      The consolidated ratio of earnings to fixed charges excluding preferred
      stock dividends was as follows for the years ended September 30, 1997 -
      1.77; 1996 - 1.46; 1995 - 1.35; 1994 - 1.29; and  1993 - 1.43.  The ratio
      of earnings to fixed charges excluding preferred stock dividends for
      Metropolitan, assuming no benefit from the earnings of its subsidiaries
      with the exception of direct dividend payments was 1.36, 1.48, 1.40, 1.36
      and 1.31 for the years ended September 30, 1997, 1996, 1995, 1994 and 1993
      respectively.

(4)   Earnings per common share are computed by deducting preferred stock
      dividends from net income and dividing the result by the weighted average
      number of shares of common stock outstanding.  There were no common stock
      equivalents or potentially dilutive securities outstanding during any year
      presented.
</TABLE>




<PAGE>  57

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

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Introduction

      Consolidated Group net income after income taxes and minority interest
was approximately $9.7 million for the fiscal year ended September 30, 1997 as
compared to $8.0 million and $6.3 million for the comparable 1996 and 1995
periods, respectively.  The increase in 1997 over 1996 was primarily
attributable to a net increase of $9.3 million in realized gains from sales of
investments and Receivables, an increase of $219,000 in net interest sensitive
income and expense, an increase of $397,000 in fees, commissions, service and
other income, being offset by a $2.0 million decrease in gains from real
estate sales, an increase of $1.8 million in the provision for losses on real
estate assets, an increase of $3.7 million in other operating expenses,
including salaries and benefits, commissions to agents, general operating
expenses and capitalized costs, net of amortization and an increase of $.8
million in income taxes and income allocated to minority stockholders.  The
increase in 1996 over 1995 was primarily attributable to a net increase of
$7.4 million in realized gains from the sales of investments and Receivables,
an increase of $1.3 million in net interest sensitive income and expense,
being offset by a $1.2 million decrease in gains from real estate sales, a
decrease of $1.5 million in fees, commissions, service and other income, an
increase of $2.2 million in the provision for losses on real estate assets, a
$.8 million increase in other operating expenses, including salaries and
benefits, commissions to agents, general operating expenses and capitalized
costs, net of amortization and an increase of $1.2 million in income taxes and
income allocated to minority stockholders.

      The Consolidated Group implements its primary investment goal to
maximize its risk-adjusted rate of return by investing in non-conventional
real estate Receivables.  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 sufficient 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" or "seller take-back Receivables" are the types of non-
conventional Receivables normally acquired by the Consolidated Group.  Because
borrowers in this market generally have blemished credit records and the

<PAGE>  58

 Consolidated Group is not able to receive income/employment information, the
Consolidated Group's underwriting practices focus more strongly on the
collateral value as the ultimate source for repayment.  In conjunction with
its investment in non-conventional Receivables, while higher delinquency rates
are expected, the Consolidated Group believes this risk is generally offset by
the value of the underlying collateral relative to the Consolidated Group's
investment therein and the superior yields over conventional financing.

      During the three-year period ended September 30, 1997, the Consolidated
Group operated in an environment of somewhat narrow downward fluctuations in
interest rate levels with rates relatively flat in 1997 after trending up in
1996 following a declining trend in late 1995.  Over the three-year period,
the general decrease in interest rate levels positively impacted earnings and
increased the fair value of the portfolio of predominantly fixed rate
investments.  A portion of this improvement in value was recognized with the
realization of gains from the sale of investment securities and Receivables of
$21.2 million, $11.9 million and $4.4 million in 1997, 1996 and 1995,
respectively.  The net effect of the sales was to recognize the present value
of future income from the Receivables sold and to reduce future income to the
extent that the proceeds from sales were invested at lower rates of return.
For further information concerning the investment portfolio, See "BUSINESS-
Life Insurance and Annuity Operations" & "BUSINESS-Securities Investments"
under Item 1.  The Receivable portfolio also experienced higher than normal
prepayments during the periods of declining rates which increased income by
triggering the recognition of unamortized discounts at an accelerated rate.

      Although the national economy has experienced moderate growth over the
past three years, the Consolidated Group's financial results were not
materially impacted because of: (1) the wide geographic dispersion of its
Receivables; (2) the relatively small average size of each Receivable; (3) the
primary concentration of investments in residential Receivables where market
values have been more stable than in commercial properties; and (4) a
continuing strong demand for tax-advantaged products, such as annuities.

      During 1995, the Consolidated Group sold two of its subsidiary operating
companies and discontinued its property development division.  In January
1995, the Consolidated Group sold its broker/dealer subsidiary, MIS, to Summit
and discontinued its property development activities.  Old Standard was sold
to Summit in May 1995.  The financial results of these transactions were not
material to the Consolidated Group.  Also, See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" under Item 13.

<PAGE>  59



      During 1996, construction on a major timeshare development project in
Kauai, Hawaii was completed.  At completion, approximately $21.4 million had
been invested in the final phase.  The final phase consisted primarily of the
Banyan building of which approximately 1061 of the available 3050 timeshare
weeks remained unsold at September 30, 1997.  The sales price of each
timeshare week is projected to range between $14,000 and $18,000 with an
expected sellout in approximately late 1998.  See "BUSINESS-Real Estate
Development-Lawai Beach Resort" under Item 1.

      Net income in 1997, 1996, 1995, 1994 and 1993 was sufficient to cover
fixed charges including preferred stock dividend requirements.  After
considering the effects of potentially non-recurring income items such the
gains from sales of investments, Receivables and real estate, the 1997 income
would have been insufficient to cover fixed charges by approximately $13.0
million.  Additionally, the elimination of similar items in 1996, 1995 and
1994 would have resulted in insufficient earnings to cover fixed charges by
approximately $9.7 million, $6.8 million and $4.2 million, respectively.  See
Selected Consolidated Financial Data under Item 6.

Revenues and Expenses

      Revenues for the Consolidated Group of $155.1 million for 1997 showed a
slight decrease from the $156.7 million reported in the prior year.  Revenues
of $156.7 million for the fiscal year ended September 30, 1996 showed a
substantial increase from the $138.1 million reported for the same period in
1995.  The slight decrease in 1997 was primarily attributable to the $9.0
million increase in gains on sales of Receivables and the $3.0 million
increase from interest related revenues being more than offset from the $14.2
million decrease in real estate sales revenues.  The $18.6 million increase in
1996 revenues was primarily attributable to an increase of $6.5 million from
interest related revenues, a $6.3 million increase in real estate sales and a
$8.3 million increase in realized gains on sales of Receivables.

      Expenses of operation for the Consolidated Group were $140.3 million,
$144.3 million and $128.6 million for fiscal years ended September 30, 1997,
1996 and 1995, respectively.  The decrease in expenses in 1997 over 1996 was
primarily the result of a $12.2 million decrease in cost of real estate sold
being only partially offset by an increase of $2.2 million in the cost of
insurance policy and annuity benefits, an increase of $.6 million in interest
expense, an increase of $1.8 million in the provision for losses on real
estate assets, and a $3.7 million increase in other operating expenses,
including salaries and benefits, commissions

<PAGE>  60

 to agents, general operating expenses and capitalized costs, net of
amortization.  The increase in expenses in 1996 over 1995 included an increase
of $2.8 million in the cost of insurance policy and annuity benefits, an
increase of $2.4 million in interest expense, an increase of $2.2 million in
the provision for losses on real estate assets and a $.8 million increase in
other operating expenses, including salaries and benefits, commissions to
agents, general operating expenses and capitalized costs, net of amortization.

Interest Sensitive Income and Expense

      Management monitors interest sensitive income and expense as it manages
objectives for the financial results of operations.  Interest sensitive income
consists of interest on Receivables, earned discount on Receivables, insurance
revenues and other investment interest.  Interest sensitive expense consists
of interest expense on borrowed money and insurance policy and annuity
benefits.

      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.  Conversely, in a falling interest rate environment,
the net return from interest sensitive assets and liabilities will tend to
improve.  As with the impact on operations from changes in interest rates, the
Consolidated Group's NPV (the Net Present Value) of financial assets and
liabilities is subject to fluctuations in interest rates.  The Consolidated
Group continually monitors the sensitivity of net income and NPV of its
financial assets and liabilities to changes in interest rates.



<PAGE>  61

      The following table presents, as of September 30, 1997, the Consolidated
Group's estimate of the change in its NPV of 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 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Asset/Liability Management."

<TABLE>
<CAPTION>
                                                                     Interest Rate Change
                                                    ______________________________________________________
                        Carrying                     Decrease      Decrease       Increase      Increase
                        Amounts      Fair Value         1%            2%             1%            2%
                       __________    __________     __________    __________     __________    __________
                                                      (Dollars in Thousands)     
<S>                    <C>           <C>            <C>           <C>            <C>           <C>
FINANCIAL ASSETS:                                                                              
Cash and cash                                                                                  
  equivalents          $   58,925    $   58,925     $   58,925    $   58,925     $   58,925    $   58,925
Investments               184,829       183,810        192,056       200,840        176,065       168,784
Real estate                                                                                    
  contracts and                                                                                
  mortgage notes          503,565       527,952        546,776       566,793        510,230       493,527
Other receivable                                                                               
  investments             164,534       170,809        179,808       189,507        162,451       154,681
                       __________    __________     __________    __________     __________    __________
                       $  911,853    $  941,496     $  977,565    $1,016,065     $  907,671    $  875,917
                       ==========    ==========     ==========    ==========     ==========    ==========
FINANCIAL                                                                                      
  LIABILITIES:
Annuity reserves       $  825,369    $  825,369     $  853,087    $  882,114     $  798,893    $  773,597
Debentures payable        182,546       187,110        186,715       188,629        182,968       181,134
Debt payable                4,885         4,935          4,996         5,048          4,896         4,847
                       __________    __________     __________    __________     __________    __________
                       $1,012,800    $1,017,414     $1,044,798    $1,075,791     $  986,757       959,578
                       ==========    ==========     ==========    ==========     ==========    ==========
</TABLE>



<PAGE>  62

      Net interest sensitive income was $28.0 million for the fiscal year
ended September 30, 1997.  The comparable results for 1996 and 1995 were $27.8
million and $26.5 million, respectively.  Interest rates for 1997 were
relatively stable with slightly increasing rates early on and declining rates
as the fiscal year closed.  Interest rates in 1996 remained relatively stable
with slightly increasing rates as the fiscal year closed.  Interest rates were
generally increasing over 1995 before declining later in the year which
contributed to the decrease of $1.6 million in net interest sensitive income
during 1995.  Also contributing to the changes in net interest sensitive
income was the capitalization of approximately $.5 million, $2.5 million and
$2.7 million for the years 1997, 1996 and 1995, respectively, of interest
associated with various real estate development projects owned by the
Consolidated Group.

Real Estate Sales

      The Consolidated Group is in the real estate market due primarily to its
repossession of properties following Receivable defaults and its investment in
a major timeshare development project in Kauai, Hawaii.  See "BUSINESS-Real
Estate Development" under Item 1.

      At September 30, 1997, excluding timeshare development property,
approximately 82% of real estate owned by the Consolidated Group is located in
the Pacific Northwest (Alaska, Washington, Oregon, Idaho, Montana), which has
experienced a stronger more stable economy than many areas of the nation in
the past several years.  Consequently, management believes that the sale of
these assets will be largely dependent on the attractiveness of the Pacific
Northwest marketplace.  Of the property owned in the Pacific Northwest,
approximately $14.9 million is invested in commercial developments with
approximately $39.4 million in undeveloped land.

      The Consolidated Group is engaged in the development of various
properties acquired in the course of business through repossession and as
investment property.  The development or improvement of properties is
undertaken for the purpose of enhancing values to increase salability and to
maximize profit potential.

      Real estate costs exceeded real estate sales by $249,000 in 1997, while
sales exceeded cost of those sales by $1.7 million in 1996 and $2.9 million in
1995.  Included in these results are sales of timeshare units with a net loss
of $1.2 million and $.7 million in 1997 and 1996, respectively, and a net gain
of $.9 million in 1995.  Metropolitan has engaged an affiliate of the Shell
Group, Chicago, Illinois, Shell-Lawai ("Shell") to provide

<PAGE>  63

 management services and sell timeshare units at Lawai Beach.  See "BUSINESS-
Real Estate Development-Lawai Beach Resort" under Item 1.  This agreement
provides for a fixed fee to Shell plus an incentive fee based upon future
sales after a base amount of cash flow is generated by the property.  Sales of
timeshare units in 1997, 1996 and 1995 were approximately $13.8 million, $22.8
million and $23.6 million, respectively.

      Real estate sales, including timeshare unit sales, totaled $31.4 million
for 1997, $45.6 million for 1996 and $39.4 million for 1995.  Sales of
repossessed properties have more than kept pace with yearly additions
resulting in a total investment in repossessed real estate of $34.4 million at
September 30, 1997, $36.2 million at September 30, 1996, and $38.0 million at
September 30, 1995.  The aggregate investment in real estate held for sale and
development decreased to $81.8 million at September 30, 1997, from $84.3
million at September 30, 1996, which decreased from $91.1 million at September
30, 1995.  The decrease from 1996 to 1997 is primarily attributable to the
unit costs for sales in the timeshare project in Kauai, Hawaii.  The decrease
from 1995 to 1996 is attributable to the final completion of the timeshare
project in Kauai, Hawaii in October 1995 and the sale of several large
commercial properties throughout 1996.  In addition to timeshare unit
development, the Consolidated Group is in the general business of holding and
developing property for sale.  The largest investments in such activities at
September 30, 1997 were a $11.8 million development located in downtown
Spokane adjacent to the central business district and a $10.2 million factory
outlet mall development located in Pasco, Washington.  See "BUSINESS-Real
Estate Development-Other Development Properties" under Item 1.

      Gains or losses on real estate sold (excluding timeshare units) are a
function of several factors.  Management's experience with the most
significant of these factors during the last three fiscal years is set forth
below:

<TABLE>
<CAPTION>
                                         For the Fiscal Year Ended
                                                 September 30,
                                       _______________________________
                                         1997          1996         1995
                                       ________      ________     ________
                                            (Dollars in Thousands)
<S>                                    <C>           <C>          <C>
Amount of delinquencies over                                      
  three months at fiscal year                                     
  end                                  $ 36,000      $ 26,500     $ 17,500
                                                                  
                                                                  
<PAGE>  64                                                        
Amount of foreclosures during                                     
  the fiscal year                      $ 14,977      $ 14,271     $ 13,834
Amount of foreclosed real                                         
  estate held for sale at                                         
  fiscal year end                      $ 34,389      $ 36,158     $ 38,004
Gain on sale of the                                               
  property during the fiscal                                      
  year                                 $  1,060      $  2,469     $  1,992
</TABLE>

      The principal amount of Receivables in arrears for more than ninety days
as of September 30, 1997, 1996 and 1995 was 6.8%, 3.9% and 2.8%, respectively,
stated as a percentage of the total outstanding principal amount of
Receivables.  See Note 3 to the Consolidated Financial Statements under Item
8.  Improving the Consolidated Group's collection procedures, reducing
delinquencies and reducing real estate held for sale and development,
including repossessed property, continue to be ongoing goals of management.

      The increase in delinquencies from 1996 to 1997 of approximately $9.5
million and the increase of approximately $9.0 million from 1995 to 1996 was
primarily the result of a higher delinquency rate on timeshare Receivables and
an overall increase in the general delinquency rate for all Receivables.
Additionally, as only currently performing Receivables could be sold in the
securitizations, the Consolidated Group retained Receivables that were
delinquent.  The Consolidated Group believes the increased delinquency rates
were adequately reserved as the Consolidated Group has increased the allowance
for loss on real estate assets associated with Receivables from $7.9 million
in 1996 to $9.5 million in 1997.

Provision for Losses on Real Estate Assets

      During the years ended September 30, 1997, 1996 and 1995, the
Consolidated Group provided $8.1 million, $6.4 million and $4.2 million,
respectively, for losses on real estate assets.  At September 30, 1997, 1996
and 1995, the Consolidated Group had aggregate allowances for losses on real
estate assets of $12.3 million, $10.2 million and $8.1 million, respectively,
on real estate assets of $595 million, $735 million, and $679 million,
respectively.  See Notes 3 and 6 to the Consolidated Financial Statements
under Item 8.

Non-Interest Income and Expense

      Non-interest income, composed of "Fees, Commissions, Services, and Other
Income" on the income statement, was $4.7 million for the fiscal year ended
September 30, 1997, $4.3 million for the fiscal year ended September 30, 1996,
and $5.8 million for the comparable period in 1995.  Income sources include
service

<PAGE>  65

 fees and late charges in connection with Receivables, charges for loan
servicing and other services provided to outside affiliated companies, and
rents, commissions and other revenues primarily associated with the Lawai
Beach Resort, Kauai, Hawaii.  The increase from 1996 to 1997 was primarily
attributable to additional fees associated with the retained servicing on the
Receivable securitizations.  The decrease of $1.5 million in 1996 from 1995
was primarily the result of ceasing the operations of a restaurant at Lawai
Beach Resort and converting it to a leased operation, thereby reducing both
revenues and related expenses.

      Non-interest expense consists of all non-interest expenses except the
cost of real estate sold and the provision for losses on real estate assets.
Non-interest expense was $30.6 million for the year ended September 30, 1997
compared to $26.9 million for the fiscal year ended September 30, 1996 and
$26.1 million for the comparable period in 1995.  The increase in cost of $3.7
million in 1997 over 1996 was primarily attributable to an increase of $3.6
million in salaries and benefits and a decrease of $3.0 million in capitalized
costs, net of amortization being only partially offset by a $2.8 million
reduction in commissions to agents.  The increase in cost of $.8 million in
1996 over 1995 was primarily attributable to an increase of $1.4 million in
salaries and benefits and a decrease of $1.9 million in capitalized costs, net
of amortization being only partially offset by a $2.0 million reduction in
commissions to agents and a $.5 million decrease in other operating expenses.

Realized Net Gains (Losses) on Sales of Investments and Receivables

      The Consolidated Group invests in securities and Receivables as well as
real estate investment properties.  The Consolidated Group adopted SFAS No.
115 on September 30, 1993 and since that time has classified its investments
in debt and equity securities as either "trading," "available-for-sale" or
"held-to-maturity."  From time to time, gains or losses are recognized on
trading positions and securities classified as "available-for-sale" may be
sold at a gain or a loss.  Net losses from the sale of investments was $.5
million in 1997, $.8 million in 1996 with net gains of $.03 million for the
fiscal year ended September 30, 1995.  See "BUSINESS-Securities Investments"
under Item 1.  The Consolidated Group purchases Receivables collateralized by
real estate, lottery prizes structured settlements, and annuities.  See
"BUSINESS-Receivable Investments" under Item 1 and Notes 3 and 7 to the
Consolidated Financial Statements under Item 8.  Such assets are generated
through the ongoing production operations of the Consolidated Group.  At
times, Receivables which have increased in value, primarily from a decreasing
interest rate environment, or which exceed internal demand, may be remarketed
either through

<PAGE>  66

 whole loan sales or securitizations.  See "BUSINESS-Receivable Investments-
Receivable Sales" under Item 1.  Net gains from the sale of Receivables were
$21.7 million, $12.7 million and $4.4 million for the fiscal years ended
September 30, 1997, 1996 and 1995, respectively.

Asset/Liability Management

      The Consolidated Group is subject to interest rate risk because most of
its assets and liabilities are financial in nature.  Generally, the
Consolidated Group's financial assets (primarily cash and cash equivalents,
Receivables and fixed income investments) reprice more slowly than the
Consolidated Group's financial liabilities (primarily securities sold, not
owned, debentures and annuities).  In a rising rate environment, this mismatch
will tend to reduce earnings, while in a falling rate environment, earnings
will tend to increase.  During fiscal 1998, approximately $191 million of
interest sensitive assets are expected to reprice or mature.  These assets
consist of approximately $45 million of Receivables, $87 million of fixed
income investments and $59 million of cash and cash equivalents.  For
liabilities, most of the balance of life insurance and annuity contracts may
be repriced during 1998.  Management estimates this amount at $595 million.
In addition, approximately $58 million of debentures and $4 million of other
debt will mature or reprice during that period.  At September 30, 1997, these
estimates result in interest sensitive liabilities in excess of interest
sensitive assets of approximately $466 million, or a ratio of interest
sensitive liabilities to interest sensitive assets of approximately 344%.

      The Consolidated Group is able to manage this liability to asset
mismatch of approximately 3.4:1 by the fact that approximately 91% of the
interest sensitive liabilities are life insurance and annuity contracts which
are subject to surrender charges.  These contracts have surrender charges
which apply for as long as nine years, but with decreasing amounts during such
term.  At the option of the Consolidated Group, these contracts are subject to
annual repricing.  In periods of declining interest rates, this feature is
beneficial as it allows the Consolidated Group to reprice its liabilities at
lower market rates of interest.  In periods of increasing interest rates, such
liabilities are protected by surrender charges of approximately $17 million at
September 30, 1997.  Depending on the remaining surrender charges, the
Consolidated Group has 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 Consolidated Group may

<PAGE>  67

 respond more slowly to increases in market interest rate levels thereby
diminishing the impact 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
securitization could be used to payoff maturing liabilities.

Effect of Inflation

      During the three-year period ended September 30, 1997, moderate
inflation rates have 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 impact interest rates on both the Consolidated Group's
assets and liabilities.  See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Interest Sensitive Income and
Expense."  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 rate of return on
interest earning assets less the cost of interest paying 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.

      Revenues from real estate sold are influenced in part by inflation, as
historically real estate values have fluctuated with the rate of inflation.
However, management is unable to quantify the effect of inflation in this
respect with any degree of accuracy.

New Accounting Rules

      In May 1993, Statement of Financial Accounting Standards No. 114 (SFAS
No. 114) "Accounting by Creditors for Impairment of a Loan" was issued. SFAS
No. 114 requires that certain impaired loans be measured based on the present
value of expected future cash flows discounted at the loans' effective
interest rate or the fair value of the collateral.  The Consolidated Group
adopted this new standard on October 1, 1995.  The adoption of SFAS No. 114
did not have a material effect on the consolidated financial statements.  See
Note 1 to the Consolidated Financial Statements under Item 8.


<PAGE>  68


      In March 1995, Statement of Financial Accounting Standards No. 121 (SFAS
No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," was issued.  SFAS No. 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
Consolidated Group adopted this new standard on October 1, 1996.  The adoption
of SFAS No. 121 did not have a material effect on the consolidated financial
statements.

      In June 1996, Statement of Financial Accounting Standards No. 125 (SFAS
125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" 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
asset 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 No. 128) was issued.  SFAS No. 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 No. 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 Consolidated Group does not believe that the application of
this standard will have a material effect on the presentation of its earnings
per share disclosures.

<PAGE>  69



      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 that all items required
to be recognized under accounting standards as components of 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 statement.  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 yet
determined the financial statement effect of the application of this
Statement.

      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
Consolidated Group has not yet determined the effect that the application of
this Statement will have on the disclosures of its business segments.

Liquidity and Capital Resources

      The Consolidated Group's sources of liquidity are tied to its ability to
renew, maintain or obtain existing and 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.

      Cash used in operating activities was $102.1 million in 1997, while cash
provided from operating activities was $185.9 million

<PAGE>  70

 in 1996 and $40.8 million in 1995.  Cash provided to the Consolidated Group
in its investing activities was $226.1 million in 1997, while cash utilized in
investing activities was $186.7 million in 1996 and $43.6 million in 1995.
Cash utilized by the Consolidated Group in its financing activities was $100.3
million in 1997, while cash provided by financing activities was $3.3 million
in 1996 and $6.3 million in 1995.  These cash flows have resulted in year-end
cash and cash equivalent balances of $58.9 million in 1997, $35.2 million in
1996 and $32.8 million in 1995.  Cash and cash equivalents increased by $23.7
million in 1997 over 1996.  In 1997, Receivable acquisitions of $390.0
million, $22.8 million in acquisition and costs associated with real estate
held for sale and development and $58.6 million used to fund life and annuity
withdrawals less receipts were financed by proceeds from Receivable sales,
securitizations and principal payments of $498.9 million, $9.4 million in
proceeds from maturities and sales less purchases of investments and other
cash proceeds of $30.5 million from operating activities.  Cash and cash
equivalents increased by $2.4 million in 1996 over 1995.  In 1996, Receivable
acquisitions of $382.1 million and $28.5 million in acquisition and costs
associated with real estate held for sale and development were financed by
proceeds from Receivable sales, securitizations and principal payments of
$295.9 million, $55.5 million in proceeds from maturities and sales less
purchases of investments and other cash proceeds of $53.2 million from
operating activities.  Proceeds from operating activities were primarily from
net income of $8.0 million and $45.8 million from increases in life insurance
and annuity reserves.  At September 30, 1997, management considers its cash
and cash equivalent funds combined with its other sources of funds to be
adequate to finance any required debt retirements or planned asset additions.

      The State of Washington is responsible for regulating the total amount
of debentures and preferred stock that Metropolitan can have outstanding.
During 1997, Metropolitan was authorized to have no more than $295.8 million
in outstanding debentures (including accrued and compounded interest) and
outstanding preferred stock.  See "BUSINESS-Regulation" under Item 1.  At
September 30, 1997, Metropolitan had total outstanding debentures of
approximately $185.2 million and total outstanding preferred stock at
liquidation value of approximately $50.7 million.  During the three previous
offerings which expired January 31, 1997, 1996 and 1995, the aggregate
debenture and preferred stock permits were approximately $251 million.  These
regulatory limitations did not cause any material adverse impact on liquidity
during 1993 through 1997; however, Metropolitan did forgo various investment
opportunities which could have been made if they could have been funded by the
additional sales of debentures and preferred stock.


<PAGE>  71


      During 1998, anticipated principal, interest and dividend payments on
outstanding debentures, other debt payments and preferred stock distributions
are expected to be approximately $70.8 million.  During 1997, the principal
portion of the payments received on the Consolidated Group's Receivables and
proceeds from sales of real estate and Receivables was $511.7 million.  A
decrease in the prepayment rate on these Receivables or 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 high levels of liquidity in
the foreseeable future by continuing its securities offerings, annuity sales
and the sale and securitization of Receivables.  At September 30, 1997, cash
or cash equivalents were $58.9 million, or 5.3% of total assets.  As of
September 30, 1997, the Consolidated Group had no cash or cash equivalents
restricted from general corporate use.  Including trading securities,
securities that are available for sale and excluding restricted cash
equivalents, total liquidity was $130 million, $74 million and $65 million as
of September 30, 1997, 1996 and 1995, respectively, or 11.7%, 5.8% and 6.0% 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.  The increased
ability to raise 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, Western United performs cash flow testing under
seven different rate scenarios.  The results of these tests are filed annually
with the Insurance Commissioner of the State of Washington.  At the end of
calendar year 1996, the results of this cash flow testing process were
satisfactory.

      Metropolitan alone used approximately $30.7 million in cash in
operations in 1997.  Investing activities provided net cash of approximately
$27.0 million.  Funds provided included $176.2 million from proceeds from
sales and principal payments of Receivables and real estate, $6.9 million from
investment maturities and $11.2 million from a reduction in investment and
advances to subsidiaries.  Funds used included $139.6 million for the purchase
of Receivables, $4.1 million for the purchase of investments and $21.7 million
in additions to real estate held.

<PAGE>  72

 Net cash provided by financing activities in 1997 of $5.3 million included
$38.5 million in new debenture sales, net borrowings of $11.8 million and
issuance of preferred stock, net of redemption, of $1.2 million, which were
offset by repayment of debentures of $42.4 million and $4.1 million in
preferred stock dividend payments.

      Metropolitan alone generated approximately $20.8 million in cash from
operations in 1996.  Net cash of approximately $23.5 million was used in
investing activities.  Funds used included $32.2 million for the purchase of
Receivables, $11.7 million for the purchase of investments and $17.2 million
in additions to real estate held.  An additional $16.3 million was used for
investment in and advances to subsidiaries.  Funds provided from investing
activities included $24.3 from the sale of Receivables and $12.5 million of
principal payments on such Receivables.  Additional funds of $9.2 million from
proceeds on sales of real estate and $9.1 million from the sale and maturities
of investments were received.  Net cash used in financing activities in 1996
of $8.4 million included $22.9 million repayment of debentures and $3.9
million in preferred dividend payments, which were offset by new debenture
sales of $9.1 million, issuance of preferred stock, net of redemption, of $1.8
million.

      Metropolitan alone generated approximately $2.4 million in cash from
operations in 1995.  Net cash of approximately $3.9 million was used in
investing activities.  Funds used included $18.4 million, $12.1 million, and
$12.5 million for the purchase of Receivables, investments, and additions to
real estate held, respectively.  An additional $9.6 million was used for
investment in and advances to subsidiaries.  Funds provided from investing
activities included $34.9 million from the sale of Receivables collateralized
by real estate and $5.1 million of principal payments on such Receivables.
Additional funds of $1.9 million and $7.6 were provided from the sale of real
estate and investments, respectively.  Net cash of $8.0 million provided from
financing activities in 1995 included $53.1 million in proceeds from the sale
of debentures which was partially offset by $49.0 million in repayment of
debentures.  Additionally, $4.5 million was obtained from the issuance of
preferred stock and $4.2 million was obtained in net borrowings while $4.5
million was distributed in cash dividends.

      At September 30, 1997, Metropolitan had approximately $1.9 million in
construction commitments associated with its real estate development projects.
Additionally, Metropolitan had no knowledge of any environmental liabilities
associated with any of its real estate asset investments.  During the year
ended September 30, 1997, Metropolitan entered into an agreement to acquire a
new corporate headquarters building in Spokane,

<PAGE>  73

 Washington.  The transaction, which closed in the first quarter of fiscal
1998, carried a purchase price of approximately $11.7 million.  Additionally,
the Consolidated Group expects to incur approximately $5 million in capital
expenditures for renovation of the building.  Metropolitan anticipates funding
these commitments through cash provided by operating activities or cash
provided by financing activities.

      The Consolidated Group will be required to make further enhancements to
its computer software operating systems to enable recognition of the new
century.  The program codes within the operating systems currently store only
a two-digit character for the year in which transactions occur.  The
modification of these program codes to store four digit years will occur in
the near term.  The Consolidated Group expects that the costs of these
modifications will not be material and all changes will be made by existing
personnel during routine program maintenance.  All expenses will be charged to
operations as incurred.

      Management believes that cash flow generated from the Consolidated
Group's operating activities and financing activities will be sufficient to
conduct its business and meet its anticipated obligations as they mature
during the next fiscal year.  Metropolitan has never defaulted on any of its
obligations since its founding in 1953.

ITEM 7.A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Not currently applicable.  However, See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Interest Sensitive
Income and Expense" under Item 7 and "BUSINESS-Securities Investments" under
Item 1.



<PAGE>  74

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
     Years Ended September 30, 1997, 1996 and 1995


                                                                Page
                                                             ----------

     Report of Independent Accountants                              F-1

     Consolidated Balance Sheets                              F-2 - F-3

     Consolidated Statements of Income                              F-4

     Consolidated Statements of Stockholders' Equity          F-5 - F-6

     Consolidated Statements of Cash Flows                    F-7 - F-8

     Notes to Consolidated Financial Statements              F-9 - F-59
     <PAGE>
     REPORT OF INDEPENDENT ACCOUNTANTS




     The Directors and Stockholders
     Metropolitan Mortgage & Securities Co., Inc.


     We have audited the accompanying consolidated balance sheets of
     Metropolitan Mortgage & Securities Co., Inc. and subsidiaries as of
     September 30, 1997 and 1996, and the related consolidated statements
     of income, stockholders' equity and cash flows for each of the three
     years in the period ended September 30, 1997.  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 in accordance with generally accepted auditing
     standards.  Those standards require that we plan and perform the audit
     to obtain reasonable assurance about whether the financial statements
     are free of material misstatement.  An audit includes examining, on a
     test basis, evidence supporting the amounts and disclosures in the
     financial statements.  An audit also includes assessing the accounting
     principles used and significant estimates made by management, as well
     as evaluating the overall financial statement presentation.  We
     believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present
     fairly, in all material respects, the consolidated financial position
     of Metropolitan Mortgage & Securities Co., Inc. and subsidiaries as of
     September 30, 1997 and 1996, and the consolidated results of their
     operations and their cash flows for each of the three years in the
     period ended September 30, 1997 in conformity with generally accepted
     accounting principles.

     As discussed in Note 1, the Company changed its methods of accounting
     for the transfer and servicing of financial assets in 1997 and
     impaired loans in 1996.


                           /s/COOPERS & LYBRAND L.L.P.


     Spokane, Washington
     November 21, 1997

                                      F-1 
     <PAGE>
     METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
     CONSOLIDATED BALANCE SHEETS
     September 30, 1997 and 1996

     <TABLE>
     <CAPTION>
                                                               1997             1996
                                                               --------------   --------------
      <S>                                                      <C>              <C>
                          ASSETS

      Cash and cash equivalents                                $   58,924,958   $   35,226,746
      Restricted cash and cash equivalents                                         132,652,334
      Investments:
        Trading securities, at market                              34,477,091
        Available-for-sale securities, at market                   36,621,351       38,554,498
        Held-to-maturity securities, at amortized cost            113,730,535      124,748,490
        Accrued interest on investments                             1,516,739        1,516,390
                                                               --------------   --------------
            Total cash and investments                            245,270,674      332,698,458
                                                               --------------   --------------
      Real estate contracts and mortgage notes receivable, 
        net, including real estate contracts and mortgage 
        notes receivable held for sale of approximately 
        $106,575,000 in 1996                                      512,864,101      650,933,330
      Real estate held for sale and development, including 
        foreclosed real estate received in satisfaction of 
        debt of $34,388,973 and $36,158,099                        81,802,266       84,333,288
                                                               --------------   --------------
            Total real estate assets                              594,666,367      735,266,618

      Less allowance for losses on real estate assets             (12,327,098)     (10,192,584)
                                                               --------------   --------------
            Net real estate assets                                582,339,269      725,074,034
                                                               --------------   --------------
      Other receivable investments                                164,534,354      107,494,150
                                                               --------------   --------------
      Other assets:
        Deferred costs, net                                        72,503,095       74,530,361
        Land, buildings and equipment, net                          9,408,578        8,516,598
        Other assets, net                                          38,333,490       34,345,227
                                                               --------------   --------------
            Total other assets                                    120,245,163      117,392,186
                                                               --------------   --------------
            Total assets                                       $1,112,389,460   $1,282,658,828
                                                               ==============   ==============
      </TABLE>
                                         F-2 
      <PAGE>
     METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
     CONSOLIDATED BALANCE SHEETS, CONTINUED
     September 30, 1997 and 1996

     <TABLE>
     <CAPTION>
                                                               1997             1996
                                                               --------------   --------------
      <S>                                                      <C>              <C>
           LIABILITIES AND STOCKHOLDERS' EQUITY

      Liabilities:
        Life insurance and annuity reserves                    $  825,368,988   $  837,366,108
        Debenture bonds and accrued interest                      185,213,688      192,173,751
        Debt payable                                                4,917,779       38,601,146
        Securities sold, not owned                                                 132,652,334
        Accounts payable and accrued expenses, including 
          payable to affiliates                                    19,114,354       16,388,312
        Deferred income taxes                                      22,029,778       17,589,301
        Minority interest in consolidated subsidiaries              1,632,139        1,544,544
                                                               --------------   --------------
            Total liabilities                                   1,058,276,726    1,236,315,496
                                                               --------------   --------------
      Commitments and contingencies (Notes 5, 9 and 11)

      Stockholders' equity:
        Preferred stock, (liquidation preference $50,729,084 
          and $49,495,906)                                         20,954,141       21,518,198
        Subordinate preferred stock, no par                                  
        Common stock, $2,250 par, 130 shares issued and 
          outstanding                                                 293,417          293,417
        Additional paid-in capital                                 18,596,231       16,791,670
        Retained earnings                                          14,536,114        8,731,070
        Net unrealized losses on investments                         (267,169)        (991,023)
                                                               --------------   --------------
            Total stockholders' equity                             54,112,734       46,343,332
                                                               --------------   --------------
            Total liabilities and stockholders' equity         $1,112,389,460   $1,282,658,828
                                                               ==============   ==============
      </TABLE>

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


                                      F-3 
     <PAGE>
     METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF INCOME
     for the years ended September 30, 1997, 1996 and 1995


     <TABLE>
     <CAPTION>
                                                       1997          1996          1995
                                                       -----------   -----------   -----------
      <S>                                              <C>           <C>           <C>
      Revenues:
        Insurance premiums                             $ 3,000,000   $ 3,000,000   $ 3,000,000
        Interest on receivables                         55,645,799    58,529,828    56,553,869
        Earned discount on receivables                  21,848,947    18,036,075    13,786,977
        Other investment income                         17,323,222    15,291,496    15,039,706
        Real estate sales                               31,419,810    45,648,264    39,388,086
        Fees, commissions, service and other income      4,697,766     4,300,381     5,847,020
        Gains (losses) on sales of investments, net       (494,877)     (821,481)       34,565
        Gains on sales of receivables, net              21,693,999    12,687,616     4,406,338
        Gain on insurance settlement                                                    50,922
                                                       -----------   -----------   -----------
            Total revenues                             155,134,666   156,672,179   138,107,483
                                                       -----------   -----------   -----------
      Expenses:
        Insurance policy and annuity benefits           50,454,970    48,301,010    45,483,802
        Interest, net                                   19,374,968    18,787,655    16,381,004
        Cost of real estate sold                        31,669,166    43,910,654    36,449,309
        Provision for losses on real estate assets       8,131,101     6,360,072     4,174,644
        Salaries and employee benefits                  13,762,940    10,199,812     8,803,131
        Commissions to agents                            7,743,437    10,574,049    12,588,546
        Other operating and underwriting                 6,932,014     6,958,938     7,414,502
        Amortization of deferred costs, net of 
          costs capitalized (capitalized 
          deferred costs, net of amortization)           2,202,882      (801,825)   (2,671,195)
                                                       -----------   -----------   -----------
            Total expenses                             140,271,478   144,290,365   128,623,743
                                                       -----------   -----------   -----------
      Income before income taxes and minority 
        interest                                        14,863,188    12,381,814     9,483,740
      Provision for income taxes                        (5,072,512)   (4,235,469)   (3,107,897)
                                                       -----------   -----------   -----------
      Income before minority interest                    9,790,676     8,146,345     6,375,843
      Income of consolidated subsidiaries allocated 
        to minority stockholders                          (122,365)     (108,681)      (73,197)
                                                       -----------   -----------   -----------
      Net income                                         9,668,311     8,037,664     6,302,646
      Preferred stock dividends                         (4,112,988)   (3,868,148)   (4,037,921)
                                                       -----------   -----------   -----------
      Income applicable to common stockholders         $ 5,555,323   $ 4,169,516   $ 2,264,725
                                                       ===========   ===========   ===========
      Income per share applicable to common 
        stockholders                                   $    42,733   $    32,073   $    17,288
                                                       ===========   ===========   ===========
      Weighted average number of shares of common 
        stock outstanding                                      130           130           131
                                                       ===========   ===========   ===========
      </TABLE>

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

                                      F-4 
     <PAGE>
     METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
     for the years ended September 30, 1997, 1996 and 1995
     <TABLE>
     <CAPTION>
                                                                                        Net
                                                                                        Unrealized
                                                                          Additional    Gains
                                              Preferred     Common        Paid-In       (Losses) on   Retained
                                              Stock         Stock         Capital       Investments   Earnings
                                              -----------   -----------   -----------   -----------   -----------
      <S>                                     <C>           <C>           <C>           <C>           <C>
      Balance, September 30, 1994             $21,436,910   $   296,621   $10,981,492   $(2,835,377)  $ 2,745,678
        Net income                                                                                      6,302,646
        Net change in unrealized gains
          on available-for-sale securities, 
          net of income tax provision of 
          $1,018,219                                                                      2,005,960
        Cash dividends, common ($3,800 per
          share)                                                                                         (501,582)
        Cash dividends, preferred (variable 
          rate)                                                                                        (4,037,921)
        Redemption and retirement of stock
          (2 shares) and change in minor-
          ity interest                                           (3,204)     (123,551)
        Redemption and retirement of pre-
          ferred stock (27,637 shares)           (276,376)                     13,120
        Sale of variable rate preferred
          stock, net (46,657 shares)              466,572                   4,046,721
        Excess sales price over historical
          cost basis of subsidiaries sold 
          to related party                                                                                 52,733
                                              -----------   -----------   -----------   -----------   -----------
      Balance, September 30, 1995              21,627,106       293,417    14,917,782      (829,417)    4,561,554
        Net income                                                                                      8,037,664
        Net change in unrealized losses on
          available-for-sale securities, net
          of income tax benefit of $83,247                                                 (161,606)
        Cash dividends, preferred (variable 
          rate)                                                                                        (3,868,148)
        Redemption and retirement of pre-
          ferred stock (32,330 shares)           (323,301)                    (47,433)
        Sale of variable rate preferred
          stock, net (21,439 shares)              214,393                   1,921,321
                                              -----------   -----------   -----------   -----------   -----------
      Balance, September 30, 1996              21,518,198       293,417    16,791,670      (991,023)    8,731,070
      </TABLE>
                                           F-5 

     <PAGE>
     METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
     for the years ended September 30, 1997, 1996 and 1995

     <TABLE>
     <CAPTION>
                                                                                        Net
                                                                                        Unrealized
                                                                          Additional    Gains
                                              Preferred     Common        Paid-In       (Losses) on   Retained
                                              Stock         Stock         Capital       Investments   Earnings
                                              -----------   -----------   -----------   -----------   -----------
      <S>                                     <C>           <C>           <C>           <C>           <C>
      Balance, September 30, 1996              21,518,198       293,417    16,791,670      (991,023)    8,731,070
        Net income                                                                                      9,668,311
        Net change in unrealized losses on
          available-for-sale securities, net
          of income tax provision of 
          $372,891                                                                          723,854
        Cash dividends, preferred (variable 
          rate)                                                                                        (4,112,988)
        Redemption and retirement of pre-
          ferred stock (78,635 shares)           (786,346)                   (196,043)
        Sale of variable rate preferred
          stock, net (22,229 shares)              222,289                   2,000,604
        Contingent sales price on
          subsidiary previously sold to
          related party                                                                                   249,721
                                              -----------   -----------   -----------   -----------   -----------
      Balance, September 30, 1997             $20,954,141   $   293,417   $18,596,231   $  (267,169)  $14,536,114
                                              ===========   ===========   ===========   ===========   ===========
      </TABLE>

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

                                          F-6 
     <PAGE>
     METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CASH FLOWS
     for the years ended September 30, 1997, 1996 and 1995
     <TABLE>
     <CAPTION>
                                                   1997           1996             1995
                                                   -------------  -------------    -------------
      <S>                                          <C>            <C>              <C>
      Cash flows from operating activities:
        Net income                                 $  9,668,311   $    8,037,664   $   6,302,646
        Adjustments to reconcile net income to 
          net cash provided by (used in) 
          operating activities:
            Proceeds from sale of trading 
              securities                                102,065       67,093,831     515,677,468
            Purchase of trading securities          (15,423,102)     (67,448,595)   (515,570,230)
            Gains on sales of investments and 
              receivables, net                      (21,199,122)     (11,866,135)     (4,440,903)
            (Gain) loss on sales of real estate         249,356       (1,737,610)     (2,938,777)
            Gain on insurance settlement                                                 (50,922)
            Provision for losses on real estate 
              assets                                  8,131,101        6,360,072       4,174,644
            Provision for losses (recoveries) 
              on other assets                            42,995           70,500         (35,657)
            Depreciation and amortization             6,738,395        4,617,664       3,023,233
            Minority interests                          122,365          108,681          73,197
            Deferred income tax provision             4,067,586        3,640,356       2,747,990
            Changes in assets and liabilities, 
              net of effects from sale of 
              subsidiaries:
                Life insurance and annuity 
                  reserves                           46,638,177       45,782,339      42,033,038
                Deferred costs, net                   2,027,266           (8,558)     (3,034,857)
                Compound and accrued interest 
                  on bonds                           (3,094,352)       4,642,760      (2,214,261)
                Securities sold, not owned         (132,652,334)     132,652,334
                Other, net                           (7,536,786)      (6,089,670)     (4,910,909)
                                                   -------------  -------------    -------------
                    Net cash provided by (used 
                      in) operating activities     (102,118,079)     185,855,633      40,835,700
                                                   -------------  -------------    -------------
      Cash flows from investing activities:
        Proceeds from sale of subsidiaries, 
          net of cash                                                                 (1,406,873)
        Change in restricted cash and cash 
          equivalents                               132,652,334     (132,652,334)
        Principal payments on real estate 
          contracts and mortgage notes 
          receivable                                100,359,493      107,702,333     118,869,137
        Principal payments on other receivable 
          investments                                 8,090,734        6,049,097       1,664,132
        Proceeds from sales of real estate 
          contracts and mortgage notes receiv-
          able and other receivable investments     390,425,927      182,177,259      72,914,006
        Acquisition of real estate contracts 
          and mortgage notes receivable            (317,169,828)    (282,313,300)   (203,525,666)
        Acquisition of other receivable 
          investments                               (72,853,425)     (99,804,805)    (56,229,758)
        Proceeds from insurance settlement                                                50,922
        Proceeds from sales of real estate           12,815,547        6,545,323       5,285,839
     </TABLE>
                                                  F-7 
     <PAGE>
     METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
     for the years ended September 30, 1997, 1996 and 1995
     <TABLE>
     <CAPTION>
                                                   1997           1996             1995
                                                   -------------  -------------    -------------
      <S>                                          <C>            <C>              <C>
      Cash flows from investing activities,
        continued:
          Proceeds from maturities of held-to-
            maturity investments                     10,919,094        2,598,081       4,696,003
          Proceeds from maturities of available-
            for-sale investments                     12,222,624       37,496,910
          Purchases of held-to-maturity invest-
            ments                                       (99,625)     (12,181,445)     (1,557,219)
          Proceeds from sales of available-for-
            sale investments                         22,556,364       31,686,315      92,779,569
          Purchases of available-for-sale 
            investments                             (49,021,401)      (4,138,391)    (34,387,059)
          Purchases of and costs associated with 
            real estate held for sale and 
            development                             (22,765,164)     (28,499,006)    (41,841,982)
          Capital expenditures                       (1,989,246)      (1,369,802)       (894,673)
                                                   -------------  -------------    -------------
                  Net cash provided by (used in) 
                    investing activities            226,143,428     (186,703,765)    (43,583,622)
                                                   -------------  -------------    -------------
      Cash flows from financing activities:
        Increase (decrease) in short-term 
          borrowings                                (32,588,375)      11,353,125     (36,598,375)
        Repayments of debt payable                   (2,614,991)      (2,060,440)       (524,046)
        Receipts from life and annuity products      88,267,227      112,894,347     145,066,891
        Withdrawals of life and annuity products   (119,212,557)    (103,026,731)   (105,469,442)
        Ceding of life and annuity products to 
          reinsurers                                (27,689,967)
        Issuance of debenture bonds                  38,510,520        9,125,303      53,120,179
        Repayment of debenture bonds                (42,376,231)     (22,906,185)    (48,970,828)
        Issuance of preferred stock                   2,222,893        2,135,714       4,513,293
        Redemption and retirement of preferred 
          stock                                        (982,389)        (370,734)       (327,336)
        Cash dividends                               (4,112,988)      (3,868,148)     (4,539,503)
        Receipt of contingent sale price for 
          subsidiary sold to related party              249,721
                                                   -------------  -------------    -------------
                  Net cash provided by (used in) 
                    financing activities           (100,327,137)       3,276,251       6,270,833
                                                   -------------  -------------    -------------
      Net increase in cash and cash 
        equivalents                                  23,698,212        2,428,119       3,522,911

      Cash and cash equivalents:
        Beginning of year                            35,226,746       32,798,627      29,275,716
                                                   -------------  -------------    -------------
        End of year                                $ 58,924,958   $   35,226,746   $  32,798,627
                                                   =============  =============    =============

      See Note 17 for supplemental cash flow information.
      </TABLE>

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

                                      F-8 
     <PAGE>
     METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      1.  SUMMARY OF ACCOUNTING POLICIES:

            BUSINESS AND ORGANIZATION

            Metropolitan Mortgage & Securities Co., Inc. (the Company and
            Metropolitan) was incorporated in 1953.  Metropolitan invests
            in real estate contracts and mortgage notes receivable and
            other investments, including real estate development, with
            proceeds from sales of life and annuity products and securities
            offerings.

            On January 31, 1995, Metropolitan and Summit Securities, Inc.
            (Summit), a former subsidiary sold to an affiliated entity,
            consummated a transaction whereby 100% of the common stock of
            Metropolitan Investment Securities, Inc. (MIS) was sold to
            Summit.  The cash price of $288,950, approximated the
            historical net book value of MIS at closing.  MIS is a
            broker/dealer and the exclusive broker/dealer for the
            securities sold by Metropolitan and Summit.  This sale did not
            materially affect the business operations of MIS.  The results
            of operations of MIS are included in the consolidated financial
            statements for the period prior to January 31, 1995.

            Additionally, by agreement, effective January 31, 1995,
            Metropolitan discontinued its property development division,
            which consisted of a group of employees experienced in real
            estate development.  On the same date, Summit commenced the
            operation of a property development subsidiary employing those
            same individuals who had previously been employed by
            Metropolitan.  Summit Property Development Corporation, a 100%
            owned subsidiary of Summit, has negotiated an agreement with
            Metropolitan to provide future property development services. 

            On May 31, 1995, Metropolitan and Summit consummated a
            transaction whereby 100% of the common stock of Old Standard
            Life Insurance Company (OSL) was sold to Summit.  The cash
            price of $2,722,000, approximated the historical net book value
            of OSL at closing, 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. 
            During the year ended September 30, 1997, the Company received
            approximately $250,000 in contingent payments for the statutory
            years ended December 1996 and 1995.  The cash sales price plus
            estimated future contingency payments approximated the
            appraised valuation of OSL.  OSL is engaged in the business of
            acquiring receivables using funds derived from the sale of 

                                      F-9 
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      1.  SUMMARY OF ACCOUNTING POLICIES, CONTINUED:

            BUSINESS AND ORGANIZATION, CONTINUED

            annuities, investment income and receivable cash flows.  The
            sale of OSL decreased total assets and liabilities of the
            Company by approximately $46.2 million.  The results of
            operations of OSL are included in the consolidated financial
            statements for the period prior to May 31, 1995.

            The total purchase price of MIS and OSL exceeded the historical
            cost bases of the net assets of the companies by approximately
            $53,000.  Due to the common control of Metropolitan and Summit,
            this excess purchase price was recorded as an increase to
            retained earnings in the periods in which the sales occurred. 
            Additionally, the contingent purchase price payment received in
            fiscal 1997 was recorded as an increase to retained earnings.

            Metropolitan is effectively controlled by C. Paul Sandifur, Jr.
            through common stock ownership and voting control.

            PRINCIPLES OF CONSOLIDATION

            The consolidated financial statements include the accounts of
            Metropolitan Mortgage & Securities Co., Inc. and its majority-
            owned subsidiaries.  All significant intercompany transactions
            and balances have been eliminated in consolidation.

            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
            periodically exceed the federal insurance limit.

            INVESTMENTS

            The Company has classified its investments in debt and equity
            securities as "trading," "available-for-sale," or "held-to-
            maturity".  The accounting policies related to these investment
            classifications are as follows:

                                      F-10
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      1.  SUMMARY OF ACCOUNTING POLICIES, CONTINUED:

            INVESTMENTS, CONTINUED

              TRADING SECURITIES:  Trading securities, consisting primarily
              of pass-through certificates, are retained in connection with
              the Company's securitization transactions and are recorded at
              market value.  Realized and unrealized gains and losses are
              included in the consolidated statements of income.

              AVAILABLE-FOR-SALE SECURITIES:  Available-for-sale
              securities, consisting primarily of government-backed bonds,
              corporate and public utility bonds, and mortgage- and asset-
              backed securities, are carried at market value.  Unrealized
              gains and losses on these securities 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, corporate and
              public utility bonds and mortgage- and asset-backed
              securities, are carried at amortized cost.  Premiums and
              discounts on these securities are amortized on a specific-
              identification basis using the interest method.  The Company
              has the ability and intent to hold these investments until
              maturity.

            Realized gains and losses on investments are calculated on the
            specific-identification method and are recognized in the
            consolidated statements of 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 bond below 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 statement 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 issuer; and the intent and ability
            of the Company to retain its investment for the anticipated
            period of recovery in market value.

                                      F-11
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      1.  SUMMARY OF ACCOUNTING POLICIES, CONTINUED:

            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 using the level yield
            (interest) method.  For receivables acquired after 
            September 30, 1992, net purchase discounts are amortized on an
            individual contract basis using the level yield (interest)
            method over the remaining contractual term of the receivables. 
            The Company accounts for its portfolio of discounted
            receivables acquired before October 1992 using anticipated
            prepayment patterns to apply the level yield (interest) method
            of amortizing discounts.  Discounted receivables are pooled by
            the fiscal year of purchase and by similar receivable types. 
            The amortization period, which is approximately 78 months,
            estimates a constant prepayment rate of 10-12 percent per year
            and scheduled payments, which is consistent with the Company's
            expectations and prior experience with similar receivables.

            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 loan.  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.  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 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 

                                      F-12
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      1.  SUMMARY OF ACCOUNTING POLICIES, CONTINUED:

            REAL ESTATE CONTRACTS AND MORTGAGE NOTES RECEIVABLE, HELD FOR
            SALE, CONTINUED

            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.

            REAL ESTATE HELD FOR SALE AND DEVELOPMENT

            Real estate is stated at the lower of cost or fair value less
            estimated costs to sell.  The Company principally acquires real
            estate through acquisition and foreclosure.  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 (unpaid receivable carrying value). 
            Periodically, the Company reviews its carrying values of real
            estate held for sale and development by obtaining new or
            updated appraisals and adjusts its carrying values to the lower
            of cost or net realizable value, as necessary.  As a result of
            changes in the real estate markets in which these properties
            are located, it is reasonably possible that these carrying
            values could change in the near term.

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

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

                                      F-13
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      1.  SUMMARY OF ACCOUNTING POLICIES, CONTINUED:

            ALLOWANCE FOR LOSSES ON REAL ESTATE ASSETS

            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.  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 accrues
            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.

            The established allowance for losses on real estate held for
            sale and development includes 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.

            OTHER RECEIVABLE INVESTMENTS

            Other receivables held for investment purposes 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.

                                      F-14
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      1.  SUMMARY OF ACCOUNTING POLICIES, CONTINUED:

            DEFERRED COSTS

            Commission expense and other insurance and annuity policy costs
            and debenture issuance costs are deferred.  Deferred policy
            acquisition costs that are estimated not to be recoverable from
            surrender charges are amortized as a constant percentage of the
            estimated gross profits (both realized and unrealized)
            associated with the policies in force.  Amortization of
            debenture issuance costs is computed over the expected
            debenture term which ranges from 6 months to 5 years, using the
            level yield (interest) method.  Changes in the amount or timing
            of estimated gross profits on annuities or the expected term of
            the debentures will result in adjustments in the cumulative
            amortization of these costs.

            LAND, BUILDINGS AND EQUIPMENT

            Land, buildings and equipment are stated at cost.  Buildings,
            improvements, furniture and equipment are depreciated using
            both straight-line and accelerated methods over their estimated
            useful lives which, for buildings and improvements, range from
            5 to 40 years, and for furniture and equipment, range from 3 to
            10 years.  Repairs, maintenance and minor renewals are charged
            to expense as incurred.  Upon sale or retirement, the costs and
            related accumulated depreciation are eliminated from the
            accounts and any resulting gain or loss is reflected in
            operations.

            COMPUTER SOFTWARE COSTS

            The Company capitalizes direct costs of enhancements to
            computer software operating systems acquired and modified for
            internal use to the extent that the functionality of the
            software is improved.  At September 30, 1997, total enhancement
            costs of approximately $7,288,000 have been capitalized.  These
            costs are being amortized over 5- and 10-year periods,
            depending on the estimated useful life of the enhancement,
            using the straight-line method.  It is reasonably possible that
            the remaining estimated useful lives could change in the near
            term.

                                      F-15
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      1.  SUMMARY OF ACCOUNTING POLICIES, CONTINUED:

            COMPUTER SOFTWARE COSTS, CONTINUED

            The Company will be required to make further enhancements to
            its computer software operating systems to enable recognition
            of the new century.  The program codes within the operating
            systems currently store only a two digit character for the year
            in which transactions occur.  The modification of these program
            codes to store four digit years will occur in the near term. 
            The Company expects that the costs of these modifications will
            not be material and will be charged to operations as incurred.

            INSURANCE AND ANNUITY RESERVES

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

            RECOGNITION OF INSURANCE AND ANNUITY REVENUES

            Revenues for universal life contracts are recognized upon
            assessment.  Revenues for annuity contracts are recognized over
            the estimated policy term.  These revenues consist of charges
            to policyholders, primarily for mortality expenses and
            surrender charges.  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.

                                      F-16
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      1.  SUMMARY OF ACCOUNTING POLICIES, CONTINUED:

            GUARANTY FUND ASSESSMENTS

            The Company's life insurance subsidiary is subject to insurance
            guaranty laws in the states in which it writes business.  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.  As of September 30, 1997 and 1996, the
            Company has accrued an estimated liability for guaranty fund
            assessments for known insolvencies net of estimated recoveries
            through premium tax offsets.

            INTEREST COSTS

            Interest costs associated with the development of real estate
            projects are capitalized.  During the years ended September 30,
            1997, 1996 and 1995, the Company capitalized interest of
            $520,969, $2,468,411 and $2,730,373, respectively.  

            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 temporary differences between the
            financial statement carrying amounts and tax bases of assets
            and liabilities and tax attributes using enacted tax rates in
            effect in the years in which the temporary differences are
            expected to reverse.

            The Company files a consolidated federal income tax return with
            its includable affiliates.  The consolidating companies have
            executed a tax allocation agreement.  Under the agreement, the
            Companies' income tax provisions are computed on a separate
            return basis and consolidated affiliates receive a
            reimbursement to the extent that their losses and other credits
            result in a reduction of the consolidated tax liability.

            EARNINGS PER COMMON SHARE

            Earnings per common share are computed by deducting preferred
            stock dividends from net income and dividing the result by the
            weighted average number of shares of common stock outstanding. 
            There were no common stock equivalents or potentially dilutive
            securities outstanding during any of the three years in the
            period ended September 30, 1997.

                                      F-17
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      1.  SUMMARY OF ACCOUNTING POLICIES, CONTINUED:

            EARNINGS PER COMMON SHARE, CONTINUED

            In February 1997, Statement of Financial Accounting Standards
            No. 128, "Earnings Per Share", (SFAS No. 128) was issued.  SFAS
            No. 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 No. 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
            Company does not believe that the application of this standard
            will have a material effect on the presentation of its earnings
            per share disclosures.

            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 that all items
            required to be recognized under accounting standards as
            components of 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 statement. 
            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 has not
            yet determined the financial statement effect of the
            application of this Statement.

                                      F-18
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      1.  SUMMARY OF ACCOUNTING POLICIES, CONTINUED:

            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 insurance subsidiary sells 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 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 mortgage- and
            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.

            Unrealized gains or losses associated with financial future
            contracts that meet the hedge criteria prescribed in Statement
            of Financial Standards No. 80 (SFAS No. 80), "Accounting for
            Futures Contracts" are deferred and recognized when the effects
            of changes in interest rate on the hedged asset are recognized. 
            The deferred unrealized gains or losses are classified in the
            same category as the items being hedged.  Sales of securities,
            not owned, are recognized as liabilities and are adjusted to
            market value with the unrealized gain or loss recognized
            currently in operations.

            In fiscal 1996, the Company sold U.S. Treasury securities,
            which it did not own, to provide an economic hedge for the
            anticipated securitization of real estate contracts and
            mortgage notes receivable which was completed in November 1996. 
            At September 30, 1996, the Company was obligated to deliver
            U.S. Treasury securities with a market value of approximately
            $132,652,000.  During the year ended September 30, 1996, the
            Company recognized a loss of approximately $820,000 associated 

                                      F-19
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      1.  SUMMARY OF ACCOUNTING POLICIES, CONTINUED:

            HEDGING ACTIVITIES, CONTINUED

            with this obligation.  The Company recognized an additional
            loss of approximately $1,680,000 during the year ended
            September 30, 1997 upon delivery of the securities.  At
            September 30, 1996, $132,652,000 of the Company's cash and cash
            equivalents were restricted until such time as these
            obligations were repaid.

            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
            debenture bonds) are subject to interest rate risk.  In the
            year ending September 30, 1998, approximately $657,000,000 of
            the Company's financial liabilities will reprice or mature as
            compared to approximately $191,000,000 of its financial assets,
            resulting in a mismatch of approximately $466,000,000.  This
            structure is beneficial in periods of declining interest rates;
            however, may result in declining net interest income during
            periods of rising interest rates.  Of the financial liabilities
            scheduled to reprice or mature, approximately 91% 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.

            RECLASSIFICATIONS

            Certain amounts in the 1996 and 1995 consolidated financial
            statements have been reclassified to conform with the current
            year's presentation.  These reclassifications had no effect on
            net income or retained earnings as previously reported.

                                      F-20
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      2.  INVESTMENTS:

          A summary of carrying and estimated market values of investments
          at September 30, 1997 and 1996 is as follows:
     <TABLE>
     <CAPTION>
                                                               1997
                                                               --------------------------------------------------------------
                                                                              Gross          Gross          Estimated
                                                               Amortized      Unrealized     Unrealized     Market Values
              Trading                                          Costs          Gains          Losses         (Carrying Values)
              ---------------------------------------------    ------------   ------------   -------------  -----------------
              <S>                                              <C>            <C>            <C>            <C>
              Pass-through certificates                        $ 33,427,969   $  1,050,000   $       (878)    $ 34,477,091
                                                               ============   ============   ============     ============
      <CAPTION>
                                                                              Gross          Gross          Estimated
                                                               Amortized      Unrealized     Unrealized     Market Values
              Available-for-Sale                               Costs          Gains          Losses         (Carrying Values)
              ---------------------------------------------    ------------   ------------   -------------  -----------------
              Government-backed bonds                          $ 11,722,759   $      8,353   $   (144,090)    $ 11,587,022
              Corporate bonds                                    11,158,910                      (164,016)      10,994,894
              Utility bonds                                       2,999,471                        (5,207)       2,994,264
              Mortgage- and asset-backed securities              11,498,068        236,344       (694,787)      11,039,625
                                                               ------------   ------------   ------------     ------------
              Total fixed maturities                             37,379,208        244,697     (1,008,100)      36,615,805

              Equity securities                                       1,592          3,954                           5,546
                                                               ------------   ------------   ------------     ------------
              Totals                                           $ 37,380,800   $    248,651   $ (1,008,100)    $ 36,621,351
                                                               ============   ============   ============     ============
      <CAPTION>
                                                               Amortized
                                                               Costs          Gross          Gross
                                                               (Carrying      Unrealized     Unrealized     Estimated
              Held-to-Maturity                                 Values)        Gains          Losses         Market Values
              ---------------------------------------------    ------------   ------------   -------------  -----------------
              Government-backed bonds                          $ 59,201,790   $     16,315   $ (1,369,896)    $ 57,848,209
              Corporate bonds                                     5,493,662                       (72,391)       5,421,271
              Utility bonds                                       3,997,395                       (67,070)       3,930,325
              Mortgage- and asset-backed securities              45,037,688        766,094       (291,899)      45,511,883
                                                               ------------   ------------   ------------     ------------
              Totals                                           $113,730,535   $    782,409   $ (1,801,256)    $112,711,688
                                                               ============   ============   ============     ============
     </TABLE>
                                       F-21
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      2.  INVESTMENTS, CONTINUED:

     <TABLE>
     <CAPTION>
                                                               1996
                                                               --------------------------------------------------------------
                                                                              Gross          Gross          Estimated
                                                               Amortized      Unrealized     Unrealized     Market Values
              Available-for-Sale                               Costs          Gains          Losses         (Carrying Values)
              ---------------------------------------------    ------------   ------------   -------------  -----------------
              <S>                                              <C>            <C>            <C>            <C>
              Government-backed bonds                          $ 11,932,337                  $   (477,670)    $ 11,454,667
              Corporate bonds                                    20,230,518   $      1,897       (437,009)      19,795,406
              Utility bonds                                       3,003,075                       (35,897)       2,967,178
              Pass-through certificates                           4,333,481                                      4,333,481
                                                               ------------   ------------   ------------     ------------
              Total fixed maturities                             39,499,411          1,897       (950,576)      38,550,732
              Equity securities                                       1,592          2,174                           3,766
                                                               ------------   ------------   ------------     ------------
              Totals                                           $ 39,501,003   $      4,071   $   (950,576)    $ 38,554,498
                                                               ============   ============   ============     ============
      <CAPTION>
                                                               Amortized
                                                               Costs          Gross          Gross
                                                               (Carrying      Unrealized     Unrealized     Estimated
              Held-to-Maturity                                 Values)        Gains          Losses         Market Values
              ---------------------------------------------    ------------   ------------   ------------   -----------------
              Government-backed bonds                          $ 60,005,894   $     11,775   $ (4,006,114)    $ 56,011,555
              Corporate bonds                                    12,056,534                      (202,717)      11,853,817
              Utility bonds                                       4,989,311                      (189,652)       4,799,659
              Mortgage- and asset-backed securities              47,696,751         38,062     (1,199,760)      46,535,053
                                                               ------------   ------------   ------------     ------------
              Totals                                           $124,748,490   $     49,837   $ (5,598,243)    $119,200,084
                                                               ============   ============   ============     ============
      </TABLE>

          All bonds, pass-through certificates and mortgage- and asset-
          backed securities held at September 30, 1997 and 1996 were
          performing in accordance with their terms.

                                      F-22
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      2.  INVESTMENTS, CONTINUED:

          Net unrealized losses, net of deferred federal income taxes, of
          approximately $501,000 and $625,000, respectively, on the
          available-for-sale portfolio at September 30, 1997 and 1996 are
          reported as a separate component of stockholders' equity.  During
          the year ended September 30, 1994, the Company transferred
          approximately $79,000,000 of investments from the available-for-
          sale portfolio to the held-to-maturity portfolio.  At the date of
          transfer, these investments had net unrealized losses of
          approximately $1,060,000 before income taxes.  These unrealized
          losses are being amortized over the term of the investments
          transferred using the interest method.  At September 30, 1997,
          the remaining unamortized loss of approximately $387,000, net of
          deferred income taxes, is reported as a reduction of
          stockholders' equity.

          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
          $72,500,000 to the available-for-sale classification.  At the
          date of the transfer, the debt securities were valued at fair
          value of approximately $72,000,000.  The difference between the
          carrying value and fair value of the reclassified debt securities
          at the date of transfer of approximately $500,000 is being
          recognized over the remaining contractual term of the securities
          transferred using the interest method.

          During the year ended September 30, 1995, the Company entered
          into financial futures contracts to hedge its interest rate risk
          on certain held-to-maturity debt securities with remaining
          contractual terms of approximately eight years against a
          potential increase in interest rates.  Interest rates declined,
          resulting in a realized loss of $1,600,000 associated with such
          contracts.  The hedging loss has been deferred and is being
          amortized over the contractual term of the hedged debt securities
          using the interest method.  The remaining unamortized hedging
          loss at September 30, 1997 was approximately $1,228,000.  At
          September 30, 1997 and 1996, the Company was not a party to any
          derivative financial instruments relative to its investments in
          debt or equity securities.

          The following individual investments (excluding U.S. government
          bonds) held by the Company at September 30, 1997 and 1996, were
          in excess of ten percent of stockholders' equity.

                                      F-23
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      2.  INVESTMENTS, CONTINUED:

                                                              Carrying
            Issuer                                            Amount
            -----------------------------------------------   -----------
            1997:
              Mortgage- and asset-backed securities:
                Residential Funding Mortgage Securities 
                  (four issues)                               $16,215,058
                Chase Mortgage Finance Corp. (seven issues)    10,516,239
                Prudential Home Mortgage Securities (three 
                  issues)                                       6,398,086
                Countrywide Funding Corp. (three issues)        5,909,140
              Pass-through certificates:
                Metropolitan Asset Funding, Inc. (twelve 
                  issues)                                      27,959,473
                Tryon Mortgage Funding, Inc. (three issues)     6,517,618
            1996:
              Mortgage-backed securities:
                Residential Funding Mortgage Securities 
                  (four issues)                               $16,142,719
                Chase Mortgage Finance Corp. (seven issues)    10,620,875
                Prudential Home Mortgage Securities (three 
                  issues)                                       7,160,855
                Countrywide Funding Corp.                       4,852,322

          The amortized costs and estimated market values of available-for-
          sale and held-to-maturity debt securities at September 30, 1997,
          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.

                                                              Estimated
                                                Amortized     Market
                                                Cost          Value
                                                -----------   ----------
            Available-for-sale debt 
              securities:
                Due in one year or less         $ 4,293,751   $ 4,285,339
                Due after one year through 
                  five years                     14,638,165    14,478,815
                Due after five years through 
                  ten years                       6,950,816     6,817,572
                                                -----------   -----------
                                                 25,882,732    25,581,726
            Mortgage- and asset-backed bonds     11,498,068    11,039,625
                                                -----------   -----------
                                                $37,380,800   $36,621,351
                                                ===========   ===========

                                      F-24
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      2.  INVESTMENTS, CONTINUED:

                                                              Estimated
                                               Amortized      Market
                                               Cost           Value
                                               ------------   ------------
            Held-to-maturity debt 
              securities:
                Due in one year or less        $ 15,500,913   $ 15,392,818
                Due after one year through 
                  five years                     52,987,224     51,590,727
                Due after five years through 
                  ten years                         190,344        199,646
                Due after ten years                  14,366         16,614
                                               ------------   ------------
                                                 68,692,847     67,199,805
            Mortgage- and asset-backed bonds     45,037,688     45,511,883
                                               ------------   ------------
                                               $113,730,535   $112,711,688
                                               ============   ============

          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).


      3.  REAL ESTATE CONTRACTS AND MORTGAGE NOTES RECEIVABLE:

          Real estate contracts and mortgage notes receivable include
          mortgages collateralized by property located throughout the
          United States.  At September 30, 1997, the Company held first
          position liens associated with real estate contracts and mortgage
          notes receivable with a face value of approximately $520,600,000
          (99%) and second or lower position liens of approximately
          $7,600,000 (1%).

                                      F-25
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      3.  REAL ESTATE CONTRACTS AND MORTGAGE NOTES RECEIVABLE, CONTINUED:

          The Company's real estate contracts and mortgage notes receivable
          at September 30, 1997 are collateralized by property concentrated
          in the following geographic areas:

            Pacific Northwest (Alaska, Idaho, Montana, Oregon and
              Washington)                                               28%
            Pacific Southwest (Arizona, California and Nevada)          20
            Southwest (New Mexico and Texas)                            17
            North Atlantic (Connecticut, Maryland, New Jersey, 
              New York and Pennsylvania)                                 9
            Southeast (Florida, Georgia, North Carolina and South 
              Carolina)                                                  9
            Other                                                       17
                                                                       ---
                                                                       100%
                                                                       ===

          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 face value of the real estate contracts and mortgage notes
          receivable range principally from $15,000 to $300,000.  At
          September 30, 1997, the Company had 56 receivables aggregating
          approximately $34,700,000 which had face values in excess of
          $300,000.  No individual receivable is in excess of 0.5% of the
          total carrying value of real estate contracts and mortgage notes
          receivable, and less than 4% of the receivables are subject to
          variable interest rates.  Contractual interest rates for 89% of
          the face value of receivables fall within a range from 6% to 13%
          per annum.  The weighted average contractual interest rate on
          these receivables at September 30, 1997 is approximately 9.4%. 
          Maturity dates range from 1997 to 2026.

                                      F-26
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      3.  REAL ESTATE CONTRACTS AND MORTGAGE NOTES RECEIVABLE, CONTINUED:

          The following is a reconciliation of the face value of real
          estate contracts and mortgage notes receivable to the Company's
          carrying value at September 30, 1997 and 1996.

                                               1997           1996
                                               ------------   ------------
            Face value of discounted 
              receivables                      $442,958,303   $548,537,547
            Face value of originated 
              receivables                        85,249,254    132,640,600
            Unrealized discounts, net of 
              unamortized acquisition costs     (24,642,792)   (38,607,376)
            Accrued interest receivable           9,299,336      8,362,559
                                               ------------   ------------
            Carrying value                     $512,864,101   $650,933,330
                                               ============   ============

          The originated receivables are collateralized primarily by first
          position liens and result from loans made by the Company to
          facilitate the sale of its repossessed property.  No unrealized
          discounts are attributable to originated receivables.

          The principal amount of receivables with required principal or
          interest payments being in arrears for more than three months was
          approximately $36,000,000 and $26,500,000 at September 30, 1997
          and 1996, respectively.

          Sales of receivables with net carrying values of approximately
          $106,885,000 and $54,388,000 were sold without recourse to
          various financial institutions resulting in gains of
          approximately $2,243,000 and $2,645,000 in fiscal 1997 and 1996,
          respectively.

          Aggregate amounts of receivables (face value) to be received,
          based upon contractual payment terms, are as follows:

            Fiscal Year Ending
            September 30,
            ------------------
            1998                                              $ 20,414,000
            1999                                                22,418,000
            2000                                                24,619,000
            2001                                                27,035,000
            2002                                                29,689,000
            Thereafter                                         404,032,557
                                                              ------------
                                                              $528,207,557
                                                              ============

                                      F-27
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      4.  REAL ESTATE CONTRACTS AND MORTGAGE NOTES RECEIVABLE, HELD FOR
          SALE:

          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, 1997 and 1996.  The Company
          participates in these securitization transactions with its
          subsidiaries and affiliates.  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, 1997 and 1996, proceeds from
          securitization transactions were approximately $273,539,000 and
          $112,975,000, respectively, and resulted in gains of
          approximately $19,414,000 and $7,798,000, respectively.  The gain
          realized during the years ended September 30, 1997 and 1996
          included approximately $4,642,000 and $2,290,000, respectively,
          associated with the estimated fair value of the mortgage
          servicing rights retained on the pool, which is included in other
          assets in the consolidated balance sheet.  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 Company
          evaluates possible impairment in its mortgage servicing rights by
          similar type of loan, and to the extent that carrying value for a
          stratum exceeds its estimated fair value, an impairment loss is
          recognized.  It is reasonably possible that actual prepayment
          experience could exceed the estimated prepayment factor in the
          near term, which would result in a reduction in the carrying
          value of retained mortgage servicing rights.

          Of the receivables securitized, the Company has retained an
          investment in certain classes of the securities having a fair
          value of approximately $34,477,000 and $4,333,000 at
          September 30, 1997 and 1996, respectively.  These securities were
          transferred to the Company's investment portfolio and classified
          as trading securities.  These certificates are the lowest
          investment grade rated and residual certificate classes and are
          subordinate to the other offered classes of certificates.  These
          classes receive the lowest priority of principal and interest
          distributions and thus bear the highest credit risk.  The Company
          provides for this risk by reducing the interest yield on these
          securities and by providing a reserve for the principal
          distributions due on these subordinate classes which may not be
          received due to default or loss.  The weighted average constant
          effective yield recognized by the Company on these securities was
          11.0% and 13.2% at September 30, 1997 and 1996, respectively.

                                      F-28
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      5.  REAL ESTATE HELD FOR SALE AND DEVELOPMENT:

          A detail of the Company's real estate held for sale and
          development by state as of September 30, 1997 is as follows:
     <TABLE>
     <CAPTION>
                                               Single-       Multi-
                                               Family        Family
              State              Land          Dwelling      Dwelling      Commercial    Condominium   Total
              ---------------    -----------   -----------   -----------   -----------   -----------   -----------
              <S>                <C>           <C>           <C>           <C>           <C>           <C>
              Alabama            $    34,900   $   127,856                 $    60,553                 $   223,309
              Alaska                  36,755       103,135                               $    80,790       220,680
              Arizona                533,661       407,206                      52,623        23,662     1,017,152
              Arkansas                              21,000                                                  21,000
              California           1,439,482     1,633,047                     111,950       149,467     3,333,946
              Colorado               160,000                                                 256,322       416,322
              Connecticut                          136,489                                                 136,489
              Florida                 93,300       457,987                                    54,658       605,945
              Georgia                                                                         39,500        39,500
              Hawaii                                76,309                   3,643,799    10,767,754    14,487,862
              Idaho                                182,824                                                 182,824
              Illinois                12,000        75,491                                                  87,491
              Iowa                                 119,264                                                 119,264
              Kansas                                28,668                                                  28,668
              Maine                   24,900                                                                24,900
              Maryland                                                                        20,061        20,061
              Massachusetts                                                                   24,703        24,703
              Michigan                             249,752                      90,000                     339,752
              Minnesota                             31,900                                                  31,900
              Mississippi                           43,767                                                  43,767
              Missouri                40,500       284,572                                                 325,072
              Montana                               19,290                                                  19,290
              Nevada                  25,000       164,137                                                 189,137
              New Jersey                           393,588                                                 393,588
              New Mexico             146,654       124,785                                    37,567       309,006
              New York                35,972       668,592                                    50,495       755,059
              North Carolina                        41,248                                                  41,248
              Oklahoma                53,152        40,215                      47,597                     140,964
              Oregon                   9,600       322,996                                                 332,596
              Pennsylvania            32,400       148,046                     250,000                     430,446
              South Carolina                        22,415                                                  22,415
              South Dakota           520,265                                                               520,265
              Tennessee                                                                       65,238        65,238
     </TABLE>
                                       F-29
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      5.  REAL ESTATE HELD FOR SALE AND DEVELOPMENT, CONTINUED:
     <TABLE>
     <CAPTION>
                                               Single-       Multi-
                                               Family        Family
              State              Land          Dwelling      Dwelling      Commercial    Condominium   Total
              ---------------    -----------   -----------   -----------   -----------   -----------   -----------
              <S>                <C>           <C>           <C>           <C>           <C>           <C>
              Texas                  135,609     1,554,022                     134,048        72,922     1,896,601
              Utah                    18,254        56,379                                                  74,633
              Virginia                24,610       153,730                                    37,500       215,840
              Washington          39,340,637       464,564                  14,860,132                  54,665,333
                                 -----------   -----------   -----------   -----------   -----------   -----------
              Balances at
                September 30, 
                1997             $42,717,651   $ 8,153,274   $             $19,250,702   $11,680,639   $81,802,266
                                 ===========   ===========   ===========   ===========   ===========   ===========
              Balances at
                 September 30,
                 1996            $36,884,497   $ 8,861,494   $    84,543   $17,828,877   $20,673,877   $84,333,288
                                 ===========   ===========   ===========   ===========   ===========   ===========
      </TABLE>

          At September 30, 1997, the Company had approximately $67,000,000
          invested in real estate development projects and approximately
          $1,900,000 in commitments for construction associated with these
          projects.


      6.  ALLOWANCE FOR LOSSES ON REAL ESTATE ASSETS:

          The following is a summary of the changes in the allowance for
          losses on real estate assets for the years ended September 30,
          1997, 1996 and 1995.

                                  1997          1996          1995
                                  -----------   -----------   -----------
            Beginning balance     $10,192,584   $ 8,116,065   $ 9,108,383
            Provisions              8,131,101     6,360,072     4,174,644
            Charge-offs            (5,996,587)   (4,283,553)   (5,166,962)
                                  -----------   -----------   -----------
            Ending balance        $12,327,098   $10,192,584   $ 8,116,065
                                  ===========   ===========   ===========

                                      F-30
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      6.  ALLOWANCE FOR LOSSES ON REAL ESTATE ASSETS, CONTINUED:

          At September 30, 1997 and 1996, the net investment in real estate
          contracts and mortgage notes receivable for which impairment has
          been recognized was approximately $1,919,000 and $2,642,000,
          respectively, of which approximately $331,000 and $118,000,
          respectively, representing the amounts by which the respective
          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, 1997 and 1996, the average
          recorded investment in impaired receivables was approximately
          $1,663,000 and $2,251,000, respectively.  Interest income of
          approximately $156,000 and $212,000 was recognized on these
          receivables during the years ended September 30, 1997 and 1996,
          respectively, during the period in which they were impaired.


      7.  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
          yield on these receivables at September 30, 1997 and 1996 was
          approximately 8.94% and 8.71%, respectively.  Maturity dates
          range from 1997 to 2041.

          The following is a reconciliation of the face value of the other
          receivable investments to the Company's carrying value at
          September 30, 1997 and 1996.

                                            1997            1996
                                            -------------   -------------
            Face value of receivables       $ 265,087,029   $ 173,280,414
            Unrealized discounts, net of 
              unamortized acquisition 
              costs                          (100,552,675)    (65,786,264)
                                            -------------   -------------
            Carrying value                  $ 164,534,354   $ 107,494,150
                                            =============   =============

                                      F-31
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      7.  OTHER RECEIVABLE INVESTMENTS, CONTINUED:

          All such receivables were performing in accordance with their
          contractual terms at September 30, 1997.

          During the years ended September 30, 1997 and 1996, the Company
          sold approximately $7,722,000 and $27,853,000, respectively, of
          these receivables without recourse and recognized gains of
          approximately $37,000 and $1,882,000, respectively.

          The following other receivable investments, by obligor, were in
          excess of ten percent of stockholders' equity at September 30,
          1997 and 1996.
                                                            Aggregate
                                                            Carrying
            Issuer                                          Amount
            ---------------------------------------------   -------------
            1997:
              California State Agency                       $  27,991,509
              New York State Agency                            16,940,146
              Oregon State Agency                              12,439,539
              New Jersey State Agency                          11,348,481
              Arizona State Agency                             11,249,875
              Colorado State Agency                             8,515,139
              Pennsylvania State Agency                         8,163,646
              Tri-State Agency                                  7,934,432
              Michigan State Agency                             7,875,106
            1996:
              California State Agency                       $  24,718,527
              New York State Agency                            15,511,891
              New Jersey State Agency                          10,975,661
              Oregon State Agency                              10,532,006
              Arizona State Agency                             10,223,076
              Michigan State Agency                             8,518,973
              Colorado State Agency                             4,903,971

          Aggregate amounts of contractual maturities of other receivable
          investments (face amounts) are as follows:

            Fiscal Year Ending
            September 30,
            ------------------
            1998                                            $  25,071,000
            1999                                               25,625,000
            2000                                               26,678,000
            2001                                               25,309,000
            2002                                               22,733,000
            Thereafter                                        139,671,029
                                                            -------------
                                                            $ 265,087,029
                                                            =============
                                      F-32
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      8.  DEFERRED COSTS:

          An analysis of deferred costs related to policy acquisition and
          debenture issuance for the years ended September 30, 1997, 1996
          and 1995 is as follows:

     <TABLE>
     <CAPTION>
                                              Policy         Debenture
                                              Acquisition    Issuance       Total
                                              ------------   ------------   ------------
              <S>                             <C>            <C>            <C>
              Balance at September 30, 1994   $ 71,074,642   $  3,032,875   $ 74,107,517
                 Deferred during the year:
                   Commissions                   9,383,938      1,461,033     10,844,971
                   Other expenses                3,587,804        280,196      3,868,000
                                              ------------   ------------   ------------
                 Total deferred                 84,046,384      4,774,104     88,820,488
                 Amortized during the year     (10,300,547)    (1,383,360)   (11,683,907)
                 Reduction upon sale of 
                   subsidiary                   (2,614,778)                   (2,614,778)
                                              ------------   ------------   ------------
              Balance at September 30, 1995     71,131,059      3,390,744     74,521,803
                 Deferred during the year:
                   Commissions                   6,503,580        191,064      6,694,644
                   Other expenses                3,438,804        402,360      3,841,164
                                              ------------   ------------   ------------
                 Total deferred                 81,073,443      3,984,168     85,057,611
                 Amortized during the year      (9,140,559)    (1,386,691)   (10,527,250)
                                              ------------   ------------   ------------
              Balance at September 30, 1996     71,932,884      2,597,477     74,530,361
                 Deferred during the year:
                   Commissions                   4,000,805      1,283,612      5,284,417
                   Other expenses                3,229,197        277,257      3,506,454
                                              ------------   ------------   ------------
                 Total deferred                 79,162,886      4,158,346     83,321,232
                 Amortized during the year      (9,432,884)    (1,385,253)   (10,818,137)
                                              ------------   ------------   ------------
              Balance at September 30, 1997   $ 69,730,002   $  2,773,093   $ 72,503,095
                                              ============   ============   ============
      </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.

          The amortization of debenture issuance costs could be affected by
          an increase in the redemption of the debenture bonds, which is
          based on the expected terms of the debentures.  As a result, the
          scheduled amortization could change in the near term.

                                      F-33
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      9.  LAND, BUILDINGS AND EQUIPMENT:

          Land, buildings, equipment and related accumulated depreciation
          at September 30, 1997 and 1996 consisted of the following:

                                              1997           1996
                                              ------------   ------------
            Land                              $    561,794   $    561,794
            Buildings and improvements           7,014,199      6,850,175
            Furniture and equipment             12,169,392     10,365,201
                                              ------------   ------------
                                                19,745,385     17,777,170
            Less accumulated depreciation      (10,336,807)    (9,260,572)
                                              ------------   ------------
            Totals                            $  9,408,578   $  8,516,598
                                              ============   ============

          During the year ended September 30, 1997, the Company entered
          into an agreement to acquire a new corporate headquarters
          building in Spokane, Washington.  The transaction, which is
          expected to close in the first quarter of fiscal 1998, carried a
          purchase price of approximately $11.7 million.  Additionally, the
          Company expects to incur approximately $5 million of capital
          expenditures for the renovation of the corporate headquarters
          building.


     10.  LIFE INSURANCE AND ANNUITY RESERVES:

          Life insurance and annuity reserves are based upon contractual
          amounts due to the annuity holder, including credited interest. 
          Annuity contract interest rates ranged from 4.35% to 10.10% and
          4.25% to 10.65% during the years ended September 30, 1997 and
          1996, respectively.  Interest assumptions used to compute life
          insurance reserves ranged from 5.0% to 6.5% during each of the
          years ended September 30, 1997 and 1996.

          The Company's life insurance subsidiary has ceded a portion of
          certain life insurance risks and the related premiums to other
          companies.  These insurance transactions permit the Company to
          recover defined portions of losses from claims on life insurance
          policies issued by the Company.  The reinsured risks are treated
          as though they are risks for which the subsidiary is not liable. 
          Life insurance reserves, as reported in these financial
          statements, do not include reserves on the ceded business.  The
          face value of life insurance policies ceded to other companies
          was approximately $52,328,000 and $58,679,000 at September 30,
          1997 and 1996, respectively.  Life insurance premiums ceded were
          $352,311 and $354,830 during the years ended September 30, 1997
          and 1996, respectively.  The Company is contingently liable for

                                      F-34
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     10.  LIFE INSURANCE AND ANNUITY RESERVES, CONTINUED:

          claims on ceded life insurance business in the event the
          reinsuring companies do not meet their obligations under those
          reinsurance agreements.  The Company evaluates the financial
          condition of its reinsurers and monitors concentrations of credit
          risk to minimize its exposure to significant losses from
          reinsurer insolvencies.

          Beginning in fiscal year 1997, the Company's life insurance
          subsidiary has ceded a portion of its annuity reserves and
          related premiums to OSL, an affiliated entity.  The reinsured
          annuity deposits are treated as liabilities for which the
          Company's life insurance subsidiary is not liable, and
          accordingly, annuity reserves, as reported in these financial
          statements, do not include reserves on the ceded business. 
          Annuity premiums ceded under this arrangement during the year
          ended September 30, 1997 were approximately $28,000,000 and the
          ceded reserve was approximately $28,359,000 at September 30,
          1997.  The life insurance subsidiary is contingently liable for
          claims on ceded annuity business in the event OSL is unable to
          meet its obligation under the reinsurance agreement.


     11.  GUARANTY FUND ASSESSMENTS:

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

          The net amounts expensed by the Company's life insurance
          subsidiary for guaranty fund assessments and amounts estimated to
          be assessed for the years ended September 30, 1997, 1996 and 1995
          were $480,000, $900,000 and $782,000, 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 1988 through 1995.  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

                                      F-35
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     11.  GUARANTY FUND ASSESSMENTS, CONTINUED:

          change in the near term.  The Company does not believe that the
          amount of future assessments associated with known insolvencies
          after 1995 will be material to its financial condition or results
          of operations.  At September 30, 1997, the amount of estimated
          future guaranty fund assessments of approximately $3,898,000 has
          been recorded, which is net of a 8.25% discount rate applied to
          the estimated payment term of approximately seven years.  The
          remaining unamortized discount associated with this accrual was
          approximately $412,000 at September 30, 1997.


     12.  DEBENTURE BONDS:

          At September 30, 1997 and 1996, debenture bonds consisted of the
          following:

            Annual Interest Rates           1997            1996
            -----------------------------   ------------    ------------
            5% to 6%                        $     64,000    $    537,000
            6% to 7%                           5,366,000       4,979,000
            7% to 8%                          49,022,000      51,261,000
            8% to 9%                         100,665,000      84,372,000
            9% to 10%                          2,084,000      20,136,000
            10% to 11%                         1,968,000       1,749,000
                                            ------------    ------------
                                             159,169,000     163,034,000
            Compound and accrued interest     26,044,688      29,139,751
                                            ------------    ------------
                                            $185,213,688    $192,173,751
                                            ============    ============

          Unamortized debenture issuance costs incurred in connection with
          the sale of debentures aggregated $2,773,093 and $2,597,477 at
          September 30, 1997 and 1996, respectively, and are included in
          deferred costs on the consolidated balance sheets.

          Debenture bonds at September 30, 1997 mature as follows:

            Fiscal Year Ending
            September 30,
            ------------------
            1998                                            $ 58,369,000
            1999                                              44,701,000
            2000                                              41,916,000
            2001                                               6,311,000
            2002                                              26,313,000
            Thereafter                                         7,603,688
                                                            ------------
                                                            $185,213,688
                                                            ============
                                      F-36
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     12.  DEBENTURE BONDS, CONTINUED:

          At September 30, 1997, as required by Washington State
          regulation, the parent company could not have more than an
          aggregate total of $295,800,000 in outstanding debentures
          (including accrued and compound interest) and outstanding
          preferred stock (based on original sales price).  At
          September 30, 1997, the Company had total outstanding debentures
          of approximately $185,214,000 and total outstanding preferred
          stock of approximately $50,729,000.


     13.  DEBT PAYABLE:

          At September 30, 1997 and 1996, debt payable consisted of the
          following:

      <TABLE>
      <CAPTION>
                                                               1997          1996
                                                               -----------   -----------
              <S>                                              <C>           <C>
              Reverse repurchase agreements with Seattle 
                 Northwest, interest at 6.15% per annum; 
                 due on October 2, 1997; collateralized
                 by $2,900,000 in U.S. Treasury bonds          $ 2,896,375

              Reverse repurchase agreements with various 
                 securities brokers, interest at 5.0% to 
                 5.8% per annum; due on October 1, 1996; 
                 collateralized by $17,700,000 in U.S. 
                 government-backed bonds                                     $16,834,750

              Reverse repurchase agreements with Paine-
                 Webber, interest at 5.38% per annum; 
                 due on October 4, 1996; collateralized
                 by $20,000,000 in U.S. Treasury bonds                        18,650,000

              Real estate contracts and mortgage notes 
                 payable, interest rates ranging from 
                 3.0% to 11.6%, due in installments through 
                 2016; collateralized by senior liens on 
                 certain of the Company's real estate 
                 contracts, mortgage notes and real estate 
                 held for sale                                   1,988,843     2,965,107

              Accrued interest payable                              32,561       151,289
                                                               -----------   -----------
                                                               $ 4,917,779   $38,601,146
                                                               ===========   ===========
      </TABLE>

                                      F-37
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     13.  DEBT PAYABLE, CONTINUED:

          Aggregate amounts of principal and accrued interest payments due
          on debt payable at September 30, 1997 are as follows:

            Fiscal Year Ending
            September 30,
            ------------------
            1998                                              $3,755,000
            1999                                                 296,000
            2000                                                 172,000
            2001                                                 220,000
            2002                                                 119,000
            Thereafter                                           355,779
                                                              ----------
                                                              $4,917,779
                                                              ==========

     14.  INCOME TAXES:

          The Company files a consolidated federal income tax return with
          all of its subsidiaries.

          The income tax effects of the temporary differences giving rise
          to the Company's deferred tax assets and liabilities as of
          September 30, 1997 and 1996 are as follows:

                                                 1997
                                                 -------------------------
                                                 Assets        Liabilities
                                                 ------------  -----------
            Allowance for losses on real 
              estate assets                      $ 3,249,751
            Allowances for repossessed real
              estate                                 964,234
            Deferred contract acquisition 
              costs and discount yield 
              recognition                                      $13,464,592
            Office properties and equipment                      1,820,852
            Deferred policy acquisition costs                   22,714,853
            Life insurance and annuity 
              reserves                             7,920,469
            Guaranty fund liability                1,325,299
            Investments                              238,796
            Tax credit carryforwards               1,692,052
            Other                                                2,143,518
            Net operating loss carryforwards       2,723,436
                                                 -----------   -----------
            Total deferred income taxes          $18,114,037   $40,143,815
                                                 ===========   ===========

                                      F-38
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     14.  INCOME TAXES, CONTINUED:
                                                 1996
                                                 -------------------------
                                                 Assets        Liabilities
                                                 ------------  -----------
            Allowance for losses on real 
              estate assets                      $ 2,678,016
            Allowances for repossessed real 
              estate                                 707,643
            Deferred contract acquisition 
              costs and discount yield 
              recognition                                      $16,715,163
            Office properties and equipment                      1,776,499
            Deferred policy acquisition 
              costs                                             22,964,052
            Life insurance and annuity 
              reserves                             9,018,029
            Guaranty fund liability                1,353,320
            Investments                                            636,939
            Tax credit carryforwards               1,742,000
            Other                                                  735,264
            Net operating loss carryforwards       9,739,608
                                                 ------------  ------------
            Total deferred income taxes          $25,238,616   $42,827,917
                                                 ===========   ===========

          No valuation allowance has been established to reduce 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.

          Following is a reconciliation of the provision for income taxes
          to an amount as computed by applying the statutory federal income
          tax rate to income before income taxes:

      <TABLE>
      <CAPTION>
                                                    1997         1996         1995
                                                    ----------   ----------   ----------
              <S>                                   <C>          <C>          <C>
              Federal income taxes at statutory 
                 rate                               $5,053,484   $4,209,817   $3,224,472
              State taxes and other                     19,028       25,652     (116,575)
                                                    ----------   ----------   ----------
              Income tax provision                  $5,072,512   $4,235,469   $3,107,897
                                                    ==========   ==========   ==========
      </TABLE>
                                              F-39
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     14.  INCOME TAXES, CONTINUED:

          The components of the provision for income taxes are as follows:

     <TABLE>
     <CAPTION>
                                                    1997         1996         1995
                                                    ----------   ----------   ----------
              <S>                                   <C>          <C>          <C>
              Current                               $1,004,926   $  595,113   $  359,907
              Deferred                               4,067,586    3,640,356    2,747,990
                                                    ----------   ----------   ----------
                                                    $5,072,512   $4,235,469   $3,107,897
                                                    ==========   ==========   ==========
      </TABLE>

          At September 30, 1997, the Company and its subsidiaries had
          unused net operating loss carryforwards, for income tax purposes,
          as follows:

                                                              Net
                                                              Operating
            Expiring in                                       Losses
            ------------------                                ----------
            2005                                              $1,452,034
            2006                                               5,612,555
            2007                                                 945,516
                                                              ----------
                                                              $8,010,105
                                                              ==========

          At September 30, 1997, the Company has alternative minimum tax
          credits of approximately $1,134,000 and general business tax
          credit carryforwards of approximately $558,000 available to
          reduce regular income taxes payable.  The general business tax
          credit carryforwards begin to expire in 2004.

                                      F-40
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     15.  STOCKHOLDERS' EQUITY:

          A summary of preferred and common shares at September 30, 1997
          and 1996 is as follows:

     <TABLE>
     <CAPTION>
                                             Issued and Outstanding Shares
                                             -------------------------------------------------
                                             1997                      1996
                                             -----------------------   -----------------------
                                 Authorized
                                 Shares      Shares      Amount        Shares      Amount
                                 ----------  ---------   -----------   ---------   -----------
              <S>                <C>         <C>         <C>           <C>         <C>
              Preferred Stock
                 Series A          750,000                                      
                 Series B          200,000                                      
                 Series C        1,000,000     413,554   $ 4,135,540     438,343   $ 4,383,432
                 Series D        1,375,000     637,627     6,376,266     673,915     6,739,150
                 Series E        5,000,000   1,044,233    10,442,335   1,039,562    10,395,616
                                 ---------   ---------   -----------   ---------   -----------
                                 8,325,000   2,095,414   $20,954,141   2,151,820   $21,518,198
                                 =========   =========   ===========   =========   ===========
              Common Stock
                 Class A               222         130   $   293,417         130   $   293,417
                 Class B               222                                      
                                 ---------   ---------   -----------   ---------   -----------
                                       444         130   $   293,417         130   $   293,417
                                 =========   =========   ===========   =========   ===========
              Subordinate 
                 Preferred
                 Stock           1,000,000               $                         $
                                 =========   =========   ===========   =========   ===========
      </TABLE>

          The Series E preferred stock has been issued in the following
          sub-series:

     <TABLE>
     <CAPTION>
                                             Issued and Outstanding Shares
                                             -------------------------------------------------
                                             1997                      1996
                                             -----------------------   -----------------------
                                             Shares      Amount        Shares      Amount
                                             ---------   -----------   ---------   -----------
              <S>                            <C>         <C>           <C>         <C>
              Series E-1                       713,401   $ 7,134,008     728,698   $ 7,286,982
              Series E-2                        45,154       451,541      45,579       455,790
              Series E-3                       107,000     1,069,996     107,874     1,078,736
              Series E-4                        62,500       625,005      62,978       629,776
              Series E-5                        13,672       136,721      13,744       137,443
              Series E-6                        95,130       951,303      80,689       806,889
              Series E-7                         7,376        73,761            
                                             ---------   -----------   ---------   -----------
                                             1,044,233   $10,442,335   1,039,562   $10,395,616
                                             =========   ===========   =========   ===========
      </TABLE>
                                              F-41

     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     15.  STOCKHOLDERS' EQUITY, CONTINUED:

            PREFERRED STOCK

            Series A preferred stock has a par value of $1 per share, is
            cumulative and the holders thereof are entitled to receive
            dividends at the annual rate of 8.5%.  Series B preferred stock
            is cumulative and the holders thereof are entitled to receive
            monthly dividends at the annual rate of two percentage points
            over the rate payable on six-month U.S. Treasury Bills as
            determined by the Treasury Bill auction last preceding the
            monthly dividend declaration.  Series C, D and E-1 preferred
            stock are also 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"
            determined immediately prior to the 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 E-2, E-3, E-4, E-5, E-6 and
            E-7 preferred stock are also cumulative and the holders thereof
            are entitled to receive monthly dividends at an annual rate of
            one-half of one percent more than the rate in effect for the E-
            1 series; however, dividends shall be no less than 6% or
            greater than 14% per annum.

            Series B, C, D and E-1 preferred stock have a par value of $10,
            were sold to the public for $10 and are callable at the sole
            option of the Board of Directors at $10.50 per share reduced
            proratably to $10.20 per share as of the date five years from
            the date of issuance.  Series E-2, E-3, E-4, E-5, E-6 and E-7
            preferred stock have a par value of $10 per share, were sold to
            the public at $100 per share and are callable at the sole
            option of the Board of Directors at $100 per share.

            All preferred stock series 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.

            At September 30, 1997, as required by state regulation, the
            amount of the Company's aggregate total outstanding preferred
            stock and debentures was limited (see Note 12).

                                      F-42
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     15.  STOCKHOLDERS' EQUITY, CONTINUED:

            SUBORDINATE PREFERRED STOCK

            Subordinate preferred shares, no par value, shall be entitled
            to receive dividends as authorized by the Board of Directors,
            provided that such dividend rights are subordinate and junior
            to all series of preferred stock.  Subordinate preferred shares
            shall be entitled to distributions in liquidation in such
            priority as established by the Board of Directors prior to the
            issuance of any such shares.  These liquidation rights shall at
            all times be subordinate and junior to all series of preferred
            stock.  At September 30, 1997 and 1996, no subordinate
            preferred stock had been issued.

            COMMON STOCK

            Class A and B common stock have a par value of $2,250 per
            share.  Class B is senior to Class A common stock as to
            liquidation up to the amount of the original investment.  Any
            remaining amounts are then distributed pro rata to Class A and
            Class B common stockholders.  Class B common stock has no
            voting rights.  All series of common stock are subordinate in
            liquidation to all series of preferred stock.

            Dividend restrictions are imposed by regulatory authorities on
            the insurance subsidiary in which the Company has a 96.5% or
            greater stock ownership interest.  These restrictions are
            limited to the unassigned statutory surplus of the insurance
            subsidiary which totaled approximately $8,597,000 at
            September 30, 1997 (see Note 16).

                                      F-43
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     16.  STATUTORY ACCOUNTING:

          The Company's life insurance subsidiary is required to file
          statutory financial statements with state insurance regulatory
          authorities.  Accounting principles used to prepare these
          statutory financial statements differ from generally accepted
          accounting principles (GAAP).  Selected statutory and the GAAP
          financial statement balances for insurance subsidiaries as of and
          for the years ended September 30, 1997, 1996 and 1995 are as
          follows:

     <TABLE>
     <CAPTION>
                                                               Statutory     GAAP
                                                               -----------   -----------
              <S>                                              <C>           <C>
              Stockholders' equity:
                 1997                                          $51,751,693   $86,229,626
                 1996                                           48,721,922    81,605,742
                 1995                                           43,340,817    78,826,654

              Net income:
                 1997                                          $ 6,811,628   $ 4,051,900
                 1996                                            7,224,359     3,076,252
                 1995                                            2,634,919     2,717,893

              Unassigned statutory surplus and 
                 retained earnings:
                   1997                                        $ 8,596,693   $43,074,626
                   1996                                          5,566,922    38,450,742
                   1995                                          1,985,817    38,233,333

      </TABLE>

          Due to the sale of OSL during fiscal 1995, stockholders' equity
          and unassigned statutory surplus and retained earnings amounts
          above do not include OSL at September 30, 1995.  Also, the 1995
          net income above includes OSL operations through May 31, 1995.

          Under applicable Washington State Insurance laws and regulations,
          the Company's life insurance subsidiary is required to maintain
          minimum levels of surplus, determined in accordance with
          statutory accounting practices, in the aggregate amount of
          $150,000.  The Revised Code of Washington defines surplus as "the
          excess of statutory assets over statutory liabilities, accounting
          for the par value of capital stock as a liability." At
          September 30, 1997, the Company's life insurance subsidiary was
          in compliance with this requirement.

                                      F-44
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     16.  STATUTORY ACCOUNTING, CONTINUED:

          The National Association of Insurance Commissioners (NAIC)
          currently is in the process of codifying statutory accounting
          practices, the result of which is expected to constitute the only
          source of "prescribed" statutory accounting practices. 
          Accordingly, that project, which is expected to be completed in
          1998, will likely change, to some extent, prescribed statutory
          accounting practices that insurance enterprises use to prepare
          their statutory financial statements.  Written approval was
          received from the Insurance Department of the state of Washington
          to capitalize the underwriting fees charged to the life insurance
          subsidiary by Metropolitan and to amortize these fees as an
          adjustment of the yield on acquired receivables.  Statutory
          accounting practices prescribed by the state of Washington do not
          describe the accounting required for this type of transaction. 
          As of September 30, 1997, this permitted accounting practice
          increased statutory surplus by approximately $31,600,000 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 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
          insurance subsidiary at September 30, 1997 was above the minimum
          standards.


     17.  SUPPLEMENTAL DISCLOSURES FOR STATEMENTS OF CASH FLOWS:

          The following table summarizes interest costs, net of amounts
          capitalized and income taxes paid during the years ended
          September 30, 1997, 1996 and 1995:

      <TABLE>
      <CAPTION>
                                                 1997          1996          1995
                                                 -----------   -----------   -----------
              <S>                                <C>           <C>           <C>
              Interest, net of amounts 
                 capitalized                     $22,588,759   $12,653,377   $20,214,329
              Income taxes                         5,006,812     2,503,482     1,157,155
      </TABLE>
                                              F-45
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     17.  SUPPLEMENTAL DISCLOSURES FOR STATEMENTS OF CASH FLOWS, CONTINUED:

          Non-cash investing and financing activities of the Company during
          the years ended September 30, 1997, 1996 and 1995 are as follows:

     <TABLE>
     <CAPTION>

                                                 1997          1996          1995
                                                 -----------   -----------   -----------
              <S>                                <C>           <C>           <C>
              Loans to facilitate the sale of 
                 real estate held                $18,604,263   $39,102,941   $34,102,247
              Transfers between annuity 
                 products                         20,899,096    17,051,327    58,012,857
              Transfer of investment from 
                 held-to-maturity portfolio to
                 available-for-sale portfolio                   72,572,322
              Transfer of investments from 
                 available-for-sale portfolio to
                 trading securities portfolio     17,958,970
              Transfer of property from land, 
                 buildings and equipment to
                 real estate held for sale
                 and development                                               1,598,999
              Change in net unrealized (losses) 
                 gains on investments, net           723,854      (161,606)    2,005,960
              Real estate held for sale and 
                 development acquired through 
                 foreclosure                      14,977,384    14,270,520    13,850,388
              Debt assumed upon foreclosure
                 of real estate contracts                                         16,059
              Assumption of other debt payable 
                 in connection with the 
                 acquisition of real estate 
                 contracts and mortgage notes      1,638,727     3,633,657       526,868
              Reduction in assets and liabili-
                 ties associated with sale of 
                 subsidiaries:
                   Investment securities                                       9,401,577
                   Real estate contracts and 
                      mortgage notes receivable                               32,391,856
                   Real estate held for sale                                     514,889
                   Allowance for losses on 
                      real estate assets                                         322,548
                   Deferred costs                                              2,620,571
                   Equipment                                                      13,395
                   Other assets                                                  186,316
                   Annuity reserves                                           44,558,959
                   Accounts payable and accrued 
                      expenses                                                 1,653,970

     </TABLE>

                                              F-46
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     18.  BUSINESS SEGMENT REPORTING:

          The Company principally operates in the three industry segments
          which encompass: (1) the investing in real estate contracts and
          mortgage notes receivables, other receivables and investment
          securities, (2) insurance and annuity operations, and (3)
          property development.  The insurance segment also invests a
          substantial portion of the proceeds from insurance and annuity
          operations in real estate contracts and mortgage notes
          receivables, other receivables and investment securities.

          Information about the Company's separate business segments and in
          total as of and for the years ended September 30, 1997, 1996 and
          1995 are as follows:
     <TABLE>
     <CAPTION>
                                                                            Property         Intersegment
                                          Investing         Insurance       Development      Elimination       Total
                                          --------------    --------------  --------------   --------------    -------------
              <S>                         <C>               <C>             <C>              <C>               <C>
              September 30, 1997:
                 Revenues                 $    46,236,369   $  96,621,416   $   19,305,764   $    (7,028,883)  $ 155,134,666
                 Income (loss) from 
                   operations                  16,974,081       4,509,460       (6,620,353)                       14,863,188
                 Identifiable assets, net     250,167,675     958,432,546       66,566,307      (162,777,068)  1,112,389,460
                 Depreciation and 
                   amortization                 1,528,939         223,848        4,985,608                         6,738,395
                 Capital expenditures           1,977,251          11,995                                          1,989,246

              September 30, 1996:
                 Revenues                 $    37,093,527   $  92,893,077   $   33,948,826   $    (7,063,061)  $ 156,872,369
                 Income (loss) from 
                   operations                   9,869,632       6,080,155       (3,567,973)                       12,381,814
                 Identifiable assets, net     237,724,744   1,133,741,015       68,148,987      (156,955,928)  1,282,658,818
                 Depreciation and 
                   amortization                 1,388,222         181,093        3,048,349                         4,617,664
                 Capital expenditures           1,325,151          44,651                                          1,369,802

              September 30, 1995:
                 Revenues                 $    29,861,448   $  88,344,548   $   27,178,017   $    (7,276,528) $  138,107,485
                 Income (loss) from 
                   operations                   5,573,034       4,695,158         (784,452)                        9,483,740
                 Identifiable assets, net     204,166,053     929,358,768       78,272,958      (131,329,779)  1,080,468,000
                 Depreciation and 
                   amortization                 1,172,856         119,476        1,730,901                         3,023,233
                 Capital expenditures             811,006          83,667                                            894,673
     </TABLE>
                                       F-47
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     18.  BUSINESS SEGMENT REPORTING, CONTINUED:

          In June 1997, Statement of Financial Accounting Standards
          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 its consolidated financial statements.


     19.  RELATED-PARTY TRANSACTIONS:

          During the years ended September 30, 1997, 1996 and 1995, the
          Company had the following related-party transactions with Summit
          and other affiliates:

     <TABLE>
     <CAPTION>
                                                 1997          1996          1995
                                                 -----------   -----------   -----------
              <S>                                <C>           <C>           <C>
              Real estate contracts and mort-
                 gage notes receivable and
                 other receivable investments 
                 sold to Summit, OSL and 
                 Arizona Life Insurance 
                 Company (AZL)                   $61,792,877   $45,137,473   $59,578,347
              Net reinsurance premiums ceded 
                 to OSL                           27,689,967
              Contract acquisition costs 
                 charged to Summit, OSL and 
                 AZL on  sale of real estate 
                 contracts and mortgage notes 
                 receivable and  other receiv-
                 able investments, including 
                 management underwriting fees      3,419,394     1,753,206     1,967,409
              Gain on real estate contract and 
                 mortgage notes receivable and 
                 other receivable investments 
                 purchased from Summit and OSL                                   335,469

     </TABLE>
                                              F-48
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     19.  RELATED-PARTY TRANSACTIONS, CONTINUED:
     <TABLE>
     <CAPTION>
                                                 1997          1996          1995
                                                 -----------   -----------   -----------
              <S>                                <C>           <C>           <C>
              Service fees paid to Summit 
                 Property Development            $ 1,845,207   $ 2,038,202   $ 1,250,017
              Commissions and service fees 
                 paid to MIS                       1,307,110       369,080     1,124,481
              Dividends paid to Summit on 
                 preferred stock                     240,267       200,256       256,991
      </TABLE>

          At September 30, 1997 and 1996, the Company had payables due to
          affiliates of $741,518 and $1,205,920, respectively, related
          primarily to advance payments on receivable acquisitions.


     20.  FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

            PUBLICLY TRADED INVESTMENT SECURITIES - Fair value is
            determined by quoted market prices.

            REAL ESTATE CONTRACTS AND MORTGAGE NOTES RECEIVABLE - For
            receivables (excluding accrued interest receivable), 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 loan.  For residential
            mortgage notes, 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.

            DEBENTURE BONDS AND DEBT PAYABLE - The fair value of debenture
            bonds 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-49
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     20.  FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:

            SECURITIES SOLD, NOT OWNED - Fair value is determined by quoted
            market prices, including accrued interest necessary to settle
            repurchase.

            OTHER FINANCIAL ASSETS AND LIABILITIES - The carrying amount of
            financial instruments in these classifications, including
            insurance policy loans approximates fair value.  Policy loans
            are charged interest on a variable rate subject to current
            market conditions, thus carrying amounts approximate fair
            value.

            The estimated fair values of the following financial
            instruments as of September 30, 1997 and 1996 are as follows:
     <TABLE>
     <CAPTION>
                                                                    1997
                                                                    -----------------------------
                                                                    Carrying
                                                                    Amounts         Fair Value
                                                                    -------------   -------------
                 <S>                                                <C>             <C>
                 Financial assets:
                   Cash and cash equivalents                        $  58,924,458   $  58,924,958
                   Investments:
                      Trading securities                               34,477,091      34,477,091
                      Available-for-sale securities                    36,621,351      36,621,351
                      Held-to-maturity securities                     113,730,535     112,711,688
                   Real estate contracts and mortgage notes 
                      receivable                                      503,564,765     527,951,852
                   Other receivable investments                       164,534,354     170,809,066
                 Financial liabilities:
                   Debenture bonds - principal and compound 
                      interest                                        182,546,047     187,109,699
                   Debt payable - principal                             4,885,218       4,934,939
      <CAPTION>
                                                                    1996
                                                                    -----------------------------
                                                                    Carrying
                                                                    Amounts         Fair Value
                                                                    -------------   -------------
                 Financial assets:
                   Cash and cash equivalents                        $ 167,879,080   $ 167,879,080
                   Investments:
                      Available-for-sale securities                    38,554,498      38,554,498
                      Held-to-maturity securities                     124,748,490     119,200,084
                   Real estate contracts and mortgage notes 
                      receivable                                      642,570,771     668,373,000
                   Other receivable investments                       107,494,150     109,258,000
                 Financial liabilities:
                   Debenture bonds - principal and compound 
                      interest                                        189,320,833     191,631,000
                   Debt payable - principal                            38,449,857      38,486,000
                   Securities sold, not owned                         132,652,334     132,652,334
     </TABLE>
                                              F-50
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     20.  FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:

            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.


     21.  EMPLOYEE BENEFIT PLANS:

          The Company sponsors a Retirement Savings Plan (the Plan),
          authorized under Section 401(k) of the Tax Reform Act of 1986, as
          amended.  This Plan is available to all employees over the age of
          21 upon completion of six months of service in which he or she
          has completed 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 had a net profit during the preceding
          fiscal year.  The Company's contributions to the Plan were
          approximately $110,000, $93,000 and $70,000 during the years
          ended September 30, 1997, 1996 and 1995, respectively.

                                      F-51
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     22.  PARENT COMPANY ONLY FINANCIAL STATEMENTS:

          The condensed balance sheets of Metropolitan Mortgage &
          Securities Co., Inc. ("Metropolitan" or the "parent company") at
          September 30, 1997 and 1996 are as follows:

     <TABLE>
     <CAPTION>
                                                                    1997            1996
                                                                    -------------   -------------
                              ASSETS
              <S>                                                   <C>             <C>
              Cash and cash equivalents                             $   6,395,707   $   4,807,147
              Investments                                              28,186,682       8,840,977
              Real estate contracts and mortgage notes 
                 receivable and other receivable investments           60,562,209      72,018,452
              Real estate held for sale and development                68,816,344      69,360,885
              Allowance for losses on real estate assets              (10,220,537)     (6,297,676)
              Equity in subsidiary companies                           99,088,985      97,302,358
              Land, buildings and equipment, net                       10,280,724       9,376,863
              Prepaid expenses and other assets, net                   10,770,248      12,620,101
              Accounts and notes receivable, net                        7,836,274       5,190,592
              Receivables from affiliates                              19,210,838      24,626,214
                                                                    -------------   -------------
                   Total assets                                     $ 300,927,474   $ 297,845,913
                                                                    =============   =============
                            LIABILITIES

              Debenture bonds and accrued interest                  $ 185,213,688   $ 192,173,751
              Debt payable                                             25,131,716      13,155,334
              Accounts payable and accrued expenses                     4,818,165       7,463,342
              Deferred underwriting fee income                         31,651,171      38,710,154
                                                                    -------------   -------------
                   Total liabilities                                  246,814,740     251,502,581
                                                                    -------------   -------------
                         STOCKHOLDERS' EQUITY

              Preferred stock, $10 par (liquidation preference, 
                 $50,729,084 and $49,495,906, respectively)            20,954,141      21,518,198
              Subordinate preferred stock, no par                                
              Common stock, $2,250 par                                    293,417         293,417
              Additional paid-in capital                               18,596,231      16,791,670
              Retained earnings                                        14,536,114       8,731,070
              Net unrealized losses on investments                       (267,169)       (991,023)
                                                                    -------------   -------------
                   Total stockholders' equity                          54,112,734      46,343,332
                                                                    -------------   -------------
                   Total liabilities and stockholders' equity       $ 300,927,474   $ 297,845,913
                                                                    =============   =============
      </TABLE>

                                              F-52
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     22.  PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED:

          Metropolitan's condensed statements of income for the years ended
          September 30, 1997, 1996 and 1995 are as follows:

     <TABLE>
     <CAPTION>
                                                    1997            1996            1995
                                                    -------------   -------------   -------------
              <S>                                   <C>             <C>             <C>
              Revenues:
                 Interest and earned discounts      $  12,895,522   $   8,303,775   $   8,721,451
                 Fees, commissions, service and 
                   other income                        25,607,641      28,567,964      21,788,065
                 Real estate sales                     18,127,105      23,499,363       4,700,560
                 Realized net gains on sales of 
                   investments and receivables          8,211,741       2,357,010       1,134,510
                                                    -------------   -------------   -------------
                      Total revenues                   64,842,009      62,728,112      36,344,586
                                                    -------------   -------------   -------------

              Expenses:
                 Interest, net                         17,995,578      15,630,068      16,205,083
                 Cost of real estate sold              19,118,802      22,266,024       3,719,349
                 Provision for losses on real 
                   estate assets                        7,255,824       4,578,315       2,316,354
                 Salaries and employee benefits        12,396,324      12,085,532      10,035,360
                 Other operating expenses               3,810,812       1,523,541         816,134
                                                    -------------   -------------   -------------
                      Total expenses                   60,577,340      56,083,480      33,092,280
                                                    -------------   -------------   -------------

              Income from operations before 
                 income taxes and equity in net 
                 income of subsidiaries                 4,264,669       6,644,632       3,252,306
              Income tax provision                     (1,455,746)     (2,268,916)     (1,105,581)
                                                    -------------   -------------   -------------

              Income before equity in net 
                 income of subsidiaries                 2,808,923       4,375,716       2,146,725
              Equity in net income of 
                 subsidiaries                           6,859,388       3,661,948       4,155,921
                                                    -------------   -------------   -------------
              Net income                            $   9,668,311   $   8,037,664   $   6,302,646
                                                    =============   =============   =============

     </TABLE>
                                              F-53
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     22.  PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED:

          Metropolitan's condensed statements of cash flows for the years
          ended September 30, 1997, 1996 and 1995 are as follows:

     <TABLE>
     <CAPTION>
                                                    1997            1996            1995
                                                    -------------   -------------   -------------
              <S>                                   <C>             <C>             <C>
              Cash flows from operating 
                 activities:
                   Net income                       $   9,668,311   $   8,037,664   $   6,302,646
                   Adjustments to reconcile net 
                      income to net cash provided 
                      by operating activities         (40,384,815)     12,717,338      (3,909,025)
                                                    -------------   -------------   -------------
                        Net cash provided by (used 
                          in) operating activities    (30,716,504)     20,755,002       2,393,621
                                                    -------------   -------------   -------------

              Cash flows from investing 
                 activities:
                   Principal payments on real 
                      estate contracts and mort-
                      gage notes receivable and 
                      other receivable investments     18,604,302      12,480,667       5,069,237
                   Proceeds from sales of real 
                      estate contracts and mort-
                      gage notes receivable and 
                      other receivable investments    153,354,821      24,297,171      34,946,274
                   Acquisition of real estate 
                      contracts and mortgage
                      notes and other receivable 
                      investments                    (139,609,748)    (32,175,162)    (18,449,630)
                   Proceeds from real estate sales      4,250,277       9,221,958       1,876,900
                   Proceeds from sales of invest-
                      ments                                             3,294,326       7,647,099
                   Proceeds from maturities of 
                      investments                       6,922,604       5,800,000
                   Purchase of investments             (4,097,601)    (11,689,836)    (12,108,637)
                   Additions to real estate held 
                      for sale and development        (21,681,182)    (17,191,856)    (12,483,117)
                   Capital expenditures                (1,930,595)     (1,271,041)       (803,302)
                   Net change in investment in 
                      and advances to subsidiaries     11,164,783     (16,293,198)     (9,591,121)
                                                    -------------   -------------   -------------
                        Net cash provided by (used 
                          in) investing activities     26,977,661     (23,526,971)     (3,896,297)
                                                    -------------   -------------   -------------
      </TABLE>
                                              F-54
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     22.  PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED:

      <TABLE>
      <CAPTION>
                                                    1997            1996            1995
                                                    -------------   -------------   -------------
              <S>                                   <C>             <C>             <C>
              Cash flows from financing 
                 activities:
                   Net borrowings (repayments) 
                      from banks and others            11,815,877       7,497,807       4,156,501
                   Issuance of debenture bonds         38,510,520       9,125,303      53,120,179
                   Issuance of preferred stock          2,222,893       2,135,714       4,513,293
                   Repayment of debenture bonds       (42,376,231)    (22,906,185)    (48,970,828)
                   Cash dividends                      (4,112,988)     (3,868,148)     (4,539,503)
                   Redemption and retirement of 
                      stock                              (982,389)       (370,734)       (266,460)
                   Receipt of contingent sale 
                      price for subsidiary sold
                      to related party                    249,721
                                                    -------------   -------------   -------------
                        Net cash provided by (used 
                          in) financing activities      5,327,403      (8,386,243)      8,013,182
                                                    -------------   -------------   -------------

              Net increase (decrease) in cash and 
                 cash equivalents                       1,588,560     (11,158,212)      6,510,506
              Cash and cash equivalents at 
                 beginning of year                      4,807,147      15,965,359       9,454,853
                                                    -------------   -------------   -------------
              Cash and cash equivalents at end 
                 of year                            $   6,395,707   $   4,807,147   $  15,965,359
                                                    =============   =============   =============
     </TABLE>
                                              F-55
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     22.  PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED:

          Non-cash investing and financing activities not included in
          Metropolitan's condensed statements of cash flows for the years
          ended September 30, 1997, 1996 and 1995 are as follows:

     <TABLE>
     <CAPTION>
                                                    1997            1996            1995
                                                    -------------   -------------   -------------
              <S>                                   <C>             <C>             <C>
              Loans to facilitate the sale of 
                 real estate                        $  13,976,828   $  14,277,405   $   2,823,660
              Real estate acquired through 
                 foreclosure                            2,152,887         198,454       1,219,983
              Transfer of investments from 
                 available-for-sale portfolio to 
                 trading securities portfolio             576,377
              Debt assumed with acquisition of 
                 real estate contracts and mort-
                 gage notes and debt assumed 
                 upon foreclosure of real estate 
                 contracts                                165,744                         113,876
              Change in net unrealized gains 
                 (losses) on investments                  723,854        (161,606)      2,005,960
              Increase in assets and liabilities 
                 associated with liquidation
                 of subsidiary:
                   Real estate contracts and mort-
                      gage notes receivable                            30,052,954
                   Real estate held for sale                           27,915,041
                   Allowance for losses on real 
                      estate assets                                     1,107,129
                   Land, building and equipment, net                       15,518
                   Other assets                                         1,911,314
                   Accounts receivable                                  2,963,966
                   Debt payable                                            13,948
                   Accounts payable and accrued 
                      expenses                                          2,759,214
                   Investments in and advances to 
                      subsidiaries                                     58,978,502
      </TABLE>

          Accounting policies followed in the preparation of the preceding
          condensed financial statements of Metropolitan (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. 

                                      F-56
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     22.  PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED:

          At September 30, 1997 and 1996, Metropolitan's debt payable
          consists of the following:

     <TABLE>
     <CAPTION>
                                                                    1997            1996
                                                                    -------------   -------------
              <S>                                                   <C>             <C>
              Reverse repurchase agreement with a securities 
                 broker, interest at 6.15% per annum, due 
                 October 2, 1997; collateralized by $2,900,000 
                 in U.S. Treasury bonds                             $   2,896,375
              Revolving line of credit, interest at 8.75% per 
                 annum, due December 31, 1997; collateralized 
                 by certain of the Company's real estate 
                 contracts and mortgage notes                          12,000,000
              Reverse repurchase agreement with a securities 
                 broker, interest at 5.8% per annum, due 
                 October 1, 1996; collateralized by $2,700,000 
                 in U.S. government-backed bonds                                    $   2,678,500
              Real estate contracts and mortgage notes payable, 
                 interest rates ranging from 3% to 10.9%, due in 
                 installments through 2016; collateralized by 
                 senior liens on certain of the Company's  
                 real estate contracts, mortgage notes and real 
                 estate held for sale                                  10,220,242      10,456,496
              Accrued interest payable                                     15,099          20,338
                                                                    -------------   -------------
                                                                    $  25,131,716   $  13,155,334
                                                                    =============   =============
      </TABLE>

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

            Fiscal Year Ending
            September 30,
            ------------------
            1998                                              $15,309,000
            1999                                                  398,000
            2000                                                  370,000
            2001                                                  372,000
            2002                                                  335,000
            Thereafter                                          8,347,716
                                                              -----------
                                                              $25,131,716
                                                              ===========

                                      F-57
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     22.  PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED:

          At September 30, 1997 and 1996, Metropolitan's debenture bonds
          payable consisted of the following:

            Annual
            Interest
            Rates                             1997           1996
            ----------                        ------------   ------------
            5% to 6%                          $     64,000   $    537,000
            6% to 7%                             5,366,000      4,979,000
            7% to 8%                            49,022,000     51,261,000
            8% to 9%                           100,665,000     84,372,000
            9% to 10%                            2,084,000     20,136,000
            10% to 11%                           1,968,000      1,749,000
                                              ------------   ------------
                                               159,169,000    163,034,000
            Compound and accrued interest       26,044,688     29,139,751
                                              ------------   ------------
                                              $185,213,688   $192,173,751
                                              ============   ============

          Unamortized debenture issuance costs totaled $2,665,775 at
          September 30, 1997 and $2,597,477 at September 30, 1996.

          Maturities of the parent company's debenture bonds are as
          follows:

            Fiscal Year Ending
            September 30,
            ------------------
            1998                                              $ 58,369,000
            1999                                                44,701,000
            2000                                                41,916,000
            2001                                                 6,311,000
            2002                                                26,313,000
            Thereafter                                           7,603,688
                                                              ------------
                                                              $185,213,688
                                                              ============

                                      F-58
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     22.  PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED:

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

     <TABLE>
     <CAPTION>
                                                       1997          1996          1995
                                                       -----------   -----------   -----------
              <S>                                      <C>           <C>           <C>
              Dividends received:
                 Old Standard Life Insurance Company                               $ 1,922,000
                 Metropolitan Mortgage & Securities 
                   Co. of Alaska                       $ 2,134,000   $ 1,243,950
                 Spokane Mortgage Co.                                                  125,000
                 Western United Life Assurance 
                   Company                                               441,510       288,208
                 Beacon Properties, Inc.                                 185,000       360,000
                 Consumers Group Holding Co., Inc.         962,580     1,880,450       723,250
                 Metropolitan Investment Securities, 
                   Inc.                                                                138,950
                 Broadmore Park Factory Outlet, Inc.       200,000        85,000
                                                       -----------   -----------   -----------
                                                       $ 3,296,580   $ 3,835,910   $ 3,557,408
                                                       ===========   ===========   ===========
            Fees, commissions, service and other 
              income                                   $25,628,142   $26,969,251   $18,829,557
            Interest income                                894,995     1,858,521     4,152,257
      </TABLE>

          Metropolitan charged various subsidiaries and affiliated entities
          for underwriting fees of $20,068,000 in 1997, $29,362,000 in 1996
          and $14,936,306 in 1995 related to contracts sold to these
          entities.  Amounts charged to subsidiaries are deferred and
          recognized as income over the estimated life of the contracts. 
          Amounts amortized into service fee income were $17,432,885 in
          1997, $18,323,435 in 1996 and $10,416,849 in 1995.

          The underwriting fees are based upon a yield requirement
          established by the purchasing entity.  For contracts acquired to
          sell to Western United Life Assurance Co. (Western United), one
          of Metropolitan's subsidiaries, the yield is guaranteed by
          Metropolitan.  In connection with its guarantee, Metropolitan has
          holdbacks of $9,528,000 and $12,538,000 at September 30, 1997 and
          1996, respectively.

                                      F-59




<PAGE>  75

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

      None.



<PAGE>  76

                                   PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

                                  MANAGEMENT
                                       
              Directors, Executive Officers and Certain Employees
              (Age Information Current as of September 30, 1997)

<TABLE>
<CAPTION>
Name                    Age                      Position
____                    ___   ______________________________________________
<S>                     <C>   <C>
C. Paul Sandifur, Jr.*  55    President, CEO and Chairman of the Board
Bruce J. Blohowiak*     43    Executive Vice President, Corporate Counsel
                                And Director
Michael Kirk            45    Senior Vice President/Production
Jay Caferro*            50    Senior Vice President/Underwriting
Steven Crooks*          51    Vice President, Controller and Acting Chief
                                Financial Officer
Susan Thomson*          37    Vice President and Assistant Corporate Counsel
Jon McCreary            29    Acting Treasurer
Reuel Swanson           58    Secretary and Director
John Van Engelen        44    President, Western United
Irv Marcus              73    Director
Charles H. Stolz        89    Director
John Trimble            67    Director
Harold Erfurth          80    Director
Neil Fosseen            88    Honorary Director

<FN>
*Member of Executive Committee
</TABLE>

      Directors and officers are elected to one-year terms.

      C. Paul Sandifur, Jr. became Executive Vice President in 1980, was
elected President in 1981, succeeded his father as Chief Executive Officer in
1991 and became Chairman of the Board in 1995.  He has been a Director since
1975.  Mr. Sandifur was a real estate salesman with Diversified Properties in
Kennewick, Washington during 1977 and 1978 and then with Century 21 Real
Estate in Kennewick.  In June 1979, he became an associate broker with Red
Carpet Realty in Kennewick before rejoining Metropolitan in 1980.  He is a
Director and Officer of most of the subsidiary companies.  He is the sole
shareholder of National Summit Corp., which in turn is the sole shareholder of
former subsidiaries of Metropolitan, Summit and Old Standard.

      Bruce J. Blohowiak joined Metropolitan's legal staff in 1979 and became
its Corporate Counsel in 1986.  In 1987, he became an Assistant Vice President
and was appointed a Vice President in

<PAGE>  77

 1990.  In 1995 he was named Executive Vice President and Chief Operating
Officer.  He is also a Vice President of Western United.  A member of the
Washington State bar, Mr. Blohowiak received his J. D. degree from Gonzaga
University School of Law in 1979.

      Michael Kirk joined Metropolitan as a Receivable Contract Buyer in 1982.
He later became a member of the underwriting committee.  He was elected
Assistant Vice President in 1990, Vice President in 1992 and became Senior
Vice President-Production in 1995.

      Jay Caferro joined Metropolitan in 1990 as a member of its Underwriting
Committee.  He was promoted to Underwriting Manager, and to Senior Vice
President during 1995.  From 1986 to 1990, he was employed by Seattle First
National Bank as Vice President of Commercial Real Estate Lending for Eastern
Washington.  Prior to 1986, he had worked 15 years in residential lending.  He
has a BA and MBA from Gonzaga University.

      Steven Crooks has been employed in Metropolitan's accounting department
since 1972.  He became Controller and Assistant Vice President in 1990, Vice
President in 1994, and Acting Chief Financial Officer in 1996.  Mr. Crooks has
been a Washington licensed Certified Public Accountant since 1974.

      Susan Thomson joined Metropolitan's legal staff in 1989.  In 1993, she
was appointed Assistant Secretary for Metropolitan and in 1995 was appointed
Vice President.  During 1996, she was appointed Vice President of Western
United.  She is a member of the Washington State Bar Association and received
her J.D. from Gonzaga University School of Law in 1989.

      Reuel Swanson has worked for Metropolitan since 1960 and has been a
Director since 1969.  From 1972 to 1975, Mr. Swanson was Metropolitan's
Treasurer.  In 1976, he became Secretary.  He is also a Director and Secretary
of most of the subsidiary companies.

      Jon McCreary joined Metropolitan in 1993 as a Treasury Analyst and is
currently the Acting Treasurer.  Mr. McCreary has six years experience in
portfolio management, financial analysis and accounting.  He has previously
been employed by Electronic Data Systems as a Financial Analyst and Public
Utility District No. 2 of Grant County as an Accountant.  Mr. McCreary is a
CFA, CPA and CMA and holds a BS in Finance from Central Washington University.

      John Van Engelen joined Metropolitan's insurance subsidiary, Western
United in 1984 as its underwriting manager, and shortly thereafter was
appointed Vice President-Underwriting.  From 1987-1994, he was the marketing
manager.  During 1994, he was appointed

<PAGE>  78

 President.  Prior to working for Western United, he had worked in the
insurance industry and in corporate and public accounting.  He holds the
following certifications CPA,CFP,CLU,CHFC,FLMI.

      Irv Marcus had been an Officer of Metropolitan from 1974 until his
retirement in 1995.  At retirement, he was Senior Vice President, a title
which he had held since 1990, and during which time he supervised
Metropolitan's Receivable investing operations.  He had previously been a loan
officer with Metropolitan and has over 25 years experience in the consumer
finance business.  He continues as a Director following his retirement.

      Charles H. Stolz has been a Director of Metropolitan since 1953.  Mr.
Stolz was one of the founders of Metropolitan.  He is a licensed public
accountant and has been a realtor for over 25 years.  He is a former Chairman
of the Washington State Real Estate Commission and President of the Spokane
Board of Realtors.

      John Trimble had been employed by Metropolitan from 1980 until his
retirement in 1995.  His principal area of responsibility was Receivables
underwriting.  At retirement he was Vice President.  He became a Director in
February 1996.

      Harold Erfurth was a stockbroker, and independent contractor selling the
securities issued and offered by Metropolitan from 1972 to 1983.  He served as
a Director from 1979 to 1994, and was elected as a Director again in 1996.

      Neil Fosseen was elected Honorary Director of Metropolitan in 1995.  As
an Honorary Director, he is not entitled to vote at board meetings.  Mr.
Fosseen was mayor of Spokane from 1960-1967.  He has over 30 years of
experience in banking and finance.

ITEM 11.    EXECUTIVE COMPENSATION

                            EXECUTIVE COMPENSATION

      The following table sets forth the aggregate compensation paid by
Metropolitan during the fiscal years specified to its Chief Executive Officer
and other highly compensated executives.  All other executive officers of
Metropolitan received less than $100,000 in compensation during the year ended
September 30, 1997.  No executive officer is a party to, or a participant in,
any pension plan, contract or other arrangement providing for cash or non-cash
forms of remuneration except Metropolitan's 401(k) qualified retirement plan
adopted as of January 1, 1992, which is available generally to all employees
of Metropolitan, except as described below.  See "EMPLOYMENT CONTRACTS AND
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS."  The 401(k)
Plan provides for maximum annual company matching contributions equal

<PAGE>  79

 to 3% of each participant's salary. As of September 30, 1997, Metropolitan
had no stock option plans in effect.

<TABLE>
<CAPTION>
                          SUMMARY COMPENSATION TABLE

             (a)                          (b)       (c)            (d)
_________________________________         ____   __________    ___________
                                                                 Bonus/
Name and Principal Position               Year   Salary ($)    Commissions
___________________________               ____   __________    ___________
<S>                                       <C>    <C>           <C>
C. Paul Sandifur, Jr.                     1997   $ 150,000     
Chief Executive Officer                   1996   $ 147,145     
                                          1995   $ 128,869     $   1,004
                                                               
Bruce Blohowiak                           1997   $ 126,667     
Executive Vice President                  1996   $ 105,000
General Counsel                           1995   *
                                                               
Michael Kirk                              1997   $  85,000     $ 103,021
Senior Vice President-Production          1996   $  85,000     $  91,867
                                          1995   $  65,813     $  38,050
                                                               
John Van Engelen                          1997   $ 102,000     $  39,581
President, Western United                 1996   $ 105,500     $  19,747
                                          1995   *

<FN>
*Salaries and other compensation were less than $100,000
</TABLE>

                           COMPENSATION OF DIRECTORS

      Directors (including honorary Directors) of Metropolitan are paid $500
per meeting.

              EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
                      AND CHANGE IN CONTROL ARRANGEMENTS

      Metropolitan has executed employment contracts with the following
executive officers.

<TABLE>
<CAPTION>
     Name            Effective Date       Term Ends         Compensation
_______________      ______________     _____________       ____________
<S>                  <C>                <C>                <C>
Bruce Blohowiak       June 1, 1997       May 31, 2002        $400,000
                                                           
                                                           
<PAGE>  80                                                 
Jon McCreary          June 1, 1997       May 31, 2002        $250,000
Michael Kirk          June 1, 1997       May 31, 2002        $354,406
</TABLE>

      These agreements provide that should the officer continue employment for
the designated term, the officer shall receive the designated compensation.
The agreements include non-compete provisions and non-disclosure of trade
secret provisions.

          COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

      Metropolitan does not have a formal compensation committee of the Board
of Directors.  Executive Officer compensation is determined by C. Paul
Sandifur, Jr., Bruce J. Blohowiak and/or the Human Resources Manager.  There
are no compensation committee interlocks between the above described
individuals and another entity's compensation committee.  None of the above
described individuals serve as an executive officer of another entity outside
the Consolidated Group.  Mr. Sandifur is the sole shareholder of National
Summit, which in turn owns Summit, Old Standard and Arizona Life.  The
Consolidated Group engages in various transactions with these companies.  See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" under Item 13.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                            OWNERSHIP OF MANAGEMENT
                                       
      The following table sets forth certain information as to each class of
equity securities of Metropolitan and its subsidiaries beneficially owned by
Metropolitan officers and directors as of September 30, 1997.

<TABLE>
<CAPTION>
                                                   Number of     
                                                     Shares      
                                                  Beneficially   
Name                        Title of class           Owned       % of Class
____                    ______________________    ____________   __________
<S>                     <C>                       <C>            <C>
C. Paul Sandifur, Jr.   Metropolitan Preferred                   
929 West Sprague          Stock, All Series            257          0.05%
Spokane, WA  99201      Metropolitan Class A                     
                          Common Stock             35.6925         27.37%
                                                                 
C. Paul Sandifur, Jr.   Metropolitan Class A                     
  Trustee(1)              Common Stock             82.4667(1)      63.24%
929 West Sprague
Spokane, WA  99201
                                                                 
                                                                 
                                                                 
<PAGE>  81                                                       
Summit Securities,      Metropolitan Preferred                   
  Inc.(2)                 Stock, All Series        248,025(2)       5.14%
929 West Sprague        Metropolitan Class A                     
Spokane, WA  99201        Common Stock              9.2483(2)       7.09%
                                                                 
Irv Marcus              Metropolitan Preferred                   
929 West Sprague          Stock, All Series            406          0.01%
Spokane, WA  99201      Metropolitan Class A                     
                          Common Stock              1.0000          0.77%
                                                                 
Bruce J. Blohowiak      Metropolitan Class A                     
929 West Sprague          Common Stock              2.0000          1.53%
Spokane, WA  99201
                                                                 
Charles H. Stolz        Metropolitan Preferred                   
929 West Sprague          Stock, All Series         19,477          0.38%
Spokane, WA  99201
                                                                 
All Officers and        Metropolitan Preferred                   
  Directors as a          Stock, All Series        268,165          5.58%
  group                 Metropolitan Class A                     
                          Common Stock            130.4075        100.00%

<FN>
(1)   C. Paul Sandifur, Jr. is trustee of the C. Paul Sandifur and J. Evelyn
      Sandifur irrevocable trust and has sole voting and sole investment
      control over these shares of stock.  The trust beneficiaries are C.
      Paul Sandifur, Jr., Mary L. Sandifur and William F. Sandifur.

(2)   Summit Securities, Inc. is a wholly owned subsidiary of National Summit
      Corp., a Delaware corporation, which is wholly owned by C. Paul
      Sandifur, Jr.  As a result, Mr. Sandifur effectively has sole voting
      and investment control over these shares.
</TABLE>

                            PRINCIPAL SHAREHOLDERS

      The following table sets forth information with respect to the
beneficial owners of more than five percent of Metropolitan's voting stock as
of September 30, 1997.

<TABLE>
<CAPTION>
                                        Shares of Class A      
Name and Address                          Common Stock         % of Class
________________                        _________________      ___________
<S>                                     <C>                    <C>
C. Paul Sandifur, Jr.                       35.6925              27.37%
  929 West Sprague
  Spokane, WA  99201
                                                               
C. Paul Sandifur, Jr.                       82.4667              63.24%
Trustee
                                                               
                                                               
<PAGE>  82                                                     
                                                               
Summit Securities, Inc.                      9.2483               7.09%
  929 West Sprague
  Spokane, WA  99201

<FN>
(1)   C. Paul Sandifur, Jr. is trustee of the C. Paul Sandifur and J. Evelyn
      Sandifur irrevocable trust and has sole voting and sole investment control
      over these shares of stock.  The trust beneficiaries are C. Paul Sandifur,
      Jr., Mary L. Sandifur and William F. Sandifur.
</TABLE>

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with and between Metropolitan and Subsidiaries

      In the normal course of business, Metropolitan and its subsidiaries
engage in intercompany transactions.  All subsidiaries are wholly owned by
Metropolitan except Western United, in which Metropolitan owns 24.5% directly
and 96.5% indirectly.  See "BUSINESS-Organizational Chart" under Item 1.

      During the three-year period ended September 30, 1997, Western United
purchased some of its Receivables from Metropolitan at Metropolitan's cost.
In these transactions, Western United paid Metropolitan $6,916,676 for
Receivables with aggregate outstanding principal balances of $7,351,986.  The
difference represents unrealized discounts net of acquisition costs.

      Metropolitan is compensated for Receivable acquisition services it
provides to Western United.  In 1997, 1996 and 1995, respectively,
Metropolitan received Receivable acquisition compensation of $20.1 million,
$29.4 million and $14.6 million to Western United.  The amounts for 1997, 1996
and 1995 are gross amounts before a loss reserve of $9.53 million in 1997,
$12.54 million in 1996 and $6.95 million in 1995 which was provided by
Metropolitan.  The amounts of the Receivable acquisition compensation were
determined based on the adjustment necessary to convert Receivables purchased
by Western United utilizing Metropolitan's services to a defined fair market
yield.  The effect was to reduce Western United's effective yields on the
purchased Receivables to approximately 8.5% in 1997,  8.2% in 1996 and 9.3% in
1995.  Management believes the adjusted yields represent the yields which
Western United could achieve by purchasing similar Receivables in arms-length
transactions with unrelated vendors.  In addition, Metropolitan charges
Western United for management services, Receivable collection services and

<PAGE>  83

 rental of offices and equipment.  These charges have no effect on the
Consolidated Financial Statement, but create fee income for Metropolitan when
presented alone.  See Note 21 to the Consolidated Financial Statements under
Item 8.

      Metwest provides Receivable servicing and collection for Metropolitan
and Western United.  See "BUSINESS-Receivable Investments-Servicing and
Collection Procedures, and Delinquency Experience" under Item 1.

      In the normal course of its business, Western United loans cash to
Metropolitan and Metwest.  These loans, when made, are generally
collateralized by Receivables or real property.  At September 30, 1997, there
were $15.5 million in loans outstanding.

      From time to time, since December of 1979, Metropolitan has made loans
to Consumers Group Holding Co. for purposes of increasing the capital and
surplus of Consumers and Western United.  As of September 30, 1997, these
loans outstanding totaled $3,800,000 and currently bear no interest.

      In the three years ended September 30, 1997, Consumers sold credit
guaranty insurance to Metropolitan for $540,000 in total premiums.

Transactions with affiliates

      In the normal course of business, Metropolitan engages in transactions
with companies which were former subsidiaries and which are currently
affiliated through the common control of C. Paul Sandifur, Jr.

      Metropolitan Investment Securities (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, 1997, 1996 and 1995 Metropolitan
paid commissions to MIS in the amounts of $1,151,637, $203,946 and $1,461,033,
on sales of debt securities in the amounts of $38,510,520, $9,125,303 and
$53,120,179, respectively.  During the fiscal years ended September 30, 1997,
1996 and 1995, Metropolitan paid commissions to MIS in the amounts of $0,
$8,216 and $152,427 on sales of preferred stock in the amounts of $2,135,714,
$2,143,930 and $4,665,720, respectively.  Additionally, in 1997, 1996 and
1995, Metropolitan paid commissions to MIS in the amounts of $155,473,
$156,918 and $140,555 on sales of preferred stock through an in-house trading
list.


<PAGE>  84


      Metropolitan provides Management and Receivable Acquisition Services for
a fee to Summit, Old Standard and Arizona Life.  During 1997, such fees were
approximately $1.3 million.  Also See "BUSINESS-Receivable Investments-
Management and Receivable Acquisition Services" under Item 1.

      Metwest provides Receivable Collection services for a fee to Summit, Old
Standard and Arizona Life.  During 1997, such fees were approximately
$341,000.  Also See "BUSINESS-Receivable Investments-Servicing and Collection
Procedures, and Delinquency Experience" under Item 1.

      Management believes that the terms of the service agreements are at
least as favorable as could have been obtained from non-affiliated parties.

      Western United has negotiated a Reinsurance Agreement with Old Standard
which became effective in January 1997 for reinsurance of 75% of specified
annuity policies.  As a result of this agreement, approximately $2 to $5
million in premiums were reinsured monthly with Old Standard.  The monthly
amount reinsured varied depending upon Western United's annuity sales volume.
The Agreement provided that Old Standard pay Western United fees of 1% of the
policy issue cost based upon the 75% reinsurance quota, and a monthly
administrative fee of .0333% of the reinsurance quota share of the total
account values.  Actual fees vary depending upon the volume reinsured.  This
agreement was terminated September 30, 1997.  However, another similar
Reinsurance Agreement is currently under negotiation and is expected to be
executed during early calendar year 1998.  It is anticipated that
approximately $3-$5 million per month will be ceded during fiscal 1998, during
the months the new agreement is effective.  See "BUSINESS-Life Insurance and
Annuity Operations-Reinsurance" under Item 1.

      Metropolitan's property development activities are provided by Summit
Property Development.  Metropolitan paid Summit Property Development $1.8
million in development fees during 1997.  See "BUSINESS-Real Estate
Development" under Item 1.



<PAGE>  85

                                    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, 1997 and 1996
            Consolidated Statements of Income for the Years Ended September
               30, 1997, 1996, and l995
            Consolidated Statements of Stockholders' Equity for the Years
               Ended September 30, 1997, 1996, and 1995
            Consolidated Statements of Cash Flows for the Years Ended
               September 30, 1997, 1996, and l995
            Notes to Consolidated Financial Statements

      (a)   2.  Financial Statement Schedules

            Included in Part IV of this report:

            Report of Independent Accountants on Financial Statement Schedules

            Schedules Required by Article 7
               Schedule I - Summary of Investments other than Investments in
                  Related Parties
               Schedule III - Supplementary Insurance Information
               Schedule IV - Supplementary Reinsurance Information

            Schedules Required by Article 5
               Schedule II - Valuation and Qualifying Accounts and Reserves
               Schedule IV - 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

                3(a).    Restated Articles of Incorporation, as amended,
                         dated November 30, 1987 (Exhibit 3(a) to
                         Metropolitan's Annual Report on Form 10-K for fiscal
                         1987).


<PAGE>  86


                3(b).    Amendment to Articles of Incorporation dated
                         November 5, 1991 (Exhibit 3(c) to Registration No.
                         33-40220).

                3(c).    Amendment to Articles of Incorporation dated
                         September 20, 1992 (Exhibit 3(c) to Metropolitan's
                         Annual Report on Form 10-K for fiscal 1992).

                3(d).    Bylaws as amended to October 31, 1988 (Exhibit 3(b)
                         to Metropolitan's Annual Report on Form 10-K for
                         fiscal 1988).

                3(e).    Restated Bylaws as amended to December 26, 1995
                         (Exhibit 3(e) to Form 10-K for Period Ending
                         September 30, 1995).

                4(a).    Indenture, dated as of July 6, 1979, between
                         Metropolitan and Seattle-First National Bank,
                         Trustee (Exhibit 3 to Metropolitan's Annual Report
                         on Form 10-K for fiscal 1979).

                4(b).    First Supplemental Indenture, dated as of October 3,
                         1980, between Metropolitan and Seattle-First
                         National Bank, Trustee (Exhibit 4 to Metropolitan's
                         Annual Report on Form 10-K for fiscal 1980).

                4(c).    Second Supplemental Indenture, dated as of November
                         12, 1984, between Metropolitan and Seattle-First
                         National Bank, Trustee (Exhibit 4(d) to Registration
                         No. 2-95146).

                *4(d).   Third Supplemental Indenture, dated as of December
                         31, 1997, between Metropolitan and First Trust.

                4(e).    Amended Statement of Rights, Designations and
                         Preferences of Variable Rate Preferred Stock, Series
                         C (Exhibit 4(g) to Registration No. 33-2699).

                4(f).    Statement of Rights, Designations and Preferences of
                         Variable Rate Preferred Stock, Series D (Exhibit
                         4(a) to Registration No. 33-25702).

                4(g).    Statement of Rights, Designations and Preferences of
                         Variable Rate Preferred
                
                <PAGE>  87
                
                 Stock, Series E-1 (Exhibit 4(a) to Registration No. 33-
                         19238).

                4(h).    Amended Statement of Rights, Designations and
                         Preferences of Variable Rate Preferred Stock, Series
                         E-2 (Exhibit 4(a) to Registration No. 33-25702).

                4(i).    Statement of Rights, Designations and Preferences of
                         Variable Rate Preferred Stock, Series E-3 (Exhibit
                         4(a) to Registration No. 33-32586).

                4(j).    Statement of Rights, Designations and Preference of
                         Variable Rate Cumulative Preferred Stock, Series E-4
                         (Exhibit 4(h) to Registration No. 33-40221).

                4(k).    Form of Statement of Rights, Designations and
                         Preferences of Variable Rate Preferred Stock, Series
                         E-5 (Exhibit 4(i) to Registration No. 33-57396).

                4(l).    Statement of Rights, Designations and Preferences of
                         Variable Rate Cumulative Preferred Stock, Series E-6
                         (Exhibit 4(l) to Registration No. 33-51905).
                
                4(m).    Statement of Rights, Designations and Preferences of
                         Variable Rate Cumulative Preferred Stock, Series E-7
                         (Exhibit 4(d) to Amendment 1 to Registration No. 333-
                         19755).

                *10(a).  Employment Agreement between Metropolitan Mortgage
                         and Securities Co., Inc. and Bruce Blohowiak.
                
                *10(b).  Employment Agreement between Metropolitan Mortgage
                         and Securities Co., Inc. and Michael Kirk.
                
                *10(c).  Employment Agreement between Metropolitan Mortgage
                         and Securities Co., Inc. and Jon McCreary.
                
                *10(d).  Reinsurance Agreement between Western United Life
                         Assurance Company and Old Standard Life Insurance
                         Company.


<PAGE>  88


                9.       Irrevocable Trust Agreement (Exhibit 9(b) to
                         Registration No. 2-81359).

                *11.     Statement indicating computation of earnings per
                         common share.

                *12.     Statement regarding computation of ratios.

                *21.     Subsidiaries of Registrant.

                *27.     Financial Data Schedule.
                
                *Filed herewith.

      (b)   Reports on Form 8-K
      
            A Report on Form 8-K was filed October 30, 1997 disclosing that on
            September 26, 1997, in the ordinary course of its business,
            Metropolitan and Western United sold approximately $143.75 million
            in first lien mortgage loans secured by, and contracts for the
            sale of real property relating to, residential, multi-family and
            commercial properties.  Such sale was made in connection with the
            issuance of approximately $152.08 million of mortgage pass-through
            certificates, of which $146.76 million were sold in a private
            offering.  In connection with the sale, Metropolitan received cash
            and approximately $5.32 million in Certificates resulting in an
            after tax profit of approximately $5.5 million.



<PAGE>  89

                       REPORT OF INDEPENDENT ACCOUNTANTS
                       ON FINANCIAL STATEMENT SCHEDULES

The Directors and Stockholders
Metropolitan Mortgage & Securities Co., Inc.

      Our report on the consolidated financial statements of Metropolitan
Mortgage & Securities Co., 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/ COOPERS & LYBRAND L.L.P.

                              _____________________________
                              Coopers & Lybrand L.L.P.

Spokane, Washington
November 21, 1997



<PAGE>  90

                                  SCHEDULE I

                 METROPOLITAN MORTGAGE & SECURITIES CO., INC.
                            SUMMARY OF INVESTMENTS
                   OTHER THAN INVESTMENTS IN RELATED PARTIES
                              September 30, 1997

<TABLE>
<CAPTION>
          Column A              Column B          Column C      Column D
____________________________  _____________     ____________  _____________
                                                                Amount At
                                                               Which Shown
                                Amortized          Market      On Balance
    Type of Investments           Cost             Value          Sheet
____________________________  _____________     ____________  _____________
<S>                           <C>               <C>           <C>
FIXED MATURITIES                                              
Investments:                                                  
  U.S. Government and                                         
    Government Agencies and                                   
    Authorities               $  70,924,549     $ 69,435,231  $  70,788,812
  Corporate Bonds                16,652,572       16,416,165     16,488,556
  Utility Bonds                   6,996,866        6,924,589      6,991,659
  Mortgage and Asset Backed                                   
    Bonds and Pass Through                                    
    Certificates                 89,963,725       91,028,599     90,554,404
                              _____________     ____________  _____________
TOTAL FIXED MATURITIES        $ 184,537,712     $183,804,584  $ 184,823,431
                              =============     ============  =============
EQUITY SECURITIES             $       1,592     $      5,546  $       5,546
                              =============     ============  =============
Real Estate Contracts and                                       
  Mortgage Notes Receivables  $ 512,864,101                   $ 512,864,101
Real Estate Held for Sale and                                   
  Development (Including                                      
  $34,388,973 Acquired in                                     
  Satisfaction of Debt)          81,802,266                      81,802,266
                              _____________                   _____________
Total Real Estate Assets        594,666,367                     594,666,367
Less Allowances for Losses on                                   
  Real Estate Assets            (12,327,098)                    (12,327,098)
                              _____________                   _____________
NET REAL ESTATE ASSETS        $ 582,339,269                   $ 582,339,269
                              =============                   =============
OTHER RECEIVABLE INVESTMENTS  $ 164,534,354                   $ 164,534,354
                              =============                   =============
OTHER ASSETS-POLICY LOANS     $  16,724,211                   $  16,724,211
                              =============                   =============
TOTAL INVESTMENTS             $ 948,137,138                   $ 948,426,811
                              =============                   =============
</TABLE>



<PAGE>  91

                                 SCHEDULE III
                                  Page 1 of 2

         METROPOLITAN MORTGAGE & SECURITIES CO., 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, 1997                                              
  Life Insurance and                                            
    Annuities         $ 69,730,002   $ 825,368,988    $  --     $    --
                      ============   =============    =======   ===========
September 30, 1996                                              
  Life Insurance and                                            
    Annuities         $ 71,932,884   $ 837,366,108    $  --     $    --
                      ============   =============    =======   ===========
September 30, 1995                                              
  Life Insurance and                                            
    Annuities         $ 71,131,059   $ 781,716,153    $  --     $    --
                      ============   =============    =======   ===========
</TABLE>



<PAGE>  92

                                  SCHEDULE III
                                   Page 2 of 2

          METROPOLITAN MORTGAGE & SECURITIES CO., 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, 1997                                                                           
  Life Insurance and Annuities   $ 3,000,000    $ 65,759,676   $ 50,454,970   $  9,432,884   $ 3,635,756
                                 ===========    ============   ============   ============   ===========
September 30, 1996                                                                           
  Life Insurance and Annuities   $ 3,000,000    $ 65,560,704   $ 48,301,010   $  9,140,559   $ 4,352,018
                                 ===========    ============   ============   ============   ===========
September 30, 1995                                                                           
  Life Insurance and Annuities   $ 3,000,000    $ 64,970,470   $ 45,483,802   $ 10,300,547   $ 3,164,390
                                 ===========    ============   ============   ============   ===========
</TABLE>



<PAGE>  93

                                   SCHEDULE IV

          METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
                      SUPPLEMENTARY REINSURANCE INFORMATION

<TABLE>
<CAPTION>
                                                                                             
                                                                  Assumed                    Percentage
                                                  Ceded to         From                      of Amount
                                    Gross           Other          Other          Net         Assumed
       Year Ended                   Amount        Companies      Companies       Amount        to Net
_________________________        ____________    ____________    _________    ____________   __________
<S>                              <C>             <C>             <C>          <C>            <C>
September 30, 1997                                                                           
  Life Insurance in Force        $330,205,000    $ 52,328,000    $   --       $277,877,000       --
                                 ============    ============    =========    ============   ==========
  Premiums                                                                                   
    Life Insurance               $  3,352,311    $    352,311    $   --       $  3,000,000       --
                                 ============    ============    =========    ============   ==========
September 30, 1996                                                                           
  Life Insurance in Force        $354,371,000    $ 58,679,000    $   --       $295,692,000       --
                                 ============    ============    =========    ============   ==========
  Premiums                                                                                   
    Life Insurance               $  3,354,830    $    354,830    $   --       $  3,000,000       --
                                 ============    ============    =========    ============   ==========
September 30, 1995                                                                           
  Life Insurance in Force        $373,573,000    $ 62,906,000    $   --       $310,667,000       --
                                 ============    ============    =========    ============   ==========
  Premiums                                                                                   
    Life Insurance               $  3,364,553    $    364,553    $   --       $  3,000,000       --
                                 ============    ============    =========    ============   ==========
</TABLE>



<PAGE>  94

                                   SCHEDULE II

          METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                 Years Ended September 30, 1997, 1996, and 1995

<TABLE>
<CAPTION>
                                                                  Additions    Deductions    
                                                                 (Reductions)     and        
                                                    Balance at    Charged to    Accounts       Balance
                                                    Beginning     Costs and     Written        at End
                 Description                         of Year       Expenses       Off          of Year
_____________________________________________      ___________   ____________  ___________   ___________
<S>                                                <C>           <C>           <C>           <C>
Allowance for probable losses on real estate                                                 
  contracts and mortgage notes deducted from                                                 
  real estate assets in balance sheet                                                        
    1997                                           $7,945,561    $4,051,975    $2,506,420    $9,491,116
    1996                                            6,276,183     3,295,694     1,626,316     7,945,561
    1995                                            7,199,984      (190,470)      733,331     6,276,183
Allowance for probable losses on real estate                                                 
  held for sale from real estate assets in                                                   
  balance sheet                                                                              
    1997                                           $2,247,023    $4,079,126    $3,490,167    $2,835,982
    1996                                            1,839,882     3,064,378     2,657,237     2,247,023
    1995                                            1,908,399     4,365,114     4,433,631     1,839,882
Allowance for losses on accounts and notes                                                   
  receivable deducted from other assets in                                                   
  balance sheet                                                                              
    1997                                           $  180,954    $   42,995    $  156,975    $   66,974
    1996                                               77,039        70,500       (33,415)      180,954
    1995                                              193,497       (35,657)       80,801        77,039
</TABLE>



<PAGE>  95

                                   SCHEDULE IV
                                   Page 1 of 3

          METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
                              LOANS ON REAL ESTATE
                               September 30, 1997

      At September 30, 1997, the Consolidated Group held first position liens
associated with contracts and mortgage notes receivable with a face value of
approximately $520.6 million (99%) and second or lower position liens of
approximately $7.6 million (1%).  Approximately 28% of the face value of the
Consolidated Group's real estate Receivables are collateralized by property
located in the Pacific Northwest (Washington, Alaska, Idaho, Montana and
Oregon), approximately 20% by property located in the Pacific Southwest
(California, Arizona and Nevada), approximately 9% in the Southeast (Florida,
Georgia, North Carolina and South Carolina), approximately 9% in the North
Atlantic (New York, Pennsylvania, New Jersey, Connecticut and Maryland) and
approximately 17% by property located in the Southwest (Texas and New Mexico).
The face value of the real estate Receivables range principally from $15,000 to
$300,000 with 56 real estate Receivables, aggregating approximately $34.7
million in excess of this range.  No individual contract or note is in excess
of 0.5% of the total carrying value of real estate Receivables, and less than
4% of the contracts are subject to variable interest rates.  Contractual
interest rates principally range from 6% to 13% per annum with approximately
89% of the face value of these receivables within this range.  The weighted
average contractual interest rate on these real estate Receivables at September
30, 1997 is approximately 9.4%.  Maturity dates range from 1997 to 2027.

<TABLE>
<CAPTION>
                                                                                              
                                                           Interest          Carrying         Delinquent
                                        Number of           Rates           Amount of          Principal
Description                            Receivables       Principally       Receivables          Amount
___________                            ___________       ___________       ____________       ___________
<S>                                    <C>               <C>               <C>                <C>
RESIDENTIAL                                                                                   
First Mortgage > $100,000                   509              6-13%         $ 78,734,868       $ 7,535,954
First Mortgage > $50,000                  1,580              6-13%          107,372,840         6,765,551
                                                                                              
                                                                                              
<PAGE>  96                                                                                    
First Mortgage < $50,000                  8,687              6-13%          181,186,443        13,178,218
Second or Lower > $100,000                    4              8-11%              659,050           156,878
Second or Lower > $50,000                     7              7-12%              480,016            65,686
Second or Lower < $50,000                   220              6-13%            3,337,545            96,903
                                                                                              
COMMERCIAL                                                                                    
First Mortgage > $100,000                   209              6-13%           48,492,725         3,887,374
First Mortgage > $50,000                    182              6-13%           13,199,135           677,704
First Mortgage < $50,000                    317              6-13%            7,917,653           262,922
Second or Lower > $100,000                    4              5-11%            1,559,883             --
Second or Lower > $50,000                     5              7-12%              407,624             --
Second or Lower < $50,000                    10              8-11%              303,122             --
                                                                                              
FARM, LAND AND OTHER                                                                          
First Mortgage > $100,000                    84              8-15%           27,214,026         1,326,710
First Mortgage > $50,000                    178              6-13%           11,513,233           313,881
First Mortgage < $50,000                  2,487              6-13%           45,195,703         1,620,079
Second or Lower > $100,000                    1                14%              100,000           100,000
Second or Lower > $50,000                     3              9-10%              227,634             --
Second or Lower < $50,000                    30              9-12%              306,057            12,140
Unrealized discounts, net of                                                                  
  unamortized acquisition costs,                                                              
  on Receivables purchased at a                                                               
  discount                                                                  (24,642,792)      
Accrued Interest Receivable                                                   9,299,336       
                                                                           ____________       ___________
CARRYING VALUE                                                             $512,864,101       $36,000,000
                                                                           ============       ===========

<FN>
The principal amounts of Receivables subject to delinquent principal or
interest is defined as being in arrears for more than three months.
</TABLE>



<PAGE>  97

                                   SCHEDULE IV
                                   Page 2 of 3

          METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
                              LOANS ON REAL ESTATE
                               September 30, 1997

<TABLE>
<CAPTION>
       The  contractual  maturities of the aggregate amounts  of  Receivables
(face amount) are as follows:

                                       Residential       Commercial        Farm, Land,          Total
                                        Principal         Principal      Other Principal      Principal
                                     ________________  _______________   _______________   ________________
<S>                                  <C>               <C>               <C>               <C>
October 1997 - September 2000          $ 40,400,913      $11,167,553       $22,990,756       $ 74,559,222
October 2000 - September 2002            33,771,278        9,163,174         9,742,636         52,677,088
October 2002 - September 2004            32,216,791        6,381,830         6,795,393         45,394,014
October 2004 - September 2007            46,889,093       11,374,072        12,310,724         70,573,889
October 2007 - September 2012            68,260,410       13,429,000        16,920,159         98,609,569
October 2012 - September 2017            44,494,614        5,288,840         6,384,637         56,168,091
October 2017 - Thereafter               105,737,663       15,075,673         9,412,348        130,225,684
                                       ____________      ___________       ___________       ____________
                                       $371,770,762      $71,880,142       $84,556,653       $528,207,557
                                       ============      ===========       ===========       ============
</TABLE>




<PAGE>  98

                                  SCHEDULE IV
                                  Page 3 of 3

         METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
                             LOANS ON REAL ESTATE
                              September 30, 1997

<TABLE>
<CAPTION>
                                     For the Years Ended September 30, 1997
                                   _________________________________________
                                       1997          1996           1995
                                   ____________  ____________   ____________
<S>                                <C>           <C>            <C>
Balance at beginning of period     $650,933,330  $587,493,614   $567,256,298
                                   ____________  ____________   ____________
Additions during period                                         
  New Receivables-cash              317,169,828   282,313,300    203,525,666
  Loans to facilitate the sale of                               
    real estate held-non cash        18,604,263    39,102,941     34,102,247
  Assumption of other debt                                      
    payable in conjunction with                                 
    acquisition of new                                          
    Receivables-non cash              1,638,727     3,633,657        526,868
  Increase in accrued interest        2,231,416     2,109,831        912,348
                                   ____________  ____________   ____________
  Total additions                   339,644,234   327,159,729    239,067,129
                                   ____________  ____________   ____________
Deductions during period                                        
  Collections of principal-cash     100,359,493   107,702,333    118,869,137
  Cost of Receivables sold          361,009,441   141,636,670     54,387,414
  Reduction in net Receivables                                  
    associated with sale of                                     
    subsidiary-non cash                  --            --         32,391,856
  Foreclosures-non cash              16,344,529    14,381,010     13,181,406
  Decrease in accrued interest           --            --             --
                                   ____________  ____________   ____________
Total deductions                    477,713,463   263,720,013    218,829,813
                                   ____________  ____________   ____________
Balance at end of period           $512,864,101  $650,933,330   $587,493,614
                                   ============  ============   ============
</TABLE>



<PAGE>  99

                                  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.

            METROPOLITAN MORTGAGE & SECURITIES CO., INC.

            /s/ C. Paul Sandifur, Jr.

            ______________________________________________
            C. Paul Sandifur, Jr., Chief Executive Officer

            January 8, 1998
            Date

      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.

<TABLE>
<CAPTION>
      Signature                         Title                      Date
      _________                         _____                      ____
<S>                             <C>                              <C>
/s/ C. PAUL SANDIFUR, JR.                                        
                                                                 
_________________________       President, Director and          1/8/98
C. Paul Sandifur, Jr.           Chief Executive Officer          
                                                                 
/s/ BRUCE J. BLOHOWIAK                                           
                                                                 
_________________________       Chief Operating Officer,         1/8/98
Bruce J. Blohowiak              Executive Vice President,        
                                and Director                     
                                                                 
/s/ STEVEN CROOKS                                                
                                                                 
_________________________       Controller and                   1/8/98
Steven Crooks                   Vice President                   
                                                                 
/s/ REUEL SWANSON                                                
                                                                 
_________________________       Secretary and Director           1/8/98
Reuel Swanson                                                    
                                                                 
/s/ IRV MARCUS                                                   
                                                                 
                                                                 
                                                                 
<PAGE>  100                                                      
_________________________       Director                         1/8/98
Irv Marcus                                                       
                                                                 
/s/ HAROLD ERFURTH                                               
                                                                 
_________________________       Director                         1/8/98
Harold Erfurth                                                   
                                                                 
/s/ JOHN TRIMBLE                                                 
                                                                 
_________________________       Director                         1/8/98
John Trimble                                                     
</TABLE>