RAGEN MACKENZIE GROUP INC, 10-K, 1999-12-20

RAGEN MACKENZIE GROUP INC
10-K, 1999-12-20
SECURITY BROKERS, DEALERS & FLOTATION COMPANIES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended September 24, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number 1-14243

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RAGEN MACKENZIE GROUP INCORPORATED
(Exact name of registrant as specified in its charter)

Washington 91-1898738
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)

999 Third Avenue, Suite 4300, Seattle, Washington 98104
(Address of principal executive offices and zip code)

Registrant's telephone number, including area code (206) 343-5000

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

Title of each class: Name of each exchange on which registered:
--------------------- ------------------------------------------
Common Stock, $.01 Par Value New York Stock Exchange

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

None
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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 such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No

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

As of December 8, 1999, there were 13,005,831 shares of common stock, par
value $.01 per share (the "Common Stock"), of Ragen MacKenzie Group Incorporated
issued and outstanding of which 11,094,830 shares were held by non-affiliates.
The aggregate market value of such Common Stock held by non-affiliates, based on
the closing market price of $19 3/8 on December 8, 1999, was approximately
$214,962,000.

DOCUMENTS INCORPORATED BY REFERENCE

Documents incorporated by reference in this report are listed in the
Exhibit Index beginning on page 44 of this Form 10-K.

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FORM 10-K

For the Fiscal Year Ended September 24, 1999

TABLE OF CONTENTS
<TABLE>
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Item Page
- ---- ----
<S> <C>
PART I

1. Business.................................................................................... 3
2. Properties.................................................................................. 21
3. Legal Proceedings........................................................................... 21
4. Submission of Matters to a Vote of Security Holders......................................... 22

PART II

5. Market for Registrant's Common Stock and Related Shareholder Matters........................ 22
6. Selected Financial Data..................................................................... 23
7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 25
7A. Quantitative and Qualitative Disclosures about Market Risk.................................. 34
8. Financial Statements and Supplementary Data................................................. 36
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........ 36

PART III

10. Directors and Executive Officers of the Registrant.......................................... 37
11. Executive Compensation...................................................................... 39
12. Security Ownership of Certain Beneficial Owners and Management.............................. 43
13. Certain Relationships and Related Transactions.............................................. 44

PART IV

14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................ 44
SIGNATURES....................................................................................... 47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ...................................................... 48
</TABLE>

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PART I

ITEM 1. BUSINESS:

This Annual Report on Form 10-K and the documents incorporated herein by
reference contain forward-looking statements based on current expectations,
estimates and projections about the Company's industry, management's beliefs and
certain assumptions made by management. The words "believe", "expect", "intend",
"anticipate", variations of such words, and similar expressions identify
forward-looking statements, but their absence does not mean that the statement
is not forward-looking. These forward-looking statements are not guarantees of
future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict. Accordingly, actual results may
differ materially from those anticipated or expressed in such statements.
Potential risks and uncertainties include, among other things, the general risks
of the securities industry, risks of reduced revenue during periods of lower
prices or reduced trading volume; dependence on, and ability to retain and
recruit, key personnel; failure to complete the merger with Wells Fargo &
Company ("Wells Fargo"); dependence on proprietary research; significant
fluctuations in quarterly results; regional concentration; competition;
management of growth of new and existing businesses; and the risks relating to
proprietary trading and correspondent brokerage services; risks of extension of
credit; risks relating to regulation; risks relating to litigation and potential
securities law liability; market, credit and liquidity risks associated with
market-making, principal trading and underwriting activities, as well as other
risks and uncertainties set forth in "--Additional Factors That May Affect
Future Results."

General

Ragen MacKenzie Group Incorporated ("RMGI"), a Washington corporation, was
incorporated in April 1998 to serve as a holding company for all of the
operations of Ragen MacKenzie Incorporated ("RMI"). RMI was incorporated as a
Washington corporation in 1987, the year in which it succeeded to the business
of Cable, Howse & Ragen, a Washington limited partnership formed in 1982. RMI is
registered with the Securities and Exchange Commission (the "SEC") as a
broker-dealer and is a member firm of the New York Stock Exchange (the "NYSE").
On June 22, 1998, RMI merged with a wholly owned subsidiary of RMGI as part of a
reorganization (the "Reorganization"). As a result of the Reorganization, RMGI
operates as a holding company and is the sole shareholder of RMI and Ragen
MacKenzie Investment Services, Inc. On June 26, 1998, RMGI completed an initial
public offering of its Common Stock. Unless the context otherwise requires, all
references in this report to "Ragen MacKenzie" and the "Company" refer to RMGI
and its subsidiaries.

The Company's primary business is retail securities brokerage, which it
conducts in its Seattle headquarters and 33 additional offices in seven Western
states, which include 25 offices operated by independent contractors. This
business is directly supported by the Company's proprietary research efforts,
which are based on a value-oriented, contrarian approach to investing. The
Company's research department covers approximately 90 publicly traded companies
headquartered in the Pacific Northwest and maintains a recommended list of
selected regional and national stocks (the "Recommended List"). Other aspects of
the Company's business include proprietary trading of certain fixed income
securities, institutional brokerage services, correspondent brokerage services
and investment banking services. Revenues generated from the Company's retail
securities brokerage services (including revenue from offices operated by
independent contractors and excluding interest earned on retail brokerage
customer account balances), proprietary trading of certain fixed income
securities (excluding interest income on the related securities inventory),
institutional brokerage services and correspondent brokerage services (excluding
interest earned on customer account balances) constituted 40.6%, 11.6%, 6.2% and
2.8%, respectively, of the Company's total revenues in fiscal 1999; revenues
from investment banking services in fiscal 1999 were insignificant. The
remaining percentage of total revenues in fiscal 1999 consists primarily of
interest income earned on retail brokerage customer account balances.

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Recent Developments

On September 28, 1999, RMGI entered into an Agreement and Plan of Merger (the
Merger Agreement) with Wells Fargo and Romero Acquisition Corp., a wholly owned
subsidiary of Wells Fargo. Under the terms of the Merger Agreement, Romero
Acquisition Corp. will merge with RMGI and RMGI will become a wholly owned
subsidiary of Wells Fargo. In the acquisition, Wells Fargo will issue $18.75
worth of its common stock in exchange for each outstanding share of the
Company's Common Stock, subject to adjustment if the average price of Wells
Fargo's common stock is below $36 or above $42 per common share over a period of
time as specified in the Merger Agreement. The Merger Agreement has been
approved by the boards of directors of both companies and the business
combination is expected to close during the first calendar quarter of 2000,
subject to approval by the Company's shareholders, required regulatory approvals
and other conditions to closing. Additional information regarding the proposed
merger can be found in the Company's Current Report on Form 8-K filed with the
SEC on September 30, 1999.

Acquisitions

On March 30, 1999, RMGI completed an acquisition of all of the outstanding
common stock of Columbia Pacific Securities, Inc. and subsequently renamed the
subsidiary Ragen MacKenzie Investment Services, Inc. ("RMIS"). RMIS is a full
service retail brokerage firm headquartered in Seattle, Washington with 40
independent contractor brokers, located in 21 branch offices in Washington,
Idaho, Montana, Oregon, Wyoming and California. RMIS, which was previously a
correspondent brokerage firm of RMI, continues to clear its brokerage business
through RMI on a fully disclosed basis. The transaction was accounted for using
the purchase method of accounting and, as such, the consolidated financial
statements of the Company include the results of RMIS from the date of
acquisition. The consideration paid for the acquisition, which totaled
$1,445,000, included the issuance of 40,000 shares of the Company's Common Stock
held in treasury and cash as specified in the purchase agreement. The excess of
the purchase price over the estimated fair value of net assets acquired, which
was recorded as goodwill, was $1,039,000 and is being amortized over 15 years
using the straight-line method of amortization.

Financial Information about Industry Segments

The Company offers a wide variety of products and services, primarily those of a
full service broker-dealer, through its two operating segments: retail
distribution and institutional distribution. The Company's reportable segments
are managed separately based on the types of products and services offered and
their related client bases.

The retail distribution segment includes brokerage services and products (such
as purchase and sale of securities, investment advisory services, and margin
lending) provided to individual investors through retail branches of the
Company's two broker-dealer subsidiaries, net interest income earned on account
balances of individual investors, correspondent brokerage services, and market
making of equity and fixed income securities which is generally conducted to
facilitate transactions by individual investors.

The institutional distribution segment includes securities brokerage services
emphasizing the sale of equities and fixed income products to institutions,
investment banking services (such as mergers and acquisitions advisory services
and management and participation in underwritings, exclusive of sales credits
related to individual investors which are included in the retail distribution
segment), and market making of certain fixed income securities, including
collateralized mortgage obligations and U.S. government and government agency
obligations, where the counterparties are generally other broker-dealers and
banks.

Financial information regarding the Company's industry segments for fiscal years
1999, 1998 and 1997, including the amount of total operating revenues, net
interest income, net revenues and income before taxes on income attributable to
each segment, is set forth in Note 15, entitled "Segment Reporting Data," of the
Notes to Consolidated Financial Statements appearing on page 64 of this Form
10-K. Certain business activities described below may comprise both the retail
distribution and institutional distribution segments.

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Brokerage Services

Retail Brokerage

The Company's approach to the retail brokerage business is to attract and
retain highly productive, experienced brokers in selected cities throughout the
Pacific Northwest. The Company's retail brokerage business has developed by
establishing and maintaining relationships with high net worth individuals. The
Company, through its two full-service brokerage subsidiaries, offers its
customers brokerage services relating to corporate equity and debt securities
and U.S. government and municipal securities, including stocks followed by RMI's
research analysts and underwritings in which RMI participates in the
underwriting syndicate. The Company's retail brokers focus on recommending the
purchase and sale of stocks and bonds, particularly based on current purchase
and sale recommendations on the Recommended List. The Company has not
historically offered its customers proprietary products, such as mutual funds or
other types of products created by other investment banks. Commissions are
charged on agency transactions in listed securities and securities traded on the
Nasdaq National Market ("Nasdaq"). In addition to retail commissions, RMI
generates fee revenue from asset-based investment advisory services paid by
retail clients in lieu of commissions or sales credits on each transaction. When
RMI executes transactions as a principal, it charges markups or markdowns in
lieu of commissions. See "--Principal Transactions--Market-Making and Other
Transactions." During fiscal 1997, 1998 and 1999, revenues from RMI's
employee-operated retail brokerage activities, excluding interest earned on
retail brokerage customer balances, constituted approximately 42.1%, 38.6% and
36.1%, respectively, of the Company's total revenues.

The Company has been able to recruit and retain experienced and productive
brokers who seek to establish and maintain personal relationships with high net
worth individuals. The Company generally does not hire inexperienced brokers or
trainees to work as retail brokers. The Company believes that its
performance-based equity incentive compensation has been a key component in its
ability to recruit new brokers. The Company believes that continuing to add
experienced, highly productive brokers is an integral part of its growth
strategy.

In addition to executing transactions, Ragen MacKenzie provides services to
individual investors, including portfolio strategy, research services and
investment advice, as well as other services such as sales of restricted
securities. Certain of Ragen MacKenzie's retail brokers exercise discretionary
authority over investment decisions in certain customer accounts. Trades in
these accounts are generally based on the Recommended List.

The Company conducts its retail brokerage operations through eight offices
in Washington and Oregon. Most of the Company's retail clients are located in
the Pacific Northwest. The following table sets forth as of September 24, 1999,
the location of the Company's retail offices, the fiscal year each office opened
and the number of retail brokers in each office:

Fiscal Year Number Of
Location Of Retail Office Office Opened Retail Brokers
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Seattle, Washington........................ 1982 35
Bellevue, Washington....................... 1990 13
Portland, Oregon 1991 13
Tacoma, Washington......................... 1991 4
Walla Walla, Washington.................... 1991 6
Bend, Oregon............................... 1995 5
Eugene, Oregon............................. 1996 4
Everett, Washington........................ 1999 2

5
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RMI has contractual arrangements with 11 independent contractors that
operate offices located in Fairbanks, Alaska, and Mt. Vernon, Anacortes and Mill
Creek, Washington using the Ragen MacKenzie name. These offices were established
in the late 1980s, prior to the expansion of the Company's retail operations
through Company-owned offices. In March 1999, the Company acquired RMIS whose
primary business is retail securities brokerage, which it currently conducts
through its Seattle headquarters and 21 offices operated by 40 independent
contractors. The Company provides research, management, compliance and clearing
services for these offices in return for a portion of gross retail revenues.
These offices, in turn, are responsible for their own operating expenses. All of
the brokers in the offices operated by independent contractors are registered as
associated persons of either RMI or RMIS, who are responsible for supervising
their securities activities. During fiscal 1999, revenues from the Company's
retail brokerage activities operated by independent contractors, excluding
interest earned on retail brokerage customer balances, constituted approximately
4.5% of the Company's total revenues.

Institutional Brokerage

The Company's institutional brokerage strategy is to leverage the research
department's coverage of companies headquartered in the Pacific Northwest to
provide value-added, niche-oriented brokerage service to a variety of
institutional customers throughout the United States. The Company provides
institutional customers with research, trading and sales services in Nasdaq and
exchange-listed equity securities, and distributes equity securities in
connection with offerings underwritten by RMI. The Company's institutional
customers include banks, retirement funds, mutual funds, investment advisors and
insurance companies. The Company provides services to a nationwide institutional
client base, as well as several institutional customers located in Europe. The
Company currently has six institutional brokers. The Company employs a NYSE
floor broker and two listed equity traders who work with other broker-dealers,
institutions and the Company's floor broker to facilitate institutional trades
and retail customer block trades. The Company generally seeks to hire
professionals with relevant experience and develop them into successful
institutional brokers rather than relying on institutional brokers trained by
other firms. During fiscal 1999, revenues from RMI's institutional brokerage
activities constituted approximately 6.2% of the Company's total revenues.

The Company believes that a significant portion of its institutional
brokerage commissions are received as a consequence of providing institutions
with research reports and services regarding specific corporations and
industries, particularly in the Pacific Northwest, and securities market
information. The Company utilizes its trading knowledge and expertise, and
active trading focus on Pacific Northwest stocks, to provide institutional
clients with value-added service. The Company's total institutional commission
revenues are ultimately dependent on institutional clients' assessment of the
value of the research services and trading expertise provided by the Company.

Principal Transactions

Market-Making and Other Transactions

The Company engages in trading as a principal when it executes trades in
Nasdaq equity securities or other over-the-counter ("OTC") securities as a
market-maker, and in municipal bonds, corporate debt and U.S. government and
agency securities. The Company receives, in lieu of commissions, markups or
markdowns that constitute revenues from principal transactions when it executes
transactions on a principal basis. Principal transactions with customers are
generally effected at a net price within or equal to the current interdealer
price plus or minus a markup or markdown. The Company generally does not take a
significant inventory position in any single equity, municipal or corporate debt
security, as the trading department's objective is to facilitate sales to
customers and to other dealers, not to generate profits based on trading for the
Company's own account.

Revenues from principal transactions depend on the general trend of prices
and the level of activity in the securities market, employee skill in
market-making activities and inventory size. Trading activities carried out as a
principal require a commitment of capital, and create an opportunity for profit
and risk of loss due to market fluctuations. As of September 24, 1999, the
Company made markets in the common stock or equity securities of approximately
85 companies that were traded on Nasdaq, and approximately 14 companies that
were traded otherwise in the OTC market. The Company's market-making activities
are concentrated in Pacific Northwest stocks that are followed by Ragen
MacKenzie's research department. See "--Additional Factors That May Affect
Future Results--General Risks of the Securities Industry."

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Proprietary Trading

Ragen MacKenzie maintains a dealer-to-dealer zero coupon trading desk that
makes markets and maintains inventory in odd-lot U.S. government and agency zero
coupon bonds and related securities. The Company also has a trading desk that
trades collateralized mortgage obligations ("CMOs") with other broker-dealers or
banks. Rather than trading a wide variety of securities in direct competition
with Wall Street firms, the Company has developed a niche strategy in the
proprietary trading of fixed-income securities traded by these two desks. In its
trading activities, Ragen MacKenzie generally acts as a wholesaler, buying
round-lot and odd-lot positions, selling odd-lot positions, and acting as a
market-maker in odd-lot positions. The majority of the Company's counterparties
in these transactions are other broker-dealers or banks. The Company's
proprietary trading operations seek to generate profits based on trading
spreads, rather than through the facilitation of sales to customers or
speculation on the direction of the market. During fiscal 1999, revenues from
RMI's proprietary trading activities constituted approximately 11.6% of the
Company's total revenues, excluding interest income on the related securities
inventory.

The level of positions carried in Ragen MacKenzie's trading accounts
fluctuates significantly. The size of the securities positions on any one date
may not be representative of the Company's exposure on another date because the
securities positions vary substantially depending on economic and market
conditions, the allocation of capital among types of inventories, underwriting
commitments, customer demands and trading volume. The aggregate value of
inventories that the Company may carry is limited by certain requirements of the
Net Capital Rule (as hereinafter defined). See "--Net Capital Requirements."

The Company has established procedures designed to reduce the risks of its
proprietary trading activities. In particular, it employs a hedging strategy for
both its CMO and zero coupon trading desks that is designed to insulate the net
value of its trading inventory from fluctuations in the general level of
interest rates. However, it is not possible to hedge completely the risks
associated with interest rate fluctuations for some of the fixed income
securities that the Company trades, primarily because the price movements of
financial instruments typically used to hedge long positions in such securities
may not precisely mirror the price movements of the hedged securities under all
market conditions. In addition to its hedging procedures, the Company seeks to
mitigate the various risks associated with its proprietary trading activities by
avoiding positions in those CMOs that are most sensitive to changes in interest
rates and by subjecting its trading inventory positions and profit and loss
statements to daily review by senior management of RMI. Senior management
reviews the profit and loss and inventory positions of the CMO and zero coupon
trading desks daily. There can be no assurance, however, that such procedures
will prevent any such loss, and any such loss could have a material adverse
effect on the Company's business, financial condition, results of operations or
cash flows. See "Item 7A. Quantitative And Qualitative Disclosures About Market
Risk" and "--Additional Factors That May Affect Future Results--Risks of
Proprietary Trading."

Correspondent Brokerage Services

RMI provides clearing services on a fully disclosed basis to 19 non-
affiliated (excludes RMIS) correspondent firms principally located in the
Pacific Northwest. In a fully disclosed clearing transaction, the identity of
the correspondent's client is known to RMI, and RMI performs a variety of
services for the correspondent, including integrated trade execution, clearing,
maintaining custody of certain assets of the correspondent's clients, mailing
confirmation and monthly statements and other customized services.
Correspondents also receive information and recommendations provided by Ragen
MacKenzie's research department, including the Recommended List. Although
revenues from correspondent brokerage services comprise a relatively small
percentage of total revenues from year to year, a substantial portion of the
expenses associated with correspondent brokerage services are fixed, and
therefore changes in revenues associated with these services may have a
disproportionate effect on net income. During fiscal 1999, revenues from RMI's
correspondent brokerage services, excluding interest earned on customer account
balances, constituted approximately 2.8% of the Company's total revenues. The
Company believes that its competitive strengths in this business are its ability
to perform the physical trade execution and clearing functions that are typical
in such relationships, and its provision of its market-making capabilities and
proprietary research products to its correspondent clients.

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Investment Banking And Underwriting

The Company's investment banking strategy is directed at building a
balanced mix of corporate security underwriting, private financings and
financial advisory services with a geographical focus on the Pacific Northwest.
During fiscal 1999, investment banking services constituted an insignificant
percentage of the Company's total revenues.

Underwriting

Ragen MacKenzie participates in corporate securities distributions as a
member of an underwriting syndicate or of a selling group and, from time to
time, acts as a co-manager of an underwriting syndicate. The Company's syndicate
department coordinates the distribution of co-managed equity underwritings,
accepts invitations to participate in underwritings managed by other investment
banking firms and allocates Ragen MacKenzie's selling allotments to its retail
offices and institutional clients.

Participation in an underwriting syndicate or selling group involves both
economic and regulatory risks. An underwriter or selling group member may incur
losses if it is forced to resell the securities it is committed to purchase at
less than the agreed purchase price. In addition, under the federal securities
laws, other statutes and court decisions with respect to underwriters'
liabilities and limitations on indemnification of underwriters by issuers, an
underwriter is subject to substantial potential liability for material
misstatements or omissions in prospectuses and other communications with respect
to underwritten offerings.

Financial Advisory Services

Ragen MacKenzie also assists in arranging mergers, acquisitions and
divestitures and on occasion engages in structuring, managing and marketing
private offerings of corporate securities. The Company also has the capability
to provide fairness opinions, valuations and financial consulting services.

Interest Income And Customer Financing

A significant portion of the Company's revenues are derived from net
interest income, the major portion of which relates to customer account
balances. Customer transactions are effected on either a cash or a margin basis.
Cash-basis purchases require full payment by the designated settlement date,
generally the third business day following the transaction date. The Company is
at risk if a customer fails to settle a trade and the value of the securities
declines on a purchase transaction or increases on a sales transaction
subsequent to the transaction date.

In margin transactions, the Company extends credit to the customer, which
is collateralized by securities and cash in the customer's account, and receives
income from interest charged on the extension of credit. The customer is charged
for such margin financing at interest rates based on the broker's call rate (the
prevailing interest rate charged by banks on secured loans to broker-dealers),
plus an additional amount, depending on the average net debit balance in the
customer's accounts, the activity level in the accounts and the applicable cost
of funds. The Company's interest revenues are affected by the volume of customer
borrowing and prevailing interest rates.

Margin lending by the Company is subject to the margin regulations
("Regulation T") of the Board of Governors of the Federal Reserve System, NYSE
margin requirements and the Company's internal policies, which in many instances
are more stringent than Regulation T and the NYSE requirements. In most
transactions, Regulation T limits the amount loaned to a customer for the
purchase of a particular security to a percentage of the purchase price
(generally 50% for equity securities). Furthermore, in the event of a decline in
the value of the collateral, the NYSE regulates the percentage of customer cash
or securities that must be on deposit at all times as collateral for the loans.
The Company is subject to the risk of a market decline, which could reduce the
value of its collateral below the customer's indebtedness before the collateral
could be sold. Agreements with margin account customers permit the Company to
liquidate customers' securities with or without prior notice in the event of an
insufficient amount of margin collateral. Despite such agreements, the Company
may be unable to liquidate customers' securities for various reasons, including
that the pledged securities may not be actively traded, there is an undue
concentration of certain securities pledged, or a stop order is issued with
regard to pledged securities. See "--Additional Factors That May Affect Future
Results--General Risks of the Securities Industry."

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Customers will at times accumulate credit balances in their accounts as a
result of dividend payments, interest or principal on securities held, funds
received in connection with sales of securities and cash deposits made by
customers pending investment. Ragen MacKenzie pays interest on such credit
balances pending investment of such funds. The Company uses available credit
balances to lend funds to customers purchasing securities on margin. Excess
customer credit balances are invested in securities purchased under agreements
to resell ("reverse repurchase agreements"), all of which were obligations of
the U.S. government and its agencies, held in a segregated cash account for the
benefit of customers in accordance with applicable regulations or invested on
behalf of customers in a cash management account. The Company generates net
interest income from the positive interest rate spread between the rate earned
from margin lending and alternative short-term investments and the rate paid on
customer credit balances.

RMI is a member of the Securities Investor Protection Corporation ("SIPC"),
which protects customer accounts held by RMI of up to $500,000 each (limited to
$100,000 for claims for cash) in the event of the Company's liquidation.
Additionally, RMI maintains insurance coverage in order to insure customer
accounts up to $24.5 million in excess of SIPC coverage per customer. There is
no SIPC coverage for the accounts of officers, directors or beneficial owners of
5% or more of any class of equity security of the Company.

Security Repurchase Activities

Repurchase agreements are used to finance the Company's securities
inventory, while reverse repurchase agreements are used to invest monies for the
exclusive benefit of customers and to cover short positions in the Company's
trading of debt securities. The Company is at risk to the extent that it does
not properly match the contracts, or its counterparties are unable to meet their
obligations, especially during periods of rapidly changing interest rates and
fluctuations in market conditions. The Company generally takes physical
possession or control of securities purchased under agreements to resell, which
agreements provide the Company with the right to maintain the relationship
between the market value of the collateral and the securities sold under
repurchase agreements as a means of financing portions of its trading
inventories and facilitating hedging transactions. See "Item 7A. Quantitative
And Qualitative Disclosures About Market Risk."

Research

The Company uses its proprietary equity research products to support a
large portion of its business. Ragen MacKenzie's research department, which
currently consists of 11 professional research analysts, embraces a
value-oriented, contrarian approach to investing. This approach is based on an
analysis of economic fundamentals, using among other tools price-to-earnings
multiples and price-to-book value comparisons relative to historic valuations
and the research department's own earnings forecasts. The Company relies
primarily on proprietary research products, rather than on research products
purchased from independent research organizations. The Company's research
analysts generally provide coverage for companies in more than one industry, but
apply similar criteria to each company they follow. The Company believes that
the services provided by the research department have a significant impact on
virtually all of Ragen MacKenzie's revenue-generating activities, including
retail and institutional brokerage, market-making and investment banking.

Recommended List

The Company's value-oriented Recommended List is national in scope and
principally serves the Company's retail brokerage customers. The Recommended
List focuses on stocks that are out of favor due to reduced or below average
consensus expectations of a company's prospects and attempts to maintain a
disciplined approach by establishing purchase price limits and making sell
recommendations when target prices are achieved. This investment philosophy is
based on the premise that depressed stocks may offer a lower risk profile upon a
negative outcome, yet offer superior return opportunities to investors if future
prospects are brighter than earlier thought. The Recommended List is not
distributed publicly but is made available only to the Company's retail brokers,
independent contractors, retail customers and correspondents.

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The Company's management believes that its research philosophy and
Recommended List have been a significant element in the growth and profitability
of its retail equity business since being adopted by the Company in 1988, and
have contributed to Ragen MacKenzie's ability to attract and retain retail
brokers. The Recommended List contains buy, hold or sell recommendations for a
limited number of stocks and generally does not include ongoing recommendations
of Pacific Northwest stocks covered by the Company's analysts.

Pacific Northwest Regional Equity Research

The Company believes that a significant portion of its institutional equity
brokerage business is attributable to its Pacific Northwest regional equity
research. Ragen MacKenzie analysts closely track approximately 90 publicly
traded companies headquartered in the Pacific Northwest and work to provide
investors with up-to-date, value-added analysis and advice. The Company believes
that its proximity to and niche focus on Pacific Northwest companies in many
cases provides it with a competitive advantage over broker-dealers headquartered
outside the region. The Company makes its analysts' reports on Pacific Northwest
companies publicly available. The Company's analysts work closely with sales and
trading professionals to provide its institutional investor customers with
current company and industry analysis.

In addition to publishing its written research, Ragen MacKenzie hosts
frequent research forums where Pacific Northwest companies make presentations,
and in 1999 hosted its 18th Annual Pacific Northwest Conference. These annual
conferences highlight selected publicly traded companies in the region, and have
been held in Seattle, Washington and Portland, Oregon.

Accounting, Administration And Operations

The Company's accounting, administration and operations personnel are
responsible for financial controls, internal and external financial reporting,
compliance with regulatory and legal requirements, office and personnel
services, the Company's information and telecommunications systems and
processing the Company's securities transactions. Operations department managers
have worked on average more than 20 years in the securities industry. The
Company utilizes its own facilities and management information systems
department, and the services of an outside software provider under a servicing
contract, for the electronic processing relating to recording all data pertinent
to securities transactions and general accounting. The Company believes that its
communications and information systems are sufficient to accommodate its growth
in the near term; however, the Company believes anticipated future growth may
require implementation of new and enhanced communications and information
systems and training of personnel to operate such systems. Any difficulty or
significant delay in the implementation or operation of existing or new systems,
the integration of management and other personnel or the training of personnel
could adversely affect the Company's ability to manage growth. See "--Additional
Factors That May Affect Future Results--Dependence on Systems."

Competition

The securities industry is intensely competitive. Ragen MacKenzie competes
directly with national and regional full-service broker-dealers and a broad
range of other financial service firms. Many of the Company's competitors have
substantially greater capital and financial and other resources, and greater
name recognition, than the Company. In addition, the Company competes for assets
with a variety of broker-dealers and financial entities, including mutual funds,
which have enjoyed significant growth in recent years as many retail investors
have sought the diversification and other perceived benefits available from such
investment vehicles.

Competition has intensified as numerous securities firms have either ceased
operations or have been acquired by or merged into other firms. Such mergers and
acquisitions have increased competition from these firms, many of which have
significantly greater equity capital and financial and other resources than the
Company. Many of these firms, because of their significantly greater financial
capital and scope of operations, are able to offer their customers more product
offerings, broader research capabilities, access to international markets and
other products and services not offered by the Company, which may provide such
firms with competitive advantages over the Company. The increasing competition
and consolidation in the Company's principal businesses could strengthen the
Company's competitors and adversely affect the Company's business.

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The Company also faces competition from companies offering discount and/or
electronic brokerage services, including brokerage services provided over the
Internet. These services represent a rapidly expanding segment of the securities
industry. These competitors may have lower costs or provide fewer services, and
may offer their customers more favorable commissions, fees or other terms than
those offered by the Company. Commissions charged to customers of discount and
electronic brokerage services have steadily decreased over the past several
years, and the Company expects such decreases to continue. There can be no
assurance that the rapid development of discount and/or electronic brokerages
and the decrease of commissions at such brokerages will not have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows.

The Company believes that the principal competitive factors in the
securities industry are the quality and ability of professional personnel, and
relative prices of services and products offered. The Company and many of its
competitors use direct solicitation of potential customers as a means of
increasing business and furnish investment research publications in an effort to
attract existing and potential clients. Many of the Company's competitors also
engage in advertising programs, which the Company does not use to any
significant degree.

The Company believes that its ability to compete for retail customers
depends largely upon the skill, reputation and experience of its retail brokers
and the perceived value of its research product. The Company believes that these
assets will continue to prove attractive to a segment of the investing public
which prefers the advice and personal relationship available from a full-service
broker-dealer, and which is comfortable dealing with an established regional
firm. However, there can be no assurance that these factors will continue to
enable the Company to remain competitive.

Regulation

The Company's business and the securities industry in general are subject
to extensive regulation in the United States at both the federal and state
levels, as well as by self-regulatory organizations ("SROs").

In the United States, the SEC is the federal agency primarily responsible
for the regulation of broker-dealers and investment advisers doing business in
the United States, and the Board of Governors of the Federal Reserve System
promulgates regulations applicable to securities credit transactions involving
broker-dealers and certain other United States institutions. The Company's two
operating subsidiaries (RMI and RMIS) are each registered as a broker-dealer
with the SEC. Additionally, RMI is registered as an investment adviser with the
SEC. Certain aspects of broker-dealer regulation has been delegated to
securities-industry SROs, principally the National Association of Securities
Dealers, Inc. (the "NASD") and the NYSE. The NYSE has been designated by the SEC
as RMI's primary regulator. The NASD has been designated by the SEC as RMIS's
primary regulator. These SROs adopt rules (subject to SEC approval) that govern
the industry, and, along with the SEC, conduct periodic examinations of the
Company's broker-dealer operations. Securities firms are also subject to
regulation by state securities administrators in those states in which they
conduct business. RMI is registered as a broker-dealer in all states and the
District of Columbia. RMIS is registered as a broker-dealer in 23 states.

Broker-dealers are subject to regulations covering all aspects of the
securities industry, including sales practices, trade practices among broker-
dealers, capital requirements, the use and safekeeping of customers' funds and
securities, record-keeping and reporting requirements, supervisory and
organizational procedures intended to ensure compliance with securities laws and
to prevent unlawful trading on material nonpublic information, employee-related
matters, including qualification, and licensing of supervisory and sales
personnel, limitations on extensions of credit in securities transactions,
clearance and settlement procedures, requirements for the registration,
underwriting, sale and distribution of securities and rules of the SROs designed
to promote high standards of commercial honor and just and equitable principles
of trade. A particular focus of the applicable regulations concerns the
relationship between broker-dealers and their customers. As a result, many
aspects of the relationship between broker-dealers and customers are subject to
regulation, including, in some instances, "suitability" determinations as to
certain customer transactions, limitations on the amounts that may be charged to
customers, timing of proprietary trading in relation to customers' trades and
disclosures to customers.

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As an investment adviser registered with the SEC, RMI is subject to the
requirements of the Investment Advisers Act of 1940, as amended, and the SEC's
regulations thereunder, as well as state securities laws and regulations. Such
requirements relate to, among other things, limitations on the ability of
investment advisers to charge performance-based or nonrefundable fees to
clients, record-keeping and reporting requirements, disclosure requirements and
limitations on principal transactions between an adviser or its affiliates and
advisory clients, as well as general antifraud prohibitions. Pursuant to the
National Securities Markets Improvement Act of 1996 and the Investment Advisors
Supervision Coordination Act, and the provisions thereunder, investment advisors
such as RMI with more than $25 million of assets under management are regulated
solely by the SEC and are no longer regulated by the states.

RMI also is subject to "Risk Assessment Rules" imposed by the SEC. These
rules require, among other things, that certain broker-dealers maintain and
preserve certain information, describe risk management policies, procedures and
systems and report on the financial condition of certain affiliates whose
financial and securities activities are reasonably likely to have a material
impact on the broker-dealers' financial and operational condition.

Additional legislation, changes in rules promulgated by the SEC, state
regulatory authorities or SROs, or changes in the interpretation or enforcement
of existing laws and rules may directly affect the mode of operation and
profitability of broker-dealers. The SEC, SROs and state securities commissions
may conduct administrative proceedings, which can result in censure, fines, the
issuance of cease-and-desist orders or the suspension or expulsion of a
broker-dealer, its officers or employees. The principal purpose of regulating
and disciplining broker-dealers is the protection of customers and the
securities markets, rather than the protection of creditors and shareholders of
broker-dealers.

As registered broker-dealers, the Company's two operating subsidiaries are
each required to establish and maintain a system to supervise the activities of
its retail brokers, including its independent contractor offices, and other
securities professionals. The supervisory system must be reasonably designed to
achieve compliance with applicable securities laws and regulations, as well as
SRO rules. The SROs have established minimum requirements for such supervisory
systems; however, each broker-dealer must establish procedures that are
appropriate for the nature of its business operations. Failure to establish and
maintain an adequate supervisory system may result in sanctions imposed by the
SEC or an SRO that could limit the Company's ability to conduct its securities
business. Moreover, under federal law, and certain state securities laws, RMI
and RMIS may be held liable for damages resulting from the unauthorized conduct
of its account executives to the extent that they have failed to establish and
maintain an appropriate supervisory system.

Net Capital Requirements

Every U.S. registered broker-dealer doing business with the public is subject to
Rule 15c3-1 (the "Net Capital Rule") under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), which has also been adopted through
incorporation by reference in NYSE Rule 325. The Net Capital Rule, which
specifies minimum net capital requirements for registered brokers and dealers,
is designed to measure the general financial integrity and liquidity of a
broker-dealer and requires that at least a minimum part of its assets be kept in
relatively liquid form. RMGI is not a registered broker-dealer and is therefore
not subject to the Net Capital Rule; however, RMI and RMIS are registered
broker-dealers and, therefore, are subject to the Net Capital Rule.

Net capital is essentially defined as net worth (assets minus liabilities,
as determined under generally accepted accounting principals), plus qualifying
subordinated borrowings, less the value of all of a broker-dealer's assets that
are not readily convertible into cash (such as goodwill, furniture, prepaid
expenses, exchange seats and unsecured receivables), and further reduced by
certain percentages (referred to as "haircuts") of the market value of a firm's
securities to reflect the possibility of a market decline prior to disposition.

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<PAGE>

RMI has elected to compute net capital under the alternative method of
calculation permitted by the Net Capital Rule. Under this alternative method,
RMI is required to maintain minimum net capital, as defined in the Net Capital
Rule, equal to the greater of $1,000,000 or 2% of the amount of "aggregate debit
items" computed in accordance with the Formula for Determination of Reserve
Requirements for Brokers and Dealers (Exhibit A to Rule 15c3-3 under the
Exchange Act). Generally, aggregate debit items are assets that have as their
source customer transactions, and consist primarily of margin loans. RMIS
follows the primary (aggregate indebtedness) method under the Rule, which
requires the maintenance of minimum net capital and requires that the ratio of
aggregate indebtedness to net capital, both as defined, not exceed 15 to 1.
Failure to maintain the required net capital may subject a firm to suspension or
revocation of registration by the SEC and suspension or expulsion by the NYSE
and other regulatory bodies, and ultimately may require its liquidation.
Further, the decline in a broker-dealer's net capital below certain "early
warning levels," even though above minimum capital requirements, could cause
material adverse consequences to the broker-dealer. For example, the Net Capital
Rule prohibits payments of dividends, redemption of stock, the prepayment of
subordinated indebtedness and payments in respect of subordinated indebtedness
principal if thereafter net capital would be less than 5% of aggregate debit
items. In addition to limitations outlined in the Net Capital Rule, RMI is also
subject to rules promulgated by the NYSE. Under NYSE Rule 326, a member firm is
required to reduce its business if its net capital (after giving effect to
scheduled maturities of subordinated indebtedness or other planned withdrawals
of regulatory capital in the following six months) is less than $312,500 or 4%
of aggregate debit items. NYSE Rule 326 also prohibits the expansion of business
if net capital (after giving effect to scheduled maturities of subordinated
indebtedness or other planned withdrawals of regulatory capital in the following
six months) is less than $375,000 or 5% of aggregate debit items for 15
consecutive days.

The SEC's capital rules also (i) require that broker-dealers notify it and
the broker-dealer's primary regulator, in writing, two business days prior to
making withdrawals or other distributions of equity capital or lending money to
certain related persons if such withdrawals would exceed, in any 30-day period,
30% of the broker-dealer's excess net capital and that they provide such notice
within two business days after any such withdrawal or loan that would exceed, in
any 30-day period, 20% of the broker-dealer's excess net capital, (ii) prohibit
a broker-dealer from withdrawing or otherwise distributing equity capital or
making related-party loans if after such distribution or loan the broker-dealer
has net capital of less than $300,000 or 5% of aggregate debit items and certain
other circumstances, and (iii) provide that the SEC may, by order, prohibit
withdrawals of capital from a broker-dealer for a period of up to 20 business
days if the withdrawals would exceed, in any 30-day period, 30% of the
broker-dealer's excess net capital and the SEC believes such withdrawals would
be detrimental to the financial integrity of the firm or would unduly jeopardize
the broker-dealer's ability to pay its customer claims or other liabilities.

Compliance with the Net Capital Rule could limit those operations of the
Company's broker-dealer subsidiaries that require the intensive use of capital,
such as RMI's underwriting and trading activities and the financing of customer
account balances, and also could restrict the Company's ability to withdraw
capital, which, in turn, could limit the Company's ability to pay dividends.

RMI and RMIS have been in compliance at all times with all aspects of the
Net Capital Rule. As of September 24, 1999, RMI was required to maintain minimum
net capital, in accordance with SEC rules, of approximately $3.5 million and had
total net capital (as so computed) of approximately $100.8 million, or
approximately $97.3 million in excess of 2% of aggregate debit items and $92.0
million in excess of 5% of aggregate debit items. At September 24, 1999, RMIS
had net capital of $447,000, which was $347,000 in excess of its required net
capital of $100,000, and had a ratio of aggregate indebtedness to net capital of
2.3 to 1.

Employees

As of September 24, 1999, the Company had approximately 334 full-time and
part-time employees, of whom 83 were retail brokers. None of the Company's
employees is covered by a collective bargaining arrangement. The Company
believes that its relations with its employees are good.

13
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Additional Factors That May Affect Future Results

In addition to other information in this Annual Report on Form 10-K, the
following important factors should be carefully considered in evaluating the
Company and its business because such factors currently have a significant
impact or may have a significant impact on the Company's business, financial
condition, results of operations and cash flows.

General Risks of the Securities Industry

The securities industry, by its nature, is subject to numerous and
substantial risks, including the risk of declines in price level and volume of
transactions, losses resulting from the ownership, trading or underwriting of
securities, risks associated with principal activities, the failure of
counterparties to meet commitments, customer, employee or issuer fraud risk,
litigation, customer claims alleging improper sales practices, errors and
misconduct by brokers, traders and other employees and agents (including
unauthorized transactions by brokers), and errors and failure in connection with
the processing of securities transactions. Many of these risks may increase in
periods of market volatility or reduced liquidity. In addition, the amount and
profitability of activities in the securities industry are affected by many
national and international factors, including economic, political and market
conditions; broad trends in industry and finance; level and volatility of
interest rates; legislative and regulatory changes; currency values; inflation;
and availability of short-term and long-term funding and capital, all of which
are beyond the control of the Company.

Several current trends are also affecting the securities industry,
including increasing consolidation, increasing use of technology, increasing use
of discount and online electronic brokerage services, greater self reliance of
individual investors and greater investment in mutual funds. These trends could
result in the Company's facing increased competition from larger broker-dealers,
a need for increased investment in technology, or potential loss of customers or
reduction in commission income. There can be no assurance that these trends or
future changes will not have a material adverse effect on the Company's
business, financial condition, results of operations or cash flows.

Risk of Reduced Revenue During Periods of Lower Stock Prices or Reduced
Trading Volume

The Company's revenue and profitability may be adversely affected by
declines in the volume of securities transactions and in market liquidity, which
generally result in lower revenues from trading activities and commissions.
Lower securities price levels may also result in a reduced volume of
transactions, as well as losses from declines in the market value of securities
held in trading, investment and underwriting positions. In periods of low
volume, the fixed nature of certain expenses, including salaries and benefits,
computer hardware and software costs, communications expenses and office leases,
will adversely affect profitability. Sudden sharp declines in market values of
securities and the failure of issuers and counterparties to perform their
obligations can result in illiquid markets in which the Company may incur losses
in its principal trading and market-making activities.

Dependence on, and Ability to Retain and Recruit, Key Personnel

The Company's business depends on the highly skilled, and often highly
specialized, individuals it employs. Retention of research, sales and trading,
management, investment banking and administrative professionals is particularly
important to the Company's prospects. Highly skilled employees of brokerage
firms, particularly traders, research analysts and retail and institutional
brokers, are currently heavily recruited. The level of competition for key
personnel has increased recently. The loss of a research or sales and trading
professional or key manager, particularly a senior professional or manager with
a broad range of contacts or clients, could materially adversely affect the
Company's results of operations or cash flows.

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<PAGE>

The Company believes that it will need to increase the number of its
personnel to meet its growth objectives. Competition for employees with the
qualifications desired by the Company is intense, especially with respect to
research analysts and highly productive sales and trading professionals. The
Company believes that continuing competition may cause its compensation costs to
increase. The failure to recruit and retain new employees in a timely manner
could materially adversely affect the Company's results of operations or cash
flows.

The Company depends on a number of key employees, including Lesa A. Sroufe,
Chief Executive Officer, Robert J. Mortell, Jr., Vice Chairman and Chief
Operating Officer, James P. Kerr, President, Mark A. McClure, Executive Vice
President, and V. Lawrence Bensussen, Chief Financial Officer. Although several
of these employees, together with a number of other significant employees, have
entered into limited noncompetition and nonsolicitation agreements, the majority
of the Company's employees are not subject to noncompetition or nonsolicitation
agreements that would prevent them from leaving and competing with the Company
and soliciting clients of the Company.

Failure to Complete the Merger with Wells Fargo

If the merger with Wells Fargo is not completed, the Company will face
several risks. The price of the Company's common stock will likely decline
significantly. Under certain circumstances, the option on 19.8% of the Company's
outstanding common stock that was granted to Wells Fargo upon signing the Merger
Agreement would become exercisable, and Wells Fargo may require the Company to
repurchase the option for $7,500,000. This option may discourage persons who
might be interested in acquiring the Company from proposing an acquisition. The
exercise or repurchase of the option will likely prohibit another acquiror from
accounting for an acquisition of the Company using the "pooling of interests"
accounting method for two years. The Company may have difficulty attracting and
retaining key personnel. The Company must pay its costs related to the merger,
such as legal, accounting and financial advisory fees, even if the merger is not
completed.

Dependence on Proprietary Research

A significant portion of the Company's retail and institutional brokerage
and correspondent business is derived from recommendations made by the Company's
research department. If an investment strategy derived from the buy and sell
recommendations made by the Company's research department were to underperform
key market indices, if clients or brokers otherwise perceived less value in the
Company's research or if the Company's research department decreased the number
of buy and sell recommendations, the volume of the Company's business could
decline, resulting in a loss of clients or brokers or difficulties in attracting
new clients or brokers. In addition, there can be no assurance that the Company
will be able to retain the services of key members of its research department.
Any decline in the perceived value of the Company's research or in the number of
recommendations or the loss of key members of the Company's research department
could have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows.

Significant Fluctuations in Quarterly Operating Results

The Company's revenues and operating results may fluctuate from quarter to
quarter and from year to year due to a variety of factors, including the volume
of retail and institutional brokerage transactions (as affected in part by the
number of buy and sell recommendations made by the Company's research
department), market conditions, the performance of stocks recommended by the
Company to retail and institutional clients, results of proprietary trading,
variations in expenditures for personnel, litigation expenses and the expenses
of expanding existing, and entering new, businesses. The Company could
experience declines in net income or losses if demand for its services declines
more quickly than the Company's ability to change its cost structure. The
Company's selective approach to the expansion of its retail brokerage business
may also result in a lack of predictability in revenues and income growth. Due
to the foregoing and other factors, there can be no assurance that the Company
will be able to sustain profitability on a quarterly or annual basis.

Regional Concentration

Most of the Company's customers, in particular in the retail brokerage and
correspondent businesses, are located in the Pacific Northwest. In addition, the
Company's research covers approximately 90 Northwest companies, many of which
are in the software, high-technology, biotechnology, retail, aerospace or
natural resources industries. Any significant business disruption or economic
downturn that particularly affects clients or companies in the Pacific Northwest
or the health of the industries concentrated in that region could have a
material adverse effect on the Company's business, financial condition, results
of operations or cash flows.

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<PAGE>

Competition

The securities industry is intensely competitive. Ragen MacKenzie competes
directly with national and regional full-service broker-dealers and a broad
range of other financial service firms. Many of the Company's competitors have
substantially greater capital and financial and other resources, and greater
name recognition, than the Company. In addition, the Company competes for assets
with a variety of broker-dealers and financial entities, including mutual funds
which have enjoyed significant growth in recent years as many retail investors
have sought the diversification and other perceived benefits available from such
investment vehicles.

Management of Growth of New and Existing Businesses

The Company plans to expand through internal growth and, when the
opportunity arises, may expand through acquisitions into related businesses,
which may include businesses in which the Company may not have prior experience.
Any such expansion could require significant capital resources and divert
management's attention from the Company's existing businesses. There can be no
assurance that the Company will be able to attract the personnel or expertise
necessary for any such expansion, or that any such expansion will be successful.
The failure of any such expansion could have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
Over the past several years, the Company has experienced growth in its business
activities and the number of its employees. Ongoing growth will require the
addition of new personnel, particularly retail brokers. There can be no
assurance that management will be able to manage the Company's growth
effectively, and any such failure could have an adverse effect on the Company's
business, financial condition, results of operations or cash flows.

The Company's growth has required and will continue to require increased
investment in management personnel, financial and management systems and
controls, and facilities, which, in the absence of continued revenue growth,
would cause the Company's operating margins to decline from current levels. In
addition, as is common in the securities industry, the Company is and will
continue to be highly dependent on the effective and reliable operation of its
communications and information systems. The Company believes that significant
future growth may require implementation of new and enhanced communications and
information systems and training of its personnel to operate such systems. In
addition, the scope of procedures for ensuring compliance with applicable
regulations and NASD rules have changed as the size and complexity of the
Company's business has changed. Further growth may require the Company to
implement additional compliance procedures. Any difficulty or significant delay
in the implementation or operation of existing or new systems, or compliance
procedures, or the training of personnel, could adversely affect the Company's
ability to manage growth. See "--Accounting, Administration and Operations."

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Risks of Proprietary Trading

The Company engages in proprietary trading of certain fixed income
securities, including U.S. government and agency zero coupon bonds and certain
types of CMOs. In its trading activities, the Company generally acts as a
wholesaler, buying round-lot and odd-lot positions, selling round-lot and
odd-lot positions, and acting as a market-maker in odd-lot positions. In such
transactions, the Company acts as a principal, undertaking the risk of a change
in the price of such securities or being unable to resell such securities or
cover short positions. These risks are exacerbated by the relative illiquidity
of many of the securities that the Company trades, and by the Company's trading
of CMOs, which can be more volatile than other securities as a result of the
uncertainty of the timing of the cash flows from the residential mortgages that
underlie such securities. Any losses from the Company's proprietary trading
activities, including as a result of unauthorized trading by employees of the
Company, could have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows.

It is not possible to hedge completely the risks associated with interest
rate fluctuations for many of the fixed income securities that the Company
trades, primarily because the price movements of financial instruments typically
used to hedge long positions in such securities may not precisely mirror the
price movements of the hedged securities under all market conditions.
Consequently, there can be no assurance that any procedures to prevent such loss
will be successful. Any such loss could have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
See "--Principal Transactions--Proprietary Trading" and "Item 7A. Quantitative
and Qualitative Disclosures About Market Risk.'

Risk Relating to Correspondent Brokerage Services

RMI acts as a clearing broker for 19 non-affiliated correspondent firms.
These correspondents, also known as "introducing brokers," are licensed broker-
dealers which operate sales offices and depend on RMI for back-office
operations, including the execution and clearance of all trades. RMI does not
supervise the sales practices of introducing brokers. RMI's clearing agreement
with its correspondents requires the introducing brokers to indemnify and hold
RMI harmless against any claims that may result from the sales practices of the
introducing brokers. However, there can be no assurance that the Company will be
adequately protected by virtue of such indemnity obligations against damages
that may result from misconduct by introducing brokers.

In addition, all accounts introduced by correspondents are carried on the
books of RMI. RMI is responsible to such customers for any errors it may commit
in executing trades on their behalf. Errors in performing clearing functions or
reporting could lead to civil penalties imposed by the SEC, NASD, NYSE and other
regulatory bodies. Errors in the clearing process also may lead to civil
liability for actions in negligence brought by parties who are financially
harmed as a result of clerical errors related to the handling of customer funds
and securities. There can be no assurance that any of such errors will not have
a material adverse effect on the Company's business, financial condition,
results of operations or cash flows. Any extensions of credit to such customers
are the responsibility of RMI and expose the Company to risk of loss. See
"--Risks of Extension of Credit." The term "customers," as used in this Annual
Report on Form 10-K, refers to clients of the Company, or to clients of
correspondents, depending on the context.

The expenses associated with correspondent brokerage services are generally
fixed, and therefore any loss of revenues associated with these services may
have a disproportionate effect on net income. A small number of correspondents
account for a significant portion of the Company's correspondent business, and
the Company has not entered into long-term contracts with its correspondents.
The loss of any of these significant correspondents could have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows.

Potential Losses Due to Fraud or Mistakes

The Company is exposed to the risk of significant losses as a result of
customer fraud, employee errors, misconduct and fraud (including unauthorized
transactions by traders) and failures in connection with the processing of
securities transactions. There can be no assurance that the Company's risk
management procedures and internal controls will prevent such losses from
occurring.

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Risks of Extension of Credit

In connection with its clearing and execution services, the Company makes
margin loans to its customers and correspondents' customers that are
collateralized by securities of the recipients of such margin loans, and
periodically borrows securities to cover trades. By permitting the purchase of
securities on margin, the Company is subject to risks inherent in extending
credit, especially during periods of rapidly declining markets in which the
value of the collateral held by the Company could fall below the amount of a
customer's indebtedness secured by such collateral. The Company also from time
to time extends credit to its correspondents to support their trading
activities. Correspondents may not have sufficient capital to repay their
obligations to the Company. In the normal course of business, the Company's
customer and correspondent clearing activities also obligate the Company to
settle transactions with brokers and other financial institutions even if its
customers fail to meet their obligations to the Company. Although customers are
required to complete their transactions on a specified settlement date
(generally three business days after the trade date), the Company may incur
losses if such obligations are not met. In addition, in accordance with
regulatory guidelines, the Company collateralizes borrowings of securities by
depositing cash or securities with lending institutions. Failure to maintain
cash deposit levels at all times at least equal to the value of the related
securities can subject the Company to risk of loss should there be sharp changes
in market values of substantial amounts of securities or parties to the
borrowing transactions fail to honor their commitments. See "--Interest Income
and Customer Financing."

Regulation

The SEC, the NYSE and various other regulatory agencies have stringent
rules with respect to the protection of customers and maintenance of specified
levels of net capital by broker-dealers. See "--Regulation" and "--Net Capital
Requirements." The regulatory environment in which the Company operates is
subject to change. The Company may be adversely affected as a result of new or
revised legislation or regulations imposed by the SEC, other U.S. governmental
regulators or SROs. The Company also may be adversely affected by changes in the
interpretation or enforcement of existing laws and rules by the SEC, other
federal and state governmental authorities and SROs.

The Company's two broker-dealer subsidiaries (RMI and RMIS) are subject to
periodic examination by the SEC, SROs and various state authorities. The sales
practice operations, record-keeping, supervisory procedures and financial
position of the Company's subsidiaries may be reviewed during such examinations
to determine if they comply with the rules and regulations designed to protect
customers and protect the solvency of broker-dealers. Examinations may result in
the issuance of a letter to a subsidiary noting perceived deficiencies and
requesting the broker-dealer to take corrective action. Deficiencies could lead
to further investigation and the possible institution of administrative
proceedings, which may result in the issuance of an order imposing sanctions
upon the subsidiary and/or its personnel.

The Company's business may be materially affected not only by regulations
applicable to it as a financial market intermediary, but also by regulations of
general application. For example, the volume and profitability of the Company's
or its customers' trading activities in a specific period could be affected by,
among other things, existing and proposed tax legislation, antitrust policy and
other governmental regulations and policies (including the interest rate
policies of the Federal Reserve Board) and changes in interpretation or
enforcement of existing laws and rules that affect the business and financial
communities. See "--Regulation."

Litigation and Potential Securities Law Liability

Many aspects of the Company's business involve substantial risks of
liability. There has been an increase in litigation and arbitration within the
securities industry in recent years, including class action suits seeking
substantial damages. Broker-dealers such as the Company's subsidiaries are
subject to claims by dissatisfied customers, including claims alleging they were
damaged by improper sales practices such as unauthorized trading, churning, sale
of unsuitable securities, use of false or misleading statements in the sale of
securities, mismanagement and breach of fiduciary duty.

18
<PAGE>

The Company's subsidiaries may be liable for the unauthorized acts of its retail
brokers and independent contractors if it fails to adequately supervise their
conduct. As an underwriter, the Company may be subject to substantial potential
liability under federal and state law and court decisions, including liability
for material misstatements and omissions in prospectuses or otherwise with
respect to securities offerings. The Company may be required to contribute to a
settlement, defense costs or a final judgment in certain legal proceedings or
arbitrations involving past underwriting and in actions that may arise in the
future. As is common in the securities industry, the Company does not carry
insurance that would cover any such payments. From time to time, in connection
with its hiring of retail brokers, the Company is subject to litigation by a
broker's former employer. In addition, the charter documents of RMGI and its
subsidiaries provide for indemnification of the Company's officers and
directors. The adverse resolution of any legal proceedings involving the Company
could have a material adverse effect on its business, financial condition,
results of operations or cash flows. See "Item 3.--Legal Proceedings."

Market, Credit and Liquidity Risks Associated With Market-Making, Principal
Trading and Underwriting Activities

The Company's market-making, principal trading and underwriting activities
often involve the purchase, sale or short sale of securities as principal. Such
activities subject the Company's capital to significant risks from markets that
may be characterized by relative illiquidity or that may be particularly
susceptible to rapid fluctuations in liquidity. Such market conditions could
limit the Company's ability to resell securities purchased or to repurchase
securities sold short. Such activities subject the Company's capital to
significant risks, including market, credit, counterparty and liquidity risks.
Market risk relates to the risk of fluctuating values based on market prices
without any action on the part of the Company. Credit risk relates generally to
the ability of third parties to whom the Company has extended credit to repay
amounts owed to the Company. Counterparty risk relates to whether a financial
counterparty will fulfill its contractual obligations, which may include
delivery of securities or payment of funds. Liquidity risk relates to the
Company's inability to liquidate assets or redirect the deployment of assets
contained in illiquid investments. In addition, the Company tends to concentrate
its trading positions in a more limited number of portfolio companies than many
other national securities brokerages, which might result in higher trading
losses than would occur if the Company's positions were less concentrated.

Dependence on Systems

The Company's business is highly dependent on communications and
information systems, primarily systems provided by nationally recognized
third-party vendors. Any failure or interruption of the Company's systems or
systems provided by third-party vendors could cause delays or other problems in
the Company's securities trading activities, which could have a material adverse
effect on the Company's business, financial condition, results of operations or
cash flows. In addition, there can be no assurance that the Company, or
companies that have systems on which the Company's systems rely, will not suffer
any systems failures or interruptions, whether caused by an earthquake, fire,
other natural disaster, power or telecommunications failure, act of God, act of
war or otherwise, or that the Company's backup procedures and capabilities in
the event of any such failure or interruption will be adequate.

Year 2000 Compliance

Failures and interruptions of the Company's computer systems or systems
used by third parties on whom the Company depends may result from the inability
of certain systems (including those of the Company and, in particular, those of
third-party vendors or service providers to the Company) to recognize and
process date information beginning in the Year 2000. The Company has undertaken
a project to identify and take appropriate actions with respect to systems that
are non-Year 2000 compliant, but there can be no assurance that any Year 2000
problems relating to the Company's systems or those of third-parties have been
resolved or that the remaining costs expected to be incurred by the Company in
addressing the issue will not exceed its current expectations.

19
<PAGE>

Nearly every aspect of the Company's business depends on the accurate
processing of date-related information. As a result, failure by the Company or
one or more of the third-parties with which the Company has a relationship to
successfully remediate systems for Year 2000 issues poses the risk of material
disruption to operations and material financial loss. A failure on the part of
the Company to identify and implement solutions to all aspects of the Year 2000
problem could result in systems failures or outages, inaccuracies in processing
trades or other transactions affecting customer or proprietary accounts, an
inability to reconcile to and settle with counterparties and other business
disruptions. In addition, third parties with which the Company has a
relationship could fail in some element of their Year 2000 efforts. The
Company's operations are highly dependent on the services of the securities
exchanges, depositories, its core brokerage software provider, certain banking
relationships, electric utilities and telecommunications networks. A failure by
one of these institutions to become Year 2000 compliant could disrupt the
operations of the Company as well as the securities industry as a whole. The
scope of the Company's relationship with individual customers, broker-dealer
counterparties and vendors varies widely, as does the resulting risk should any
one of them fail to achieve Year 2000 compliance. The Company has ongoing
communications with important third-parties with which it has relationships,
including its core brokerage software provider, regarding third party Year 2000
risks. The likelihood of such third parties achieving Year 2000 compliance
cannot be adequately gauged at this time.

The Company has completed the process of developing contingency plans to be
executed should a Year 2000 failure affect the Company's operations or those of
a significant third party. There can be no assurance that the identified
alternative arrangements include every material risk or contingency, or that
these contingency plans will be effective. The Company has not sought or
obtained insurance coverage for possible losses or damages as a result of Year
2000 problems. See "Item 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations--Year 2000 Compliance."

Constraints Imposed by Net Capital Requirements

The SEC, the NYSE, and various other securities exchanges and other
regulatory bodies in the United States have rules with respect to net capital
requirements that affect the Company's broker-dealer subsidiaries. These Net
Capital Rules are designed to ensure that broker-dealers maintain adequate
regulatory capital in relation to their liabilities and their business
activities. These Net Capital Rules have the effect of requiring that a
substantial portion of a broker-dealer's assets be kept in cash or highly liquid
investments. Failure to maintain the required net capital may subject a firm to
suspension or revocation of its registration by the SEC and suspension or
expulsion by the NASD and other regulatory bodies, and ultimately may require
its liquidation. Compliance by the Company's broker-dealer subsidiaries with
such Net Capital Rules could limit those operations of the Company's broker-
dealer subsidiaries that require the intensive use of capital, such as
underwriting or trading activities. A significant operating loss or any
unusually large charge against net capital could curtail the Company's ability
to expand or even continue its existing level of business. The Net Capital Rules
could also restrict the ability of the Company to withdraw capital, even in
circumstances where the Company's subsidiaries have more than the minimum amount
of required capital, which, in turn, could limit the ability of the Company to
pay dividends, implement its strategies, pay interest on and repay the principal
of its debt and redeem or repurchase shares of outstanding capital stock. In
addition, a change in such Net Capital Rules or the imposition of new rules
affecting the scope, coverage, calculation or amount of such net capital
requirements, or a significant operating loss or any large charge against net
capital, could have similar adverse effects.

Risks of Underwritten Transactions

RMI from time to time participates in corporate and, to a lesser extent,
municipal securities distributions as a co-manager of an underwriting syndicate
or as a member thereof, or as a member of a selling group. Underwriting
syndicate or selling group participation involves economic and regulatory risks.
Underwriting syndicates agree to purchase securities at a discount from the
public offering price. If the securities are sold below the syndicate cost, an
underwriter is exposed to losses on the securities it has committed to purchase.
In some cases, as a result of illiquid markets, an underwriter may be unable to
resell securities it has committed to purchase. In the past several years,
investment banking firms have increasingly underwritten offerings with fewer
syndicate participants or, in some cases, without an underwriting syndicate. In
addition, under federal securities laws, other laws and court decisions, an
underwriter is exposed to substantial potential liability for material
misstatements or omissions of fact in the prospectus used to describe the
securities being offered. Losses resulting from underwritten transactions,
particularly as a result of securities litigation, could have a material adverse
effect on the Company's business, financial condition, results of operations or
cash flows. See "--Investment Banking and Underwriting."

20
<PAGE>

Control by Directors, Executive Officers and Employees

As of December 8, 1999, the Company's directors and executive officers, in
the aggregate, beneficially owned approximately 14.7% of the outstanding shares
of the Company's Common Stock and the employees, in the aggregate, beneficially
owned in excess of 50% of such Common Stock. As a result, the Company's
directors, executive officers and employees, acting together, would be able to
significantly influence or control many matters requiring approval by the
shareholders of the Company, including, without limitation, the election of
directors and approval of significant corporate transactions, and will have
power to prevent shareholder action or approvals requiring a majority vote.

Risks to Company of Regulated Subsidiaries

Substantially all of the Company's revenues are generated by its broker-
dealer subsidiaries. RMGI relies exclusively on distributions from its
subsidiaries for funds to pay dividends, implement its strategies and redeem or
repurchase shares of outstanding capital stock. RMGI's ability to receive
distributions from its subsidiaries may be limited by the Net Capital Rules,
restrictions that may be imposed by any borrowing arrangements, or by the
earnings, financial condition and cash requirements of its subsidiaries.
Additionally, there can be no assurance that RMGI's subsidiaries will be able to
obtain funds through financing activities. These factors may impose limitations
on or prevent RMGI from paying dividends, implementing its strategies or
repurchasing shares of its capital stock.

Antitakeover Considerations

RMGI's Board of Directors has the authority to issue up to 10,000,000
shares of Preferred Stock, $.01 par value per share (the "Preferred Stock"), in
one or more series and to fix the designations, preferences, limitations and
relative rights with respect to such shares without any further vote or action
by RMGI's shareholders. The rights of the holders of Common Stock of RMGI will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. This authority, together
with certain provisions of RMGI's Amended and Restated Articles of Incorporation
(the "Articles") and Bylaws, may have the effect of making it more difficult for
a third party to acquire, or discouraging a third party from attempting to
acquire, control of RMGI, even if shareholders may consider such a change in
control to be in their best interests. In addition, Washington law contains
certain provisions that may have the effect of delaying, deterring or preventing
a hostile takeover of RMGI.

ITEM 2. PROPERTIES:

The Company presently leases all of its office space. The headquarters and
administrative offices of the Company are located in approximately 37,652 square
feet of space in Seattle, Washington, under a lease substantially expiring on
February 28, 2002. The Company also leases space for the Seattle, Washington
headquarters of RMIS and the retail branch offices of RMI located in Bellevue,
Everett, Tacoma and Walla Walla, Washington, and Bend, Eugene and Portland,
Oregon which expire between 2000 and 2006. Office space used by the Company's
institutional business segment includes space used in the Seattle, Washington
headquarters of the Company for institutional sales and investment banking
personnel, as well as leased office space in Kirkland, Washington for its
proprietary trading operations.

ITEM 3. LEGAL PROCEEDINGS:

21
<PAGE>

The Company's subsidiaries may be liable for the unauthorized acts of its retail
brokers and independent contractors if it fails to adequately supervise their
conduct. As an underwriter, the Company may be subject to substantial potential
liability under federal and state law and court decisions, including liability
for material misstatements and omissions in prospectuses or otherwise with
respect to securities offerings. The Company may be required to contribute to a
settlement, defense costs or a final judgment in certain legal proceedings or
arbitrations involving past underwriting and in actions that may arise in the
future. As is common in the securities industry, the Company does not carry
insurance that would cover any such payments. In addition, the charter documents
of RMGI and its subsidiaries provide for indemnification of the Company's
officers and directors. The adverse resolution of any legal proceedings
involving the Company could have a material adverse effect on its business,
financial condition, results of operations or cash flows.

From time to time the Company has been, and may become, a party to legal
proceedings related to its retail brokerage operations, its participation in
underwriting syndicates or other aspects of the securities business. In
addition, the Company may from time to time contribute to certain adverse final
judgments, defense costs or settlements in actions arising out of its
participation in underwriting syndicates. The Company is not currently a party
to any material pending legal proceedings.

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

There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended September 24, 1999.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS:

The Company's Common Stock is listed on the NYSE and traded under the
symbol "RMG." The following table sets forth the high and low reported sales
prices per share of the Company's Common Stock for the fiscal periods indicated,
as listed in the NYSE composite transactions reporting system. The Company's
Common Stock began trading on June 23, 1998, and the Company's initial public
offering of its Common Stock (the "IPO") was completed on June 26, 1998, which
was the end of the third fiscal quarter. Therefore, the information presented
below for the third fiscal quarter of 1998 covers only that period, and no data
is presented before that date.

High Low
---- ---
Fiscal 1998
Third Quarter (6/23/98-6/26/98).................... $15 3/8 $14
Fourth Quarter (6/27/98-9/25/98)................... 15 1/2 9 13/16

Fiscal 1999
First Quarter (9/26/98-12/31/98)................... $13 $ 8 13/16
Second Quarter (1/1/99-3/26/99).................... 12 3/4 10 11/16
Third Quarter (3/27/99-6/25/99).................... 12 3/4 9 3/4
Fourth Quarter (6/26/99-9/24/99)................... 18 7/16 11

According to records of the Company's transfer agent, the Company had
approximately 72 shareholders of record as of December 8, 1999. Based on
information obtained from various brokers and institutions, the Company
estimates that its Common Stock is held in street name by approximately 2,500
beneficial owners.

The Company has not previously paid dividends and has no present intention
to pay dividends in the future. The timing and amount of future cash dividends,
if any, will be determined by the Board of Directors of the Company and will
depend on, among other factors, the Company's earnings, financial condition and
cash requirements at the time such payment is considered and availability of
funds from the Company's subsidiaries, which may be subject to restrictions
under the Net Capital Rules of the SEC and the NYSE. (See Note 10 of the
Company's Notes to Consolidated Financial Statements and "Item 1. Business--Net
Capital Requirements.")

22
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA:

The following selected financial data should be read in conjunction with
the Consolidated Financial Statements of the Company and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------
Sept. 24, Sept. 25, Sept. 26, Sept. 27, Sept. 29,
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Income Data:
Principal transactions, net................... $ 28,789 $24,239 $23,566 $23,526 $21,683
Commissions................................... 34,015 32,672 30,758 28,516 19,553
Other......................................... 6,355 6,024 4,078 3,569 2,524
-------- ------- ------- ------- -------
Total operating revenues................... 69,159 62,935 58,402 55,611 43,760
Interest Income............................... 35,279 36,434 30,179 24,210 18,641
-------- ------- ------- ------- -------
Total revenues............................. 104,438 99,369 88,581 79,821 62,401
Interest expense.............................. 20,072 23,334 19,694 16,230 13,052
-------- ------- ------- ------- -------
Net revenues............................... 84,366 76,035 68,887 63,591 49,349
-------- ------- ------- ------- -------
Noninterest expenses:
Compensation and benefits(1)(2)............. 41,345 37,802 35,176 33,924 25,925
Occupancy and equipment..................... 6,148 4,916 4,714 3,938 3,949
Communications.............................. 3,955 3,572 3,276 2,776 2,588
Clearing and exchange fees.................. 2,866 2,650 2,338 2,344 2,282
Compensation charges related to IPO(1)(2)... - 3,480 - - -
Key person death benefits plan(3)........... - - (5,000) - 2,450
Other....................................... 5,961 3,917 3,534 3,854 2,381
-------- ------- ------- ------- -------
Total noninterest expenses................. 60,275 56,337 44,038 46,836 39,575
-------- ------- ------- ------- -------
Income before taxes on income................. 24,091 19,698 24,849 16,755 9,774
Taxes on income............................... 8,149 7,824 9,460 6,254 3,672
-------- ------- ------- ------- -------
Net income.................................... $ 15,942 $11,874 $15,389 $10,501 $ 6,102
======== ======= ======= ======= =======
Basic earnings per share(4)................... $ 1.22 $ 1.05 $ 1.54 $ 1.10 $ 0.73
Diluted earnings per share(4)................. 1.20 1.01 1.44 1.04 0.68
</TABLE>

<TABLE>
<CAPTION>
As of and for the Fiscal Year Ended
----------------------------------------------------
Sept. 24, Sept. 25, Sept. 26, Sept. 27, Sept. 29,
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Data:
Pre-tax income as a percentage of net
revenues..................................... 28.6% 25.9% 36.1% 26.3% 19.8%
Annual return on average equity............... 13.9% 13.3% 25.1% 23.3% 18.5%
Assets in retail brokerage accounts (in
millions)(5)................................ $ 11,165 $ 9,257 $ 8,806 $ 5,862 $ 4,629
Number of employees (5)....................... 334 295 271 245 232
Number of retail brokers (5).................. 83 79 74 65 65

Balance Sheets Data (in thousands)(5):
Total assets.................................. $648,534 $781,849 $665,877 $483,968 $436,068
Shareholders' equity.......................... 120,646 108,939 70,248 52,523 37,776
</TABLE>

23
<PAGE>

- --------------
(1) Compensation and benefits includes a nondeductible expense recorded for the
appreciation in book value between the option grant date and the option
exercise date for the stock options granted under the Company's stock
option plans of $1,150,000, $2,223,000, $3,125,000, $955,000 and $1,471,000
during fiscal years 1998 through 1994, respectively. Upon consummation of
the IPO, the Company recorded nondeductible stock option expense of
$1,782,000 as a component of compensation charges related to the IPO for
the conversion of the existing variable-award, book-value-based stock
option plans to fixed-award, fair-value-based plans. Accordingly, changes
in the market value of the Company's Common Stock after the consummation of
the IPO generally do not result in charges to compensation expense. See
Note 12 of the Company's Notes to Consolidated Financial Statements.

(2) Compensation and benefits includes an expense recorded for the appreciation
in book value between the grant date and the exercise date for stock
appreciation rights ("Repurchase SARs") granted under the Ragen MacKenzie
Incorporated 1997 Share Repurchase Plan (the "Share Repurchase Plan") of
$135,000 and $66,000 during fiscal 1998 period prior to the IPO and fiscal
1997, respectively. Upon consummation of the IPO, the Company recorded
compensation expense of $1,698,000 as a component of nonrecurring
compensation charges related to IPO for the difference between the market
value of the Common Stock, based on the initial public offering price, and
the book value of the Common Stock immediately preceding the IPO, for all
book-value-based Repurchase SARs outstanding on the date of consummation of
the IPO. The Share Repurchase Plan was terminated upon consummation of the
IPO. No expenses were incurred during any other periods since no Repurchase
SARs under the Share Repurchase Plan were outstanding during such periods.
See Note 12 of the Company's Notes to Consolidated Financial Statements.

(3) Reflects amounts recorded for benefits under the Key Person Death Benefits
Plan (the "Death Benefits Plan"). The Death Benefits Plan provided for
certain payments to the estates of certain key employee-shareholders upon
their deaths. The Death Benefits Plan was unfunded, but the Company had
accrued amounts totaling $5,000,000 through the end of fiscal 1996 that
were deemed necessary to pay plan benefits. In February 1997, the Board of
Directors of RMI approved the termination of the Death Benefits Plan and
the Company recorded a nonrecurring benefit of $5,000,000, which reflects
the reversal of the amount previously accrued for plan benefits. The
Company had no outstanding obligations or any future obligations under the
Death Benefits Plan at termination date. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Death Benefits Plan."

(4) Basic earnings per share ("Basic EPS") is calculated by dividing net income
by the weighted average number of shares outstanding. Diluted earnings per
share ("Diluted EPS") also includes the dilutive effect of the issuance of
stock options. For the purpose of calculating the dilutive effect of stock
options in Diluted EPS for periods prior to the Company's IPO, the Company
utilizes the per-share book value at the end of each corresponding period,
as the Company's share repurchase plan required selling shareholders to
offer their shares to the Company for redemption at book value as
calculated in accordance with the terms of the share repurchase plan.

(5) Shown as of end of period.

24
<PAGE>

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

The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Consolidated Financial Statements
and the related Notes included elsewhere herein. In addition to historical
information, this Form 10-K contains and may incorporate by reference statements
which may constitute forward-looking statements that involve risks and
uncertainties. The words "believe", "expect", "intend", "anticipate", variations
of such words, and similar expressions identify forward-looking statements, but
their absence does not mean that the statement is not forward-looking. These
forward-looking statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Accordingly, actual results may differ materially from those
anticipated or expressed in such statements. Potential risks and uncertainties
include, among other things, the general risks of the securities industry, risks
of reduced revenue during periods of lower stock prices or reduced trading
volume; dependence on, and ability to retain and recruit, key personnel; failure
to complete the merger with Wells Fargo; dependence on proprietary research;
significant fluctuations in quarterly results; regional concentration;
competition; management of growth of new and existing businesses; the risks
relating to proprietary trading and correspondent brokerage services; risks of
extension of credit; risks relating to regulation; risks relating to litigation
and potential securities law liability; risks relating to Year 2000 compliance;
and market, credit and liquidity risks associated with market-making, principal
trading and underwriting activities, as well as other risks and uncertainties
set forth in "Item 1. Business--Additional Factors That May Affect Future
Results." Except as required by law, the Company undertakes no obligation to
update any forward-looking statement, whether as a result of new information,
future events or otherwise. Readers, however, should carefully review the
factors set forth in other reports or documents that the Company files from time
to time with the SEC.

The Company's discussion of the issues surrounding the Year 2000 contain
forward-looking statements. These forward-looking statements include, but are
not limited to, discussions concerning (1) the financial impact of the Year 2000
project; (2) the Company's estimated timetables for completion of each phase of
the project; (3) the readiness of third-party service providers, including the
functioning of the Company's core brokerage software provided by an outside
software provider; and (4) contingency plans. Many factors, including those
outside of the control of the Company and those that are difficult or impossible
to predict at this time, could cause actual results to be materially different
than those anticipated and expressed in these forward-looking statements.

Business Environment

The Company is primarily engaged in securities brokerage and related
investment services that include retail and institutional brokerage of
securities, investment research, market making, trading, underwriting, and
distribution of corporate securities and correspondent clearing. The Company's
profitability is affected by many factors, including retail brokerage
activities, which generate revenues from customer trading activity and interest
on customer assets held by the Company pending investment, changes in the number
and productivity of the retail brokers, the level of securities trading volume,
the volatility of securities prices and interest rates, economic conditions
nationally and in the Pacific Northwest, income tax legislation and the general
level of market prices for securities. While revenues are dependent upon many
factors, which may fluctuate significantly, many of the Company's activities
have fixed operating costs that do not decrease with reduced levels of activity.

Relatively low interest rates and an improving economic environment
contributed to a significant increase in activity in the equity markets in the
United States during the last three years. The Company's financial results have
been and may continue to be subject to fluctuations due to the factors described
above, or other factors. Consequently, the results of operations for a
particular period may not be indicative of results to be expected for other
periods.

25
<PAGE>

Recent Developments

On September 28, 1999, RMGI entered into a Merger Agreement with Wells Fargo and
Romero Acquisition Corp., a wholly owned subsidiary of Wells Fargo. Under the
terms of the Merger Agreement, Romero Acquisition Corp. will merge with RMGI and
RMGI will become a wholly owned subsidiary of Wells Fargo. In the acquisition,
Wells Fargo will issue $18.75 worth of its common stock in exchange for each
outstanding share of the Company's Common Stock, subject to adjustment if the
average price of Wells Fargo's common stock is below $36 or above $42 per common
share over a period of time as specified in the Merger Agreement.

As a condition to Wells Fargo entering into the Merger Agreement, RMGI and Wells
Fargo entered into a Stock Option Agreement (the Option Agreement), pursuant to
which RMGI granted to Wells Fargo an irrevocable option to purchase up to
2,570,093 authorized and unissued shares of the Company's Common Stock at a
price of $15.50 per share, exercisable upon the occurrence of certain events
related to the termination of the Merger Agreement. Under certain circumstances,
RMGI may be required to purchase the option or the shares acquired pursuant to
the exercise of the option.

The Merger Agreement has been approved by the boards of directors of both
companies and the business combination is expected to close during the first
calendar quarter of 2000, subject to approval by the Company's shareholders,
required regulatory approvals and other conditions to closing. Additional
information regarding the proposed merger can be found in the Company's Current
Report on Form 8-K filed with the SEC on September 30, 1999.

Acquisitions

On March 30, 1999, RMGI completed an acquisition of all of the outstanding
common stock of Columbia Pacific Securities, Inc., and subsequently renamed the
subsidiary Ragen MacKenzie Investment Services, Inc. RMIS is a full service
retail brokerage firm headquartered in Seattle, Washington with 40 independent
contractor brokers, located in 21 branch offices California, Idaho, Montana,
Oregon, Washington, and Wyoming. RMIS, which was previously a correspondent
brokerage firm of RMI, continues to clear its brokerage business through RMI on
a fully disclosed basis. The transaction was accounted for using the purchase
method of accounting and, as such, the consolidated financial statements of the
Company include the results of RMIS from the date of acquisition. The
consideration paid for the acquisition, which totaled $1,445,000, included the
issuance of 40,000 shares of the Company's Common Stock held in treasury and
cash as specified in the purchase agreement. The excess of the purchase price
over the estimated fair value of net assets acquired, which was recorded as
goodwill, was $1,039,000 and is being amortized over 15 years using the
straight-line method of amortization. While the Company does not expect this
acquisition to significantly affect its consolidated earnings in the near term,
the consolidated results for fiscal 1999 reflect higher revenues and expenses
that are in part attributable to the results of operations from this new
subsidiary. The Company believes the creation of RMIS will provide a platform on
which it can grow its independent contractor business over the longer term.

Death Benefits Plan

In 1992, the Company adopted the Death Benefits Plan, which provided for
the payment of supplemental benefits to the heirs of certain
employee-shareholders in the event of their deaths. Benefits to be paid under
the provisions of the Death Benefits Plan were determined as a function of the
employee-shareholder's ownership of Common Stock of the Company and were to be
provided to the heirs as a supplement to payments made by the Company in
conjunction with the redemption of the book-value-based Common Stock of the
Company. Provisions in the aggregate amount of $5,000,000 were made in fiscal
1992 through 1996 to record the obligation under the Death Benefits Plan.

In February 1997, the Company adopted the share repurchase plan pursuant to
which certain employees were allowed to elect to receive a right to a Repurchase
SAR upon the redemption of the shareholder's Common Stock of the Company. The
amount to be paid to the Repurchase SAR holder was generally determined as the
appreciation in the Common Stock of the Company over the two-year period
subsequent to the Repurchase SAR grant date. As the Share Repurchase Plan served
to provide additional liquidity in the Company's Common Stock, the Company
elected to terminate the Death Benefits Plan. Accordingly, the previously
established accruals under the Death Benefits Plan were reversed, resulting in a
reduction of noninterest expenses of $5,000,000 in the second quarter of fiscal
1997. The Share Repurchase Plan terminated upon consummation of the IPO.

26
<PAGE>

Earnings Charges in 1998 upon Consummation of the IPO

In connection with certain events relating to the IPO and upon consummation
of the IPO, the Company recorded nonrecurring charges to earnings, resulting in
a charge to earnings of $3,480,000 ($2,886,000 net of tax benefit) in the third
quarter of fiscal 1998 in which the IPO was completed. Upon consummation of the
IPO, the Company's stock option plans, which had been variable-award,
book-value-based plans, became fixed-award, fair-value-based plans. Accordingly,
the Company was required to record compensation expense of $1,782,000 based on
the difference between the book value of the Company's Common Stock immediately
preceding the IPO and the fair market value of the Common Stock for all
variable-award, book-value-based stock options outstanding on the date of
consummation of the IPO. Upon consummation of the IPO, the Company also recorded
compensation expense in the amount of $1,698,000 ($1,104,000 net of tax
benefit), which reflected the increase in the value of the Repurchase SARs
outstanding under the Share Repurchase Plan. The Share Repurchase Plan was
terminated upon consummation of the IPO. See Note 12 of the Company's Notes to
Consolidated Financial Statements.

Components Of Revenues And Expenses

Operating Revenues. The Company's revenues are derived primarily from
principal transactions, commissions and interest income. Principal transactions
revenues include net revenues from the trading of securities as a principal,
including sales credits and trading profits or losses, and are primarily derived
from the Company's activities as a market-maker on Nasdaq and facilitating sales
to customers and other dealers. Additionally, the Company derives principal
transactions revenues from trading debt securities, primarily as part of its
wholesale trading activity and for the benefit of its retail customers.
Principal transactions revenues are affected primarily by fluctuations in
transaction volume as well as by changes in the market value of securities for
which the Company acts as principal. Commissions revenues include revenues
resulting from executing transactions in securities as an agent and selling
concessions on underwriting transactions. Other revenues include primarily fees
from investment advisory services and investment banking revenues (other than
selling concessions).

Interest. Interest income is derived principally from investing customer
credit balances, administrative fees earned on customer money-market accounts,
lending to customers on margin and trading inventories. Interest expense
reflects interest paid on customer credit balances and interest paid on bank
loans and security repurchase agreements used to finance U.S. government, agency
and CMO securities inventory.

Noninterest Expenses. Compensation and benefits expenses include sales
commissions, trading and incentive compensation, which are primarily variable
and are based on revenue production, and salaries, payroll taxes, employee
benefits and temporary employee costs, which are relatively fixed in nature, and
stock option expense for periods prior to the IPO. Occupancy and equipment
expenses include rent and utility charges paid for the Company's facilities,
expenditures for facilities repairs and upgrades, and depreciation of computer,
telecommunications and office equipment. Communications expenses include charges
from third-party providers of telecommunications services, printing and mailing
costs for customer communications and news and market data services. Clearing
and exchange fees include the cost of securities clearance, floor brokerage and
exchange fees. Other expenses include state and local taxes, professional fees
and miscellaneous expenses.

27
<PAGE>

Results of Operations

During fiscal 1999, net income totaled $15,942,000, or $1.20 per diluted
share, on net revenues of $84,366,000, compared with fiscal 1998 net income of
$11,874,000, or $1.01 per diluted share, on net revenues of $76,035,000. Net
income for fiscal 1998 includes the effect of a nonrecurring after-tax charge of
$2,886,000 that was recorded for stock options and stock appreciation rights
that were outstanding at the time of the Company's June 1998 IPO.

The following table sets forth for the periods indicated certain financial
data stated as a percentage of net revenues:

<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
Sept. 24, Sept. 25, Sept. 26, Sept. 27,
1999 1998 1997 1996
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Statements of Income Data:
Principal transactions, net............................ 34.1% 31.9% 34.2% 37.0%
Commissions............................................ 40.3 43.0 44.7 44.8
Other.................................................. 7.5 7.9 5.9 5.6
----- ------ ------ ------
Total operating revenues........................... 81.9 82.8 84.8 87.4
Interest income........................................ 41.9 47.9 43.8 38.1
----- ------ ------ ------
Total revenues..................................... 123.8 130.7 128.6 125.5
Interest expense....................................... 23.8 30.7 28.6 25.5
----- ------ ------ ------
Net revenues....................................... 100.0 100.0 100.0 100.0
----- ------ ------ ------
Noninterest expenses:
Compensation and benefits(1)........................... 49.0 49.7 51.1 53.3
Occupancy and equipment................................ 7.3 6.5 6.8 6.2
Communications......................................... 4.7 4.7 4.8 4.4
Clearing and exchange fees............................. 3.4 3.5 3.4 3.7
Compensation charges related to IPO(1)................. - 4.6 - -
Key person death benefits plan(2)...................... - - (7.3) -
Other.................................................. 7.0 5.1 5.1 6.1
----- ------ ------ ------
Total noninterest expenses......................... 71.4 74.1 63.9 73.7
----- ------ ------ ------
Income before taxes on income.......................... 28.6 25.9 36.1 26.3
Taxes on income........................................ 9.7 10.3 13.7 9.8
----- ------ ------ ------
Net income............................................ 18.9% 15.6% 22.4% 16.5%
===== ====== ====== ======
</TABLE>

- --------------
(1) See footnotes 1 and 2 to the table set forth in "Selected Financial Data."
(2) See footnote 3 to the table set forth in "Selected Financial Data."

28
<PAGE>

Comparison of Fiscal Years Ended September 24, 1999 and September 25, 1998

Net revenues increased by $8,331,000, or 11.0%, to $84,366,000 for fiscal 1999
as compared to fiscal 1998. The increase in net revenues was due primarily to
increased revenue from the Company's proprietary trading of U.S. government and
agency zero coupon bonds and higher net interest income earned on retail
customer balances.

Revenues from principal transactions increased by $4,550,000, or 18.8%, to
$28,789,000 for fiscal 1999 as compared to fiscal 1998. Revenues from trading
debt securities increased by $2,947,000, or 20.5%, to $17,347,000, due primarily
to significant revenue growth from trading in U.S. government and agency zero
coupon bonds, resulting in part from opportunistic reconstitution of certain
U.S. government and agency zero coupon bonds. Similar opportunities for growth
in the trading of U.S. government and agency zero coupon bonds may not recur in
future periods. Revenues from principal transactions in equity securities
increased by $1,603,000, or 16.3%, to $11,442,000 for the fiscal 1999 as
compared to fiscal 1998. The increase reflects a rise in sales credits due to
higher retail trading activity.

Commissions revenues increased modestly to $34,015,000 for fiscal 1999 as
compared to fiscal 1998. The increase was primarily due to the acquisition of
RMIS and growth in the number of retail brokers during fiscal 1999. The increase
in commissions from retail brokerage was partially offset by the January 1, 1999
change in status of Brooks G. Ragen and his son from employee brokers to
correspondent brokers. As a result of this change, commission revenue generated
by these two that was previously reported on a gross basis before compensation
and other expenses is now reported on a net basis after payment has been made to
their correspondent brokerage firm.

Other revenue increased by $331,000, or 5.5%, to $6,355,000 for fiscal 1999
compared to fiscal 1998, primarily due to an increase in investment banking
activities, which was partially offset by a $290,000 gain recorded in the 1998
period for the Company's sale of its Pacific Stock Exchange membership.

Net interest income increased by $2,107,000, or 16.1%, to $15,207,000 for fiscal
1999 as compared to fiscal 1998. Interest income decreased modestly to
$35,279,000 due to lower interest rates earned on customer credit and margin
balances, which was partially offset by an increase in average customer margin
and money-market balances. Interest expense decreased by $3,262,000, or 14.0%,
to $20,072,000 due to lower interest rates paid on customer credit balances and
the application of $18,634,000 net proceeds from the Company's June 1998 IPO to
pay down current short-term borrowings, which was partially offset by an
increase in average customer credit balances.

Noninterest expenses increased by $3,938,000, or 7.0%, to $60,275,000 for fiscal
1999 as compared to fiscal 1998. This increase primarily reflects increases in
compensation and benefits, occupancy and equipment and other expenses, the
comparative effect of which were mitigated by the nonrecurring nature of the
$3,480,000 compensation charges related to the Company's June 1998 IPO.

Compensation and benefits expenses increased by $3,543,000, or 9.4%, to
$41,345,000 for fiscal 1999 as compared to fiscal 1998. Commission and other
sales compensation expenses increased by $1,213,000, or 6.9%, to $18,685,000 for
fiscal 1999, as a result of the increase in commission revenues attributable to
the third quarter 1999 acquisition of RMIS, partially offset by a decrease in
guaranteed broker salary payments that the Company previously provided to
recently hired brokers. Compensation and benefits expenses for fiscal 1998
includes $1,150,000 of stock option expense that was recorded under the
Company's variable-award, book-value-based stock option plans. No expense was
recorded in fiscal 1999 as the Company's stock option plans became fixed-award,
fair-value-based plans upon consummation of the Company's June 1998 IPO. The
remaining increase in compensation and benefits was primarily due to higher
incentive bonus compensation paid to trading-related personnel generally
resulting from increased trading revenue and an increase in employee
compensation and benefits due to increased staffing to support the Company's
retail brokerage business.

Occupancy and equipment expenses increased $1,232,000, or 25.1%, to $6,148,000,
due to the Company's investment in technology and expansion of the retail sales
force and supporting functions. Communications expenses increased by $383,000,
or 10.7%, to $3,955,000 due to higher printing and mailing costs and fees for
information data services. Clearing and exchange fees increased by $216,000, or
8.2%, to $2,866,000, due to higher trade-related costs. Other expenses increased
by $2,044,000, or 52.2%, to $5,961,000, primarily due to higher professional
fees relating to the sale of the Company to Wells Fargo and a general
increase in the level of business activities. The comparison was further
impacted by state and local tax refunds which were recorded as a reduction of
other expenses in fiscal 1998 for overpayments in prior years.

29
<PAGE>

The $3,480,000 compensation charges related to the IPO reflect nonrecurring
noncash stock option expense of $1,782,000 for the conversion of the Company's
variable-award, book-value-based stock option plans to fixed-award,
fair-value-based stock option plans and $1,698,000 in compensation expense
related to stock appreciation rights that were outstanding at the time of the
IPO. Both charges were recorded in the third quarter of fiscal 1998 upon
consummation of the IPO.

The Company's effective income tax rate was 33.8% in fiscal 1999 and 39.7% in
fiscal 1998. The Company's effective income tax rate was higher than the federal
statutory rate in fiscal 1998 primarily due to nondeductible stock option plan
expenses which had the effect of increasing the effective tax rate by 5.2
percentage points. As a result of the conversion of the variable-award,
book-value-based stock option plans to fixed-award, fair-value-based stock
option plans upon consummation of the Company's June 1998 IPO, the Company
expects that its effective income tax rate in future periods will remain
generally consistent with the rate in fiscal 1999.

Comparison of Fiscal Years Ended September 25, 1998 and September 26, 1997

Net revenues increased by $7,148,000, or 10.4%, to $76,035,000 for fiscal
1998 as compared to fiscal 1997. Revenues increased in virtually all of the
Company's major areas of activity during fiscal 1998 as compared to fiscal 1997.

Revenues from principal transactions increased by $673,000, or 2.9%, to
$24,239,000 for fiscal 1998 as compared to fiscal 1997. Revenues from trading
debt securities increased by $2,145,000, or 17.5%, to $14,400,000, due primarily
to increased trading volume in U.S. government and agency zero coupon bonds,
resulting in part from continued improvements to trading systems, including
adding new features to an existing automatic order system, and to the
opportunistic reconstitution of certain U.S. government and agency zero coupon
bonds. Similar opportunities for growth in the trading of U.S. government and
agency zero coupon bonds may not recur in future periods. Revenues from
principal transactions in equity securities decreased by $1,472,000, or 13.0%,
to $9,839,000 for fiscal 1998 as compared fiscal 1997. The decrease reflects
narrowing margins due to increased competition and greater regulatory
supervision of these markets, which was partially offset by increased equity
trading volumes.

Commissions revenues increased by $1,914,000, or 6.2%, to $32,672,000 for
fiscal 1998 as compared to fiscal 1997. The increase was primarily due to an
increase in trading volume and growth in the number of retail brokers in the
later period. The increase in trading volume generally resulted from sharp
market fluctuations during the quarter ended December 1997. Successful
recruiting efforts during the second half of fiscal 1997 contributed to the
overall growth in the number of brokers during fiscal 1998. The Company's
research typically focuses on value-oriented stocks. If the stock market's
recent volatility continues and value-oriented stocks under-perform the broader
market, it could have a material adverse affect on the Company's commission
business.

Other income increased by $1,946,000, or 47.7%, to $6,024,000 for fiscal
1998 compared fiscal 1997, primarily due to an increase in fees from investment
advisory services and investment banking activities.

Net interest income increased by $2,615,000, or 24.9%, to $13,100,000 for
fiscal 1998 as compared to fiscal 1997. Interest income increased by $6,255,000,
or 20.7%, to $36,434,000 due primarily to increased average customer credits,
margin, and money-market balances. Interest expense increased by $3,640,000, or
18.5%, to $23,334,000 primarily due to an increase in average customer credit
balances, which was partially offset by the application of $18,634,000 net
proceeds from the Company's June 1998 IPO to pay down current short-term
borrowings.

Noninterest expenses increased by $12,299,000, or 27.9%, to $56,337,000 for
fiscal 1998 as compared to fiscal 1997. This increase consists primarily of
increases in compensation and benefits expenses, a nonrecurring $5,000,000
benefit related to reversal of amounts previously accrued under the Death
Benefits Plan in fiscal 1997 and a nonrecurring $3,480,000 compensation charge
related to the IPO during fiscal 1998.

Compensation and benefits expenses increased by $2,626,000, or 7.5%, to
$37,802,000 for fiscal 1998 as compared to fiscal 1997. Commission and other
sales compensation expenses increased by $966,000, or 5.9%, to $17,472,000 for
fiscal 1998, primarily as a result of the increase in commission revenues and
principal transactions, and, to a lesser extent, an increase in guaranteed
broker salary payments for recently hired brokers. The remaining increase in
employee compensation and benefits was due to increased staffing to support the
Company's expanding retail brokerage business and higher incentive bonus
compensation paid to trading-related personnel generally resulting from
increased trading revenue.

30
<PAGE>

Occupancy and equipment expenses increased $202,000, or 4.3%, to
$4,916,000, due to expansion of the Company's retail sales force. Communications
expenses increased by $296,000, or 9.0%, to $3,572,000, primarily reflecting
higher printing and mailing costs due to higher trading volume and growth in the
number of customer accounts. Clearing and exchange fees increased by $312,000,
or 13.3%, to $2,650,000, due to higher trading volume in retail and
correspondent brokerage services. Other expenses increased by $383,000, or
10.8%, to $3,917,000, due to higher professional fees, which were partially
offset by refunds obtained from the State of Washington and the City of Seattle
for overpayment of taxes in prior years.

The $3,480,000 compensation charges related to the IPO reflect nonrecurring
noncash stock option expense of $1,782,000 for the conversion of the Company's
variable-award, book-value-based stock option plans to fixed-award, fair-value-
based stock option plans and $1,698,000 in compensation expense related to stock
appreciation rights that were outstanding at the time of the IPO. Both charges
were recorded in the third quarter of fiscal 1998 upon consummation of the IPO.

The Death Benefits Plan was terminated during fiscal 1997, which resulted
in the Company's recording a benefit of $5,000,000 during the 1997 period. No
expense or benefit was recorded during fiscal 1998, as this plan had been
terminated.

The Company's effective income tax rate was 39.7% in fiscal 1998 and 38.1%
in fiscal 1997. The Company's effective income tax rate was higher than the
federal statutory rate primarily due to nondeductible stock option plan expenses
which had the effect of increasing the effective tax rate by 5.2 percentage
points and 3.1 percentage points in fiscal 1998 and 1997, respectively. As a
result of the conversion of the variable-award, book-value-based stock option
plans to fixed-award, fair-value-based stock option plans upon consummation of
the IPO, the Company expects that its effective income tax rate will be lower in
future periods.

Liquidity and Capital Resources

The Company has historically satisfied a large portion of its funding needs
with its own capital resources, consisting largely of internally generated
retained earnings and funds received upon exercise of employee stock options. A
majority of the Company's assets are highly liquid and short term in nature. The
Company's cash, cash equivalents and liquid assets, consisting of receivables
from customers, brokers and dealers, securities purchased under agreements to
resell, securities owned, securities borrowed and deposits with clearing
organizations, represented in excess of 98% of the Company's assets as of
September 24, 1999 and September 25, 1998. Substantially all of the Company's
receivables are secured by customer securities or security transactions in the
process of settlement.

The majority of the Company's assets are financed through daily operations
by securities sold under repurchase agreements, securities sold but not yet
purchased, bank loans, securities loaned, and payables to customers, brokers and
dealers. Short-term funding is generally obtained at rates relating to daily
federal funds rates. Other borrowing costs are negotiated depending on
prevailing market conditions. The Company monitors overall liquidity by tracking
the extent to which unencumbered marketable assets exceed short-term unsecured
borrowings. The Company maintains borrowing arrangements with two financial
institutions, which funds are used primarily to finance U.S. government and
agency zero coupon bond inventories. As of September 24, 1999, the Company had a
security repurchase arrangement with $38,050,000 outstanding and a secured bank
line of credit with no outstanding balance and available borrowing capacity of
approximately $67,000,000. The ratio of assets to equity as of September 24,
1999 was approximately 5.4:1.

On June 26, 1998, the Company completed the IPO, which included the sale of
1,562,500 shares of Common Stock by the Company. The IPO raised approximately
$18.6 million for the Company after deducting underwriting discounts,
commissions and estimated expenses. On July 27, 1998 the underwriters exercised
their over-allotment option and purchased 347,100 additional shares, including
9,600 shares sold by the Company (the "Over-Allotment Option"). The Company used
the net proceeds and available cash from the IPO and the Over-Allotment Option
to pay down current short-term borrowings.

31
<PAGE>

On August 25, 1998, the Board of Directors authorized the repurchase of up
to 1,000,000 shares of the Company's Common Stock over the following twelve
months. Purchases of the Common Stock were to be made from time to time at
prevailing prices in the open market, by block purchases, or in privately
negotiated transactions using funds from operations or the Company's other
existing financing sources. The repurchased shares were to be accounted for as
treasury stock and may be used for the Company's employee stock option plans and
other general corporate purposes. The Company repurchased 626,000 shares, at a
total cost of $7,151,000, during fiscal 1999 and 50,600 shares, at a total cost
of $511,000, during fiscal 1998. Subsequent to August 25, 1999, when the Board
of Directors authorization for the Company's common stock repurchase program
expired, no additional shares may be repurchased under this program.

Certain minimum amounts of capital must be maintained by RMI and RMIS, the
Company's broker-dealer subsidiaries, to satisfy the regulatory requirements of
the SEC and the NYSE. RMI and RMIS's regulatory net capital have historically
exceeded these minimum requirements. See "Item 1. Business--Net Capital
Requirements."

The Company believes that its current level of liquid assets, combined with
funds anticipated to be generated from operations, will be adequate to fund its
operations for at least 18 to 24 months.

Year 2000 Compliance

The following Year 2000 discussion is a "Year 2000 Readiness Disclosure" within
the meaning of the Year 2000 Information Readiness and Disclosure Act.

The Company uses, and depends on third-parties who use, a wide variety of
computer programs and devices, some of which have used only the last two digits
of each year to represent the calendar year portion of dates. As a result,
calculations performed with these abbreviated date fields could misinterpret the
year 2000 resulting in erroneous calculations or program failures that could
cause significant disruptions in the Company's operations (the "Year 2000
Problem").

In 1996, the Company established a Year 2000 Committee to address the risks
associated with the Year 2000 Problem. The Committee is comprised of key
personnel from information technology, finance and operations departments within
the Company. With the direction of the Year 2000 Committee, the Company is
executing a project plan in an attempt to achieve Year 2000 compliance. In
developing the project plan, the Year 2000 Committee used an enterprise-wide
approach and grouped all of the Company's operations into the following five
broad areas: Business Partners; Computers and Technology (including hardware and
software associated with mainframe, distributed and desktop computer systems
operated by the Company, as well as the Company's core brokerage software
obtained from an unaffiliated software provider); Information Data Feeds
(including all data interfaces with external parties); Facilities and Work
Environments; and Customers and Correspondents. Within each of these areas, the
Year 2000 Committee has organized its activities to include the following steps
or phases: inventory, assessment, remediation, testing and contingency planning.

To date, the Company believes it has completed the following phases within all
areas of the project plan as they relate to its internal system: inventory,
assessment, remediation, testing and contingency planning. The project areas
that comprise the Company's internal systems include Computers and Technology
and Facilities and Work Environments, as well as certain aspects of the
remaining areas.

A significant aspect of the Company's Year 2000 project within the Computers and
Technology area relates to the functioning of the Company's core brokerage
software. This software, which is provided by an outside software provider
under a servicing contract, is used by the Company for the electronic processing
and recording of all data pertinent to securities transactions and general
accounting. While the Company is not directly responsible for the work or costs
associated with making this system Year 2000 ready, the Year 2000 Committee
closely monitors the Year 2000 work performed by the software provider through
regular progress updates and reviews. To date, remediation and testing of this
system has been completed and all of the twenty-six software subsystems that
comprise the Company's core brokerage software system are currently in use by
the Company.

32
<PAGE>

Business Partners and Information Data Feed project areas involve an extensive
network of third-party relationships and external providers of products and
services that include the major securities exchanges, self-regulatory
organizations, industry clearing and depository institutions, other broker-
dealers, and hardware and software technology providers. Where deemed necessary,
the Company has inquired of these parties whether they are making the necessary
efforts to correct their own Year 2000 problems and has received oral or written
responses. The Company's assessment of these responses is complete. With regard
to Information Data Feeds, the Company has completed its assessment, remediation
and testing (where available) of its critical information data feeds and
external interfaces.

The testing phase of the project plan began in December 1998 and is now
complete. In this phase, the Company identified systems within each area of the
overall project plan that it believed required testing. For each of these
systems, the Company determined the nature and timing of the testing. An
important element of the Company's internal testing plan for its core brokerage
software system was participation in the securities industry-wide test. In this
test, which was coordinated by the Securities Industry Association and occurred
in March and April 1999, RMI and other participants were able to input
transactions and send them to the appropriate markets for execution,
confirmation and clearance under simulated Year 2000 conditions. The Company has
been informed that the testing was a success.

Nearly every aspect of the Company's business depends on the accurate
processing of date-related information. As a result, failure by the Company or
one or more of the third parties with which the Company has a relationship to
successfully remediate systems for Year 2000 issues poses the risk of material
disruption to operations and material financial loss. A failure on the part of
the Company to identify and implement solutions to all aspects of the Year 2000
Problem could result in systems failures or outages, inaccuracies in processing
trades or other transactions affecting customer or proprietary accounts, an
inability to reconcile to and settle with counterparties and other business
disruptions. In addition, third parties with which the Company has a
relationship could fail in some element of their Year 2000 efforts. The
Company's operations are highly dependent on the services of the securities
exchanges, depositories, its core brokerage software provider, certain banking
relationships, electric utilities and telecommunications networks. A failure by
one of these institutions to become Year 2000 compliant could disrupt the
operations of the Company as well as the securities industry as a whole. The
scope of the Company's relationship with individual customers, broker-dealer
counterparties and vendors varies widely, as does the resulting risk should any
one of them fail to achieve Year 2000 compliance. The Company has ongoing
communications with important third parties with which it has relationships,
including its core brokerage software provider, regarding third party Year 2000
risks. The likelihood of such third parties achieving Year 2000 compliance
cannot be adequately gauged at this time.

The Company has developed written contingency plans to be executed should a Year
2000 failure affect the Company's operations or those of a significant third
party. In developing its contingency plans, the Company has incorporated various
Year 2000 issues into its existing disaster recovery plans. These plans include
identification of various alternative procedures, where alternatives exist, that
could be performed should a Year 2000 failure affect the Company's mission
critical operations or those of a significant third party. Such alternatives
generally rely upon manual procedures or work-around techniques that could be
performed for existing systems on a temporary basis. Consideration was given to
alternatives for mission critical third parties in the contingency plan,
however, it is the Company's belief that alternatives currently do not exist for
many of the functions provided by the exchanges and utilities used throughout
the securities modification. Management continues to assess potential Year 2000
scenarios and will update the contingency plan as necessary. There can be no
assurance that the identified alternative arrangements include every material
risk or contingency, or that these contingency plans will be effective.

Based on information currently available, including information provided by
third party vendors, the Company expects that the total cost of addressing the
Year 2000 Problem for its internal systems will not be material. Costs related
to the Year 2000 Problem are expensed as incurred. A significant portion of the
costs already incurred, and the estimated future costs, are not incremental
costs to the Company, but rather represent the redeployment of existing
information technology and operations personnel, primarily to test the
remediation efforts of the Company's third party vendors. The Company expects to
fund all Year 2000 related costs through operating cash flows and a reallocation
of the Company's overall information technology developmental spending. The
costs of the Company's Year 2000 project and the date on which the Company plans
to complete the Year 2000 modifications are based on management's best current
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
compliance plans and other factors. However, there can be no assurance that
these estimates will prove correct and actual results could differ materially
from those plans.

33
<PAGE>

Effects of Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which requires that an entity recognize all
derivatives in the statement of financial condition and measure those
instruments at fair value. Changes in such fair value are required to be
recognized in earnings to the extent the derivative is not effective as a hedge.
The Company is in the process of evaluating the impact of this new accounting
standard and the impact on the Company's financial position is unknown at this
time. The FASB subsequently issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, which postpones initial application until fiscal years
beginning after June 15, 2000. The Company will adopt SFAS No. 133 in fiscal
2001. Such adoption will be applied prospectively.

Effects of Inflation

Historically, inflation has not had a material effect on the Company's
financial condition, results of operations or cash flows. The rate of inflation,
however, affects the Company's expenses, such as employee compensation, rent and
communications. Increases in these expenses may not be readily recoverable in
the price the Company charges for its services. Inflation can have significant
effects on interest rates, which in turn can affect prices and activities in the
securities markets. These fluctuations may have an adverse effect on the
Company's operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Financial Instruments

A derivative financial instrument represents a contractual agreement
between counterparties and has value that is derived from changes in the value
of some other underlying asset such as the price of another security, interest
rates, currency exchange rates, specified rates (e.g. LIBOR) or indices (e.g.
S&P 500), or the value referenced in the contract.

The Company does not act as dealer, trader or end-user of complex
derivatives such as swaps, collars and caps. From time to time, the Company
enters into exchange-listed financial futures contracts for the purpose of
hedging certain dealing activities. Any futures contract commitments are
considered held for trading purposes and are carried at market value. Financial
futures contracts are transactions in which one party agrees to deliver a
financial instrument to a counterparty at a specified price on a specified date.
The Company's exposure to market risk arises from the possibility of unfavorable
changes in the market price of the underlying financial instrument. The
Company's exposure to credit risk at any point is represented by the fair value
or replacement cost on contracts in which the Company has recorded an unrealized
gain. The risks inherent in derivative financial instruments are managed
consistent with the Company's overall risk management policies. See "--Risk
Management".

At September 24, 1999, the Company had no outstanding financial futures
commitments.

Risk Management

Exposure to risk and the management of risks on a day-to-day basis are
critical to the Company's survival and financial success. The Company monitors
its market, credit and correspondent risks on a daily basis through a number of
control procedures designed to identify and evaluate the various risks to which
the Company is exposed. There can be no assurance, however, that the Company's
risk management procedures and internal controls will prevent losses from
occurring as a result of such risks.

The Company's primary market risk arises from the fact that it owns a
variety of investments that are subject to changes in value and could result in
the Company's incurring material gains or losses. The Company also engages in
proprietary trading and makes dealer markets in equity securities, municipal
obligations, investment-grade corporate debt, U.S. government and agency
securities and CMO securities. In doing this, the Company may be required to
maintain certain amounts of inventories in order to facilitate customer order
flow. The Company seeks to cover its exposure to market risk by limiting its net
long or short positions, by selling or buying similar instruments and by
utilizing various financial instruments such as financial futures.

34
<PAGE>

Trading activities generally result in the creation of inventory positions.
Trading and inventory accounts are monitored on an ongoing basis, and the
Company has established written position limits. Position and exposure reports
are prepared at the end of each trading day by operations staff in each of the
business groups engaged in trading activities and are reviewed by traders,
trading managers, department managers and management personnel. These reports
are reviewed independently by the Company's corporate accounting group on a
daily basis. In addition, on a daily basis, the corporate accounting group
prepares a consolidated summarized position report indicating both long and
short exposure, which is distributed to various levels of management throughout
RMI and enables senior management to review inventory levels and monitor results
of the trading groups. The Company also reviews and monitors, at various levels
of management, inventory pricing, concentration and securities ratings.

In addition to position and exposure reports, the Company produces a daily
revenue report that summarizes the trading, interest, commissions, fees,
underwriting and other revenue items for each of its business groups. The daily
revenue report is distributed to various levels of senior management and,
together with the position and exposure report, assists senior management in
monitoring and reviewing overall activity of the trading groups.

Credit risk represents the amount of accounting loss the Company would
incur should counterparties to its proprietary transactions fail to perform and
the value of any collateral proves inadequate. Credit risk relating to various
financing activities is reduced by the industry practice of obtaining and
maintaining collateral until commitments are settled. The Company monitors its
exposure to counterparty risk on a daily basis by using credit exposure
information and monitoring collateral values. Senior management approves various
actions, including setting higher margin requirements for large or concentrated
accounts, requiring a reduction of either the level of margin debt or investment
in high-risk securities or, in some cases, requiring the transfer of the account
to another broker-dealer. The Company actively manages the credit exposure
relating to its trading activities by entering into master agreements that
permit netting, when feasible, monitoring the creditworthiness of counterparties
and their related trading limits on an ongoing basis, requesting additional
collateral when deemed necessary and limiting the amount and duration of
exposure to individual counterparties. The Company also often acts as a
principal in customer-related transactions in financial instruments, which
exposes it to risks of default by customers and counterparties.

Management of risk relating to clearing activities for RMI's correspondent
firms begins with a review by certain members of senior management of each
prospective correspondent firm prior to commencing the relationship. This review
includes an examination of the firm's employees, trading history and finances.
Each new correspondent is required to maintain a security deposit. The amount
required is based upon the volume and type of business to be done. The
correspondent agreement requires each correspondent to submit to RMI copies of
all financial information they are required to file with the SEC and the NASD
Regulation monthly or quarterly, including Financial and Operational Combined
Uniform Single Reports ("FOCUS Reports"). Correspondent FOCUS Reports and other
financial statements are reviewed by management. Additionally, each
correspondent's settlements are reviewed daily.

Market Risk

Market risk represents the potential loss the Company may incur as a result
of absolute and relative price movements in financial instruments due to changes
in interest rates, foreign exchange rates, equity prices, and other political
factors. The Company is not subject to direct market risk due to changes in
foreign exchange rates. However, the Company is subject to market risk as a
result of changes in interest rates and equity prices, which are affected by
global economic conditions. The principal source of this risk arises from
maintaining securities inventory positions and trading and market-making in
these securities. The Company carries inventories of marketable securities
including equities and municipal, U.S. government and agency zero coupon,
corporate, and CMO fixed income securities for resale to its retail and
institutional brokerage customers and other broker-dealers. All of the Company's
securities inventories are held for trading purposes.

In connection with the Company's dealing activities, the Company is exposed
to interest rate risk due to changes in the level or volatility of interest
rates, changes in the yield curve, mortgage prepayments and credit spreads. The
Company is exposed to equity price risk due to changes in the level and
volatility of equity prices primarily in the Nasdaq and over-the-counter
markets. The Company controls its market risk primarily through notional limits
on trading inventories. In addition, the Company attempts to mitigate its
exposure to interest rate risk on its long CMO and U.S. government and agency
inventories by entering into hedging transactions through the use of short cash
positions in U.S. government obligations and, to a lesser extent, financial
futures contracts.

35
<PAGE>

The following table shows the quoted market values of the Company's
securities owned ("long"), securities sold but not yet purchased ("short"), net
positions and overall position limits as of September 24, 1999 and September 25,
1998:

<TABLE>
<CAPTION>
September 25, 1999 Long Short Net Limit
- ------------------ ------------ -------------- ------------ ---------------------
<S> <C> <C> <C> <C>
Fixed income securities:
Corporate bonds, debentures, and
notes................................ $ 3,825,000 $ (10,000) $ 3,815,000 Long $ 7,000,000
U.S. Government and government
agency obligations................... 116,262,000 (118,998,000) (2,736,000) Long 180,000,000(1)
Collateralized mortgage obligations... 2,923,000 (114,000) 2,809,000 Long 30,000,000(2)
State and municipal obligations....... 2,461,000 2,461,000 Long 5,000,000
Equity securities:
Corporate stocks...................... 310,000 (133,000) 177,000 Long 2,500,000
Short 2,500,000
</TABLE>
<TABLE>
<CAPTION>
September 25, 1998 Long Short Net Limit
- ------------------ ------------ -------------- ------------ ---------------------
<S> <C> <C> <C> <C>
Fixed income securities:
Corporate bonds, debentures, and
notes................................ $ 2,212,000 $ (14,000) $ 2,198,000 Long $ 7,000,000
U.S. Government and government
agency obligations................... 158,471,000 (163,764,000) (5,293,000) Long 180,000,000(1)
Collateralized mortgage obligations... 4,001,000 (8,000) 3,993,000 Long 30,000,000(2)
State and municipal obligations....... 4,112,000 4,112,000 Long 5,000,000
Equity securities:
Corporate stocks...................... 614,000 (309,000) 305,000 Long 2,500,000
Short 2,500,000
</TABLE>

- --------------
(1) $175,000,000 of total long position limit must be adequately hedged.
(2) Unless approval is given, long inventory must be adequately hedged.

The information regarding the Company's market risk included above does not
consider other factors that may influence the Company's market risk, such as
credit spread risk, prepayment risk on CMOs, or changes in the shape of the
yield curve. Information with regard to the Company's securities borrowed,
securities loaned, borrowings, and securities sold under agreements to
repurchase is not included, as the interest rates for such instruments are
generally reset on a daily basis.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements, financial statement schedule and supplementary
financial information required by this item are listed in the index appearing on
page 48 of this report.

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

None.

36
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:

DIRECTORS

Biographical information regarding each of the members of the Company's Board of
Directors is set forth below:

Kirby L. Cramer, age 63, has served as a director of the Company since June
1998. Mr. Cramer is Chairman Emeritus of Hazleton Laboratories Corporation and a
Trustee Emeritus and former President of the University of Virginia's Colgate
Darden Graduate School of Business Administration's Board of Trustees. Mr.
Cramer is also past Chairman of the Advisory Board of the School of Business
Administration of the University of Washington and Chairman of the Major Gifts
Committee of the University of Washington Foundation. He also serves on the
boards of directors of Immunex Corporation, Huntington Life Sciences, PLC, DL
Orthopedics, Inc., The Commerce Bank of Washington, Landec Corporation,
Northwestern Trust Company and SonoSite, Inc. Mr. Cramer is a graduate of
Northwestern University and the University of Washington and completed the
Advanced Management Program at Harvard Business School. In addition, Mr. Cramer
has an honorary Doctor of Law degree from James Madison University and is a
Chartered Financial Analyst.

Arthur W. Harrigan, Jr., age 55, has served as a director of the Company
since June 1998. Mr. Harrigan was a partner of the law firm Lane Powell Moss &
Miller from 1975 until 1985 and, since January 1986, has been a partner of the
law firm Danielson Harrigan & Tollefson LLP. Mr. Harrigan holds a bachelor's
degree from Harvard College and a law degree from Columbia Law School, and is a
fellow of the American College of Trial Lawyers.

James P. Kerr, age 47, has served as President and a director of the
Company and RMI since January 1999. From 1982 until January 1999, Mr. Kerr was
associated with Minneapolis-based Dain Rauscher Corp., a stock brokerage firm,
in various management capacities, where most recently, since 1992, he served as
Northwest Regional Director and was responsible for overseeing management of 15
offices totalling 200 investment executives.

John L. MacKenzie, age 63, has served as a director of the Company since
April 1998. He served as a director of RMI from November 1988, when he joined
RMI, until March 1999, when he retired from RMI. Mr. MacKenzie served as
President of RMI from November 1988 until November 1990. He holds a bachelor's
degree in accounting from the University of Iowa.

Peter B. Madoff, age 54, has served as a director of the Company since June
1998. Since 1965, Mr. Madoff has served as Senior Managing Director of Bernard
L. Madoff Investment Securities. Mr. Madoff serves on the boards of directors of
the Cincinnati Stock Exchange and the National Securities Clearing Corporation
and, from 1993 until 1994, served as the Vice Chairman of the Board of Directors
of the National Association of Securities Dealers, Inc. He holds a bachelor's
degree from Queens College and a law degree from Fordham Law School.

Gregory B. Maffei, age 39, has served as a director of the Company since
June 1998. Mr. Maffei has served as Senior Vice President, Finance &
Administration and Chief Financial Officer of Microsoft Corporation
("Microsoft") since July 1997. He joined Microsoft in April 1993, where he
served as Director of Business Development & Investments until April 1994,
Treasurer from April 1994 to June 1996 and Vice President Corporate Development
from July 1996 to July 1997. Mr. Maffei holds a bachelor's degree from Dartmouth
College and a master's degree in business administration from Harvard Business
School, where he was a Baker Scholar. Mr. Maffei also serves on the boards of
directors of Cort Business Services Corporation, Starbucks Corporation and
United Global Communications.

37
<PAGE>

Robert J. Mortell, Jr., age 54, has served as Vice Chairman since January
1999 and as Chief Operating Officer, Treasurer and a director of the Company
since April 1998. Mr. Mortell served as the Company's President from April 1998
to January 1999. He has served as a director of RMI since RMI's incorporation in
1987, as its President from April 1996 to January 1999 and as Chief Operating
Officer of RMI since April 1996. Mr. Mortell served as RMI's Co-Chief Operating
Officer from 1990 to April 1996 and as Chief Financial Officer from 1987 until
July 1996. Mr. Mortell holds a bachelor's degree in finance from Seattle
University.

Lesa A. Sroufe, age 42, has served as Chief Executive Officer and Chairman
of the Board of the Company since April 1998. She has served as a director of
RMI since joining RMI in November 1988. Since February 1998, Ms. Sroufe has
served as RMI's Chief Executive Officer. Prior to such time, she served as RMI's
Director of Research. Ms. Sroufe also served as Senior Vice President of RMI
from November 1988 until November 1996 and as Executive Vice President from
November 1996 until February 1998. Ms. Sroufe holds a bachelor's degree in
business from the University of Washington and is a Chartered Financial Analyst.

OTHER EXECUTIVE OFFICERS

The executive officers of the Company are elected by and serve at the
discretion of the Board of Directors. Other than Ms. Sroufe and Mssrs. Kerr and
Mortell, for whom information is provided above, the following sets forth
information as to the other executive officers of the Company:

Mark A. McClure, age 47, has served as Executive Vice President of the
Company since April 1998. Mr. McClure served as a director of the Company from
April 1998 to April 1999. He has served as the Executive Vice President and as a
director of RMI since November 1996. Mr. McClure has been a retail account
executive since joining RMI in June 1994, and has served as the Director of
Retail Branches since June 1996. Mr. McClure served as Senior Vice President of
RMI from June 1994 to November 1996. Mr. McClure was a Vice President and retail
account executive with Kidder, Peabody and Co., a stock brokerage firm, from
1976 to 1994, and served as an Assistant Manager from January 1987 to June 1994.
Mr. McClure holds a bachelor's degree in business from Washington State
University.

V. Lawrence Bensussen, age 41, became Senior Vice President, Chief
Financial Officer and Secretary of the Company in April 1998. He has served as
Chief Financial Officer of RMI since July 1996 and as a director of RMI since
November 1996. Mr. Bensussen joined RMI as assistant controller in 1986,
becoming Vice President and Controller in 1987 and Senior Vice President in
1990. From 1984 to 1986, he was an accountant at Laventhol & Horwarth CPAs. Mr.
Bensussen holds a bachelor's degree in accounting from the University of
Washington and is a Certified Public Accountant.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and
greater-than-10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.

In 1998 John L. MacKenzie, Director, failed to report a purchase of shares
in two accounts for which he is the custodian, but subsequently reported the
purchases in a filing on Form 5 in December 1999. To the Company's knowledge,
based solely on a review of the copies of such reports furnished to the Company
and written representations that no other reports were required, the Company
believes that, during the fiscal year ended September 24, 1999, all other
executive officers, directors and greater-than-10% shareholders complied with
all Section 16(a) filing requirements.

38
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION:

EXECUTIVE COMPENSATION

Compensation Summary

The following table sets forth certain information with respect to
compensation paid by the Company (including its predecessor, RMI) for the fiscal
years ended September 24, 1999 and September 25, 1998 and by RMI for the
fiscal-year ended September 26, 1997 to the Company's Chief Executive Officer
and the other four most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers").

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------------------- ------------
Other Annual Securities All Other
Name and Fiscal Salary Bonus Commissions Compensation Underlying Compensation
Principal Position Year ($)(1) ($)(1) ($)(1) ($)(2) Options (#) ($)(3)
- -------------------- ------ --------- -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lesa A. Sroufe,............ 1999 $247,430 $250,000 - $38,284 35,000 $ 900
Chief Executive Officer 1998 $297,670 $150,000 - $14,025 - $ 900
1997 $263,876 $364,000 - - 35,000 $ 882

James P. Kerr.............. 1999 $183,759 $384,500 - - 100,000 $ 600
President

Robert J. Mortell, Jr...... 1999 $247,430 $250,000 - $12,644 16,100 $ 900
Vice Chairman, Chief 1998 $397,670 $100,000 - - - $ 900
Operating Officer and 1997 $397,875 $328,000 - - - $ 900
Treasurer

Mark A. McClure............ 1999 $122,430 $160,000 $161,031 $12,642 15,100 $ 900
Executive Vice President 1998 $ 97,670 $150,000 $196,159 $ 4,797 - $20,875
1997 $147,875 $280,000 $214,691 - 8,750 $ 4,058

V. Lawrence Bensussen...... 1999 $130,742 $166,700 - $ 7,890 5,406 $ 729
Senior Vice President, 1998 $122,930 $145,000 - $ 5,409 35,000 $ 639
Chief Financial Officer 1997 $123,475 $120,000 - - - $ 499
and Secretary
</TABLE>

- --------------
(1) The following amounts were voluntarily deferred in 1998 and 1999,
respectively, pursuant to the Company's Deferred Compensation Plan (the
"Deferred Compensation Plan"): Ms. Sroufe, $56,100 and $113,469; Mr.
Mortell, $0 and $43,553; Mr. McClure, $19,186 and $42,388; and Mr.
Bensussen, $30,910 and $31,786. Such amounts are included in "Salary,"
"Bonus," and "Commissions" as applicable. The Deferred Compensation Plan is
described in footnote 2 below. The bonus amount disclosed for Mr. Kerr
includes payment of $234,500 pursuant to a signing bonus.

39
<PAGE>

(2) Under the Deferred Compensation Plan, amounts deferred are allocated to
accounts that are credited with future gains and losses, as if actually
invested in either Common Stock or short-term U.S. Treasury securities.
Amounts deferred are allocated to these accounts at a discount ranging from
15% to 25% from the average trading price of the Common Stock or short-term
U.S. Treasury securities during the five trading days preceding the
allocation date. In 1998, the following discount rates were provided under
the Deferred Compensation Plan: Ms. Sroufe, 25%; Mr. McClure, 25%; and Mr.
Bensussen, 17.5%. In 1999, the following discount rates were provided under
the Deferred Compensation Plan: Ms. Sroufe, 22.5%; Mr. Mortell, 22.5%; Mr.
McClure, 20%; and Mr. Bensussen, 17.5%. The amounts shown as "Other Annual
Compensation" reflect the dollar value of such discounts. The Company's
executive officers and employees whose compensation exceeded or equaled
$100,000 in the prior year, or is expected to equal or exceed $100,000 in
the then-current year are eligible to participate in the Deferred
Compensation Plan. Eligible employees are permitted to defer a portion of
their compensation (ranging from 15% of compensation for employees who earn
at least $100,000, up to 25% of compensation for employees who earn at
least $500,000). Eligible employees make an irrevocable election to have a
specified percentage of compensation deferred during six month periods
beginning on each January 1 and July 1, and to have such amounts allocated
at the end of the six-month period to accounts that are credited with
future gains and losses, as if actually invested as of the end of the
deferral period in either Common Stock or short-term U.S. Treasury
securities. The amounts deferred vest two years following the date they are
allocated to an investment account. Amounts allocated to the stock
equivalent account are settled in shares of Common Stock. Other deferred
amounts are settled in cash.
(3) Represents premiums paid by the Company and RMI for life insurance for the
benefit of the Named Executive Officers. The amounts shown for Mr. McClure
also include $3,210 and $19,975, respectively, in cash payments made 1997
and 1998 upon the exercise of stock options in amounts equal to the
difference between the exercise price and a price contractually agreed upon
by the Company and the Named Executive Officer.

Option Grants in Fiscal 1999

The following table sets forth information regarding stock options granted
to the Named Executive Officers during the fiscal year ended September 24, 1999.

<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year

Individual Grants Potential Realizable
------------------------------------------------ Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Exercise Price Appreciation for
Underlying Granted to Price Option Term(3)
Options Granted Employees in ($/Share) Expiration ----------------------
Name (#) Fiscal Year (1) Date(2) 5% ($) 10% ($)
---- ------------- ------------ --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Lesa A. Sroufe............. 35,000 2.57% $ 12.00 7/28/02 $ 78,109 $166,076
James P. Kerr.............. 100,000 7.34% $11.9375 7/05/02 $222,007 $472,030
Robert J. Mortell, Jr...... 16,100 1.18% $ 12.00 7/28/02 $ 35,930 $ 76,395
Mark A. McClure............ 15,100 1.11% $ 12.00 7/28/02 $ 33,699 $ 71,650
V. Lawrence Bensussen...... 5,406 .40% $ 10.00 4/20/02 $ 10,062 $ 21,396
</TABLE>
______________
(1) All options were granted at fair market value on the date of grant.
(2) All options vest over a three-year term and expire three and one-half
years from the date of grant.
(3) The assumed rates of growth are prescribed by the SEC for illustrative
purposes only and are not intended to forecast or predict future stock
prices.

40
<PAGE>

Option Exercises in Fiscal 1999 and Fiscal Year-End Option Values

The following table sets forth information regarding option exercises by
the Named Executive Officers during the fiscal year ended September 24, 1999 and
their options outstanding at fiscal year-end.

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired Fiscal Year-End (#) Fiscal Year-End ($)(1)
on Value ------------------------- -------------------------
Exercise Realized
Name (#) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lesa A. Sroufe.......... - - - 35,000 - $185,938
James P. Kerr........... - - - 100,000 - $537,500
Robert J. Mortell, Jr... - - - 16,100 - $ 85,531
Mark A. McClure......... - - - 15,100 - $ 80,219
V. Lawrence Bensussen... - - 11,667 28,739 $37,189 $113,905
</TABLE>
______________
(1) Amounts equal the closing price of the Common Stock on September 24, 1999
($17.3125 per share), less the option exercise price, multiplied by the
number of shares exercisable or unexercisable.
(2) "Value Realized" represents the fair value of the underlying securities on
the exercise date minus the exercise price of such options.

COMPENSATION OF DIRECTORS

Directors who are employees of the Company receive no additional
compensation for their services as directors. The Company pays each nonemployee
director $5,000 per year plus reimbursement of expenses incurred in connection
with his or her service as a director. In addition, the Company grants a
nonqualified stock option to purchase 25,000 shares of Common Stock to each
nonemployee director on the date the director is first appointed or elected to
the Company's Board of Directors, which grant fully vests on the first
anniversary of the date of grant. The Company grants additional nonqualified
stock options to its nonemployee directors for continued service. Each
nonemployee director receives an option to purchase 5,000 shares of Common
Stock immediately following the Company's Annual Meeting of Shareholders each
year, an option to purchase 1,000 shares of Common Stock upon appointment (and
again upon annual reappointment) to any committee of the board of directors, and
an option to purchase 300 shares of Common Stock for each committee meeting
attended by the director up to a maximum of four such grants per year for each
committee on which the director serves. Each of these options is fully vested
and exercisable on the date of grant.

41
<PAGE>

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS

Employment Contracts

Mark A. McClure, the Company's Executive Vice President, is employed by RMI
pursuant to an employment agreement, dated June 16, 1994, as amended by an
addendum dated June 3, 1997 (the "McClure Agreement"). Under the McClure
Agreement, which is effective until his employment is terminated, Mr. McClure is
compensated on a commission basis for his activities as a broker. In addition,
Mr. McClure is obligated to commit 75% to 80% of his time to management efforts
at RMI, for which he is to be compensated with a base salary of $100,000 per
year. The McClure Agreement provides that RMI may terminate Mr. McClure's
employment for "cause," as defined in the McClure Agreement.

James P. Kerr, the Company's President, joined the Company in January 1999,
and pursuant to an employment agreement is to receive annual cash compensation
of at least $500,000 per year during his first two years of service. If Mr.
Kerr's employment is terminated for any reason other than for voluntary
resignation or cause during his first two years of service, Mr. Kerr is to
receive his annual compensation throughout the remainder of the two-year period.

Change-in-Control Arrangements Under Option Plans

The vesting of stock options, stock appreciation rights and restricted
stock awards outstanding or granted in the future under the Company's 1998 Stock
Incentive Compensation Plan, RMI's 1996 Stock Option Plan, RMI's 1993 Stock
Option Plan and RMI's 1989 Stock Option Plan and deferred compensation under the
Deferred Compensation Plan may accelerate upon the occurence of certain
corporate transactions, including (i) a merger or consolidation of the Company
in which it is not the surviving corporation or pursuant to which shares of
Common Stock are converted into cash, securities or other property (other than a
merger or consolidation in which holders of the Company's outstanding securities
immediately before such transaction own at least two-thirds of the outstanding
voting securities of the capital stock of the surviving corporation following
such transaction), (ii) a sale, lease, exchange or other transfer of all or
substantially all of the Company's assets (other than a transfer to a
majority-owned subsidiary), (iii) the Company's liquidation or dissolution, or
(iv) the acquisition by a person, within the meaning of Section 3(a)(9) or
Section 13(d)(3) of the Securities Exchange Act of 1934, of a majority of the
Company's outstanding voting securities.

42
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of December 8, 1999 by (i) each person or
entity known by the Company to beneficially own more than 5% of the Common
Stock, (ii) each director of the Company, (iii) each officer of the Company for
whom compensation information is given in the Summary Compensation Table in Item
11 of this Annual Report on Form 10-K, and (iv) all directors and executive
officers as a group. Except as otherwise indicated, the Company believes that
the beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
such shares.

<TABLE>
<CAPTION>
Number of
Shares Percentage
Beneficially of Shares
Name and Address Owned Outstanding
---------------- ----------- -----------
<S> <C> <C>
John L. MacKenzie .................................................... 978,925(1) 7.5%
c/o Ragen MacKenzie Group Incorporated
999 Third Avenue, Suite 4300
Seattle, WA 98104
Lesa A. Sroufe........................................................ 274,166(2) 2.1
James P. Kerr......................................................... 33,330(3) *
Robert J. Mortell, Jr................................................. 447,143(4) 3.4
Mark A. McClure....................................................... 126,133(5) *
V. Lawrence Bensussen................................................. 118,469(6) *
Kirby L. Cramer....................................................... 31,600(7) *
Arthur W. Harrigan, Jr................................................ 33,600(8) *
Peter B. Madoff....................................................... 31,600(9) *
Gregory B. Maffei..................................................... 31,600(10) *
All Directors and Executive Officers
as a group (10 person)............................................. 2,106,566 16.0
</TABLE>

- --------------
* Less than 1%

(1) Includes 300 shares issuable upon exercise of stock options that are
exercisable within 60 days of December 8, 1999 and 1,000 shares held in
custodial accounts by Mr. MacKenzie's grandchildren for which Mr. Mackenzie
is the custodian.
(2) Includes 11,666 shares issuable upon exercise of stock options that are
exercisable within 60 days of December 8, 1999.
(3) Includes 33,330 shares issuable upon exercise of stock options that are
exercisable within 60 days of December 8, 1999.
(4) Includes 5,367 shares issuable upon exercise of stock options that are
exercisable within 60 days of December 8, 1999.
(5) Includes 5,033 shares issuable upon exercise of stock options that are
exercisable within 60 days of December 8, 1999.
(6) Includes 13,469 shares issuable upon exercise of stock options that are
exercisable within 60 days of December 8, 1999 and 2,971 shares held in
UGMA accounts by Mr. Bensussen's children for which Mr. Bensussen is the
custodian.
(7) Includes 31,600 shares issuable upon exercise of stock options that are
exercisable within 60 days of December 8, 1999.
(8) Includes 31,600 shares issuable upon exercise of stock options that are
exercisable within 60 days of December 8, 1999.
(9) Includes 31,600 shares issuable upon exercise of stock options that are
exercisable within 60 days of December 8, 1999.
(10) Includes 31,600 shares issuable upon exercise of stock options that are
exercisable within 60 days of December 8, 1999.

43
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

Teresa A. James, John L. MacKenzie's daughter, has been employed by the
Company since August 1992. For fiscal 1999, Teresa A. James received
compensation of $123,929. William R. Mortell, Robert J. Mortell, Jr.'s son, has
been employed by the Company since February 1994. For fiscal 1999, William R.
Mortell received compensation of $115,125. The Company believes that the terms
of their employment were at least as favorable to the Company as would have been
obtained in arm's-length dealings with unrelated third parties.

Peter B. Madoff is Senior Managing Director of Bernard L. Madoff Investment
Securities ("BMIS"), which is one of several third-party firms that execute
orders to purchase or sell securities at the request of the Company. Payments to
the Company by BMIS in connection with such services were $238,000 for fiscal
1999.

Arthur W. Harrigan, Jr. is a partner of the law firm Danielson Harrigan &
Tollefson LLP, which the Company retained in fiscal 1999 in connection with
certain matters generally relating to its acquisition of Columbia Pacific
Securities, Inc.

The Company, in the ordinary course of its business, extends credit to
margin accounts in which certain of its officers and directors may have an
interest. These extensions of credit have been made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with nonaffiliated persons, and do not involve more
than a normal risk of collectibility or present other unfavorable terms. From
time to time and in the ordinary course of its business, the Company also enters
into transactions involving the purchase or sale of securities as principal
from, or to, directors, officers and employees and accounts in which they have
an interest. Such purchases and sales are effected on substantially the same
terms as similar transactions with unaffiliated third parties.

During fiscal 1999, John L. MacKenzie's aggregate compensation from the
Company was $324,387, which includes $110,637 of compensation relating to the
exercise of a nonqualified stock option.

PART IV

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

(a) Documents filed as part of this Report:

1. Financial statements:

The financial statements required to be filed hereunder are listed on
page 48 hereof.

2. Financial statement schedules:

The financial statements required to be filed hereunder are listed on
page 48 hereof.

44
<PAGE>

3. Exhibits:

Exhibit
Number Description of Document
- ------- -----------------------

2.1# Agreement and Plan of Merger by and among Wells Fargo & Company, Romero
Acquisition Corp. and Ragen MacKenzie Group Incorporated, dated
September 28, 1999.

3.1+ Amended and Restated Articles of Incorporation of Ragen MacKenzie Group
Incorporated.

3.2+ Bylaws of Ragen MacKenzie Group Incorporated.

10.1+ Master Note of RMI in favor of Bank America National Trust and Savings
Association, dated July 9, 1997.

10.2+ Security Agreement between RMI and Bank America National Trust and
Savings Association, dated October 14, 1995.

10.3+ Lease Agreement between Wright-Carlyle Seattle and RMI, dated November
8, 1983, as amended December 19, 1988, August 24, 1992, June 1, 1993,
July 20, 1995, April 30, 1997 and June 6, 1997.

10.4++ Amendments to Lease Agreement between EOP Northwest Properties, L.L.C
(as successor in interest to Wright-Carlyle Seattle) and RMI, dated
September 26, 1997, September 21, 1998 and November 6, 1998.

10.5+ Form of Noncompetition and Nonsolicitation Agreement executed as of
April 14, 1998, by RMGI and each of Lesa A. Sroufe, Robert J. Mortell,
Jr., Mark A. McClure, V. Lawrence Bensussen and John L. MacKenzie.

10.6+ Agreement and Release between RMI and Scott McAdams, dated March 22,
1998.

10.7# Stock Option Agreement between Ragen MacKenzie Group Incorporated and
Wells Fargo & Company, dated September 28, 1999.

10.9+ RMI 1996 Stock Incentive Compensation Plan.

10.10+ RMI 1997 Share Repurchase Plan.

10.11+ RMGI 1998 Stock Incentive Compensation Plan.

10.12+ ABC Brokerage Accounting System Agreement between Pershing Division of
Donaldson, Lufkin & Jenrette Securities Corporation and RMI, dated
April 1, 1997.

10.13* Employment Agreement between RMI and James P. Kerr.

10.14+ Employment Agreement between RMI and Mark A. McClure, dated June 16,
1994, as amended by an addendum dated June 3, 1997.

10.15+ RMGI Employee Stock Purchase Plan.

10.16+ Executive Performance Bonus Plan.

10.17+ RMI Agreement to Grant Stock Option to Mark A. McClure dated
February 25, 1997.

45
<PAGE>

10.18++ RMGI Deferred Compensation Plan.

10.19* Amended and Restated Stock Option Grant Program for Nonemployee
Directors under the Ragen MacKenzie Group Incorporated 1998 Stock
Incentive Compensation Plan.

10.21+ Severance and Correspondent Clearing Agreement between RMI and Brooks
G. Ragen, executed April 17, 1998.

10.22++ First Amendment to Severance and Correspondent Clearing Agreement,
dated June 19, 1998, between RMI and Brooks G. Ragen.

10.23++ Second Amendment to Severance and Correspondent Clearing Agreement,
between RMI and Brooks G. Ragen, dated September 21, 1998.

10.24* Amendment to Lease Agreement between EOP Northwest Properties, L.L.C
(as successor in interest to Wright-Carlyle Seattle) and RMI, dated
April 5, 1999.

21.1* Subsidiaries of the Registrant

23.1* Consent of Deloitte & Touche LLP

27.1* Financial Data Schedule.

- --------------
* Filed herewith.
+ Incorporated by reference to the Company's Registration Statement on Form
S -1, as amended (Registration No. 333-50735).
++ Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 25, 1998.
# Incorporated by reference to the Company's Current Report on Form 8-K filed
on September 30, 1999.

(b) Reports on Form 8-K:

No reports on Form 8-K were filed during the fourth quarter of the year
ended September 24, 1999.

46
<PAGE>

SIGNATURES

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 and in the capacities indicated below on the 20th day of December,
1999:

Signature Title
--------- -----

/s/ Lesa A. Sroufe Chairman of the Board and Chief
- ------------------------------------- Executive Officer (Principal
Lesa A. Sroufe Executive Officer)

/s/ James P. Kerr President and Director
- -------------------------------------
James P. Kerr

/s/ Robert J. Mortell, Jr.
- ------------------------------------- Vice Chairman, Chief Operating
Robert J. Mortell, Jr. Officer, Treasurer and Director

/s/ V. Lawrence Bensussen
- ------------------------------------- Senior Vice President, Chief
V. Lawrence Bensussen Financial Officer and Secretary
(Principal Financial and
Accounting Officer)

/s/ Kirby L. Cramer Director
- -------------------------------------
Kirby L. Cramer

/s/ Arthur W. Harrigan, Jr. Director
- -------------------------------------
Arthur W. Harrigan, Jr.

/s/ John L. MacKenzie Director
- -------------------------------------
John L. MacKenzie

/s/ Peter B. Madoff Director
- -------------------------------------
Peter B. Madoff

/s/ Gregory B. Maffei Director
- -------------------------------------
Gregory B. Maffei

47
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

As of September 24, 1999 and September 25,
1998, and for each of the three years in
the period ended September 24, 1999
and Financial Statement Schedule

<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................................ 49
Consolidated Financial Statements:
Consolidated statements of financial condition..................................... 50
Consolidated statements of income.................................................. 51
Consolidated statements of cash flows.............................................. 52
Consolidated statements of shareholders' equity.................................... 53
Notes to consolidated financial statements......................................... 54

Financial Statement Schedule:
I - Condensed financial information of the registrant
Independent Auditors' Report................................................. 68
Condensed Financial Statements:
Condensed statement of financial condition ........................... 69
Condensed statement of income and shareholder's equity................ 70
Condensed statement of cash flows..................................... 71
</TABLE>

All other schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedules, or because
the information required is included in the respective consolidated financial
statements or notes thereto.

48
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors
Ragen MacKenzie Group Incorporated and Subsidiaries
Seattle, Washington

We have audited the accompanying consolidated statements of financial
condition of Ragen MacKenzie Group Incorporated and subsidiaries (the Company)
as of September 24, 1999, and September 25, 1998, and the related consolidated
statements of income, cash flows, and changes in shareholders' equity for each
of the three years in the period ended September 24, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Ragen MacKenzie Group
Incorporated and subsidiaries as of September 24, 1999, and September 25, 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended September 24, 1999, in conformity with generally
accepted accounting principles.

DELOITTE & TOUCHE LLP

Seattle, Washington
November 18, 1999

49
<PAGE>

RAGEN MACKENZIE GROUP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
SEPTEMBER 24, SEPTEMBER 25,
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
------
CASH............................................................................................ $ 4,972 $ 2,143
CASH AND MARKET VALUE OF SECURITIES REQUIRED TO BE
SEGREGATED UNDER FEDERAL OR OTHER REGULATIONS............................................. 191,709 315,997
DEPOSITS WITH CLEARING ORGANIZATIONS............................................................ 1,757 1,207
RECEIVABLE FROM:
Brokers, dealers, and clearing organizations.............................................. 1,194 2,661
Customers................................................................................. 184,943 110,428
SECURITIES OWNED, at market value............................................................... 125,781 169,410
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL................................................. 123,816 172,384
SECURITIES BORROWED............................................................................. 2,026 2,144
FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS, at cost, less accumulated
depreciation and amortization of $5,119 and $4,178, respectively.......................... 3,093 1,293
OTHER ASSETS.................................................................................... 9,243 4,182
-------- --------
TOTAL................................................................................. $648,534 $781,849
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

LIABILITIES:
Borrowings................................................................................ $ $ 47,225
Payable to:
Brokers, dealers, and clearing organizations........................................ 10,074 12,063
Customers, including free credit balances of $339,385 and $381,375, respectively.... 345,804 390,697
Securities sold but not yet purchased, at market value.................................... 119,255 164,095
Securities sold under agreements to repurchase............................................ 38,050 45,900
Accrued compensation and related benefits................................................. 9,774 8,300
Other liabilities and accrued expenses.................................................... 4,931 4,630
-------- --------
Total liabilities..................................................................... 527,888 672,910

COMMITMENTS AND CONTINGENCIES (Note 9)

SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value - Authorized, 10,000,000 shares;
no shares issued and outstanding.................................................... - -
Common stock, $.01 par value - Authorized, 50,000,000 shares;
issued and outstanding, 13,457,390 shares........................................... 135 135
Additional paid-in capital................................................................ 47,697 47,872
Common shares issuable under deferred compensation arrangements,
less unamortized purchase discount of $334.......................................... 1,757
Treasury stock - 542,197 and 50,600 shares, respectively, at cost......................... (6,328) (511)
Retained earnings......................................................................... 77,385 61,443
-------- --------
Total shareholders' equity............................................................ 120,646 108,939
-------- --------
TOTAL................................................................................. $648,534 $781,849
======== ========
</TABLE>

See Notes to Consolidiated Financial Statements

50
<PAGE>

RAGEN MACKENZIE GROUP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------

SEPTEMBER 24, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Principal transactions, net................... $28,789 $24,239 $23,566
Commissions................................... 34,015 32,672 30,758
Other......................................... 6,355 6,024 4,078
------- ------- -------
Total operating revenues.................. 69,159 62,935 58,402
Interest income............................... 35,279 36,434 30,179
------- ------- -------
Total revenues............................ 104,438 99,369 88,581
Interest expense.............................. 20,072 23,334 19,694
------- ------- -------
Net revenues.............................. 84,366 76,035 68,887
------- ------- -------

NONINTEREST EXPENSES:
Compensation and benefits..................... 41,345 37,802 35,176
Occupancy and equipment....................... 6,148 4,916 4,714
Communications................................ 3,955 3,572 3,276
Clearing and exchange fees.................... 2,866 2,650 2,338
Compensation charges related to IPO........... 3,480
Key person death benefits plan................ (5,000)
Other......................................... 5,961 3,917 3,534
------- ------- -------
Total noninterest expenses................ 60,275 56,337 44,038
------- ------- -------
INCOME BEFORE TAXES ON INCOME....................... 24,091 19,698 24,849
TAXES ON INCOME..................................... 8,149 7,824 9,460
------- ------- -------
NET INCOME.......................................... $15,942 $11,874 $15,389
======= ======= =======

EARNINGS PER COMMON SHARE:
Basic......................................... $ 1.22 $ 1.05 $ 1.54
Diluted....................................... 1.20 1.01 1.44
</TABLE>

See Notes to Consolidated Financial Statements

51
<PAGE>

RAGEN MACKENZIE GROUP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
SEPTEMBER 24, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................................... $ 15,942 $ 11,874 $ 15,389
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization............................................... 976 549 425
Key person death benefits plan reversal..................................... (5,000)
Stock option expense........................................................ 2,932 2,223
Deferred tax expense (benefit).............................................. (465) (503) 2,476
Gain on sale of Pacific Stock Exchange seat................................. (290)
Deferred compensation expense............................................... 116
Amounts retained under deferred compensation arrangements................... 1,641
Other....................................................................... 136
Cash provided (used) by changes in operating assets and liabilities:
Cash and market value of securities required to be segregated
under federal or other regulations...................................... 124,288 (9,293) (79,938)
Deposits with clearing organizations...................................... (550) (200)
Receivable from:
Brokers, dealers, and clearing organizations........................ 1,489 (1,262) 67
Customers........................................................... (74,515) (5,050) (18,669)
Securities owned.......................................................... 43,940 (46,632) (44,097)
Securities purchased under agreements to resell........................... 48,568 (60,467) (36,574)
Securities borrowed....................................................... 118 5,953 (2,316)
Other assets.............................................................. (3,683) (977) 396
Payable to:
Brokers, dealers, and clearing organizations........................ (1,636) 1,763 5,926
Customers........................................................... (44,893) (15,320) 116,791
Securities sold but not yet purchased..................................... (44,840) 57,466 37,029
Securities sold under agreement to repurchase............................. (7,850) 4,300 6,912
Accrued compensation and related benefits................................. 875 161 4,122
Other liabilities and accrued expenses.................................... 275 (564) 979
-------- -------- --------
Net cash provided (used) by operating activities.............................. 59,932 (55,560) 6,141

INVESTING ACTIVITIES:
Proceeds from sale of Pacific Stock Exchange seat............................. 317
Cash paid for Columbia Pacific Securities, Inc. (CPS), net of cash acquired... (726)
Purchases of furniture, equipment, and leasehold improvements................. (2,725) (954) (469)
-------- -------- --------
Net cash used by investing activities......................................... (3,451) (637) (469)

FINANCING ACTIVITIES:
Proceeds from (repayment of) borrowings, net.................................. (47,225) 29,475 (2,575)
Proceeds from initial public offering, net of issuance costs.................. 18,634
Proceeds from issuance of common stock........................................ 724 7,343 1,830
Repurchases of common stock................................................... (7,151) (2,092) (1,717)
-------- -------- --------
Net cash provided (used) by financing activities.............................. (53,652) 53,360 (2,462)
-------- -------- --------
INCREASE (DECREASE) IN CASH..................................................... 2,829 (2,837) 3,210

CASH:
Beginning of fiscal year...................................................... 2,143 4,980 1,770
-------- -------- --------
End of fiscal year............................................................ $ 4,972 $ 2,143 $ 4,980
======== ======== ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the fiscal year for:
Interest................................................................ $ 20,639 $ 22,977 $ 19,797
Federal income taxes.................................................... 10,400 8,400 6,000
Issuance of common stock in connection with acquisition of CPS................ 435
</TABLE>

See Notes to Consolidated Financial Statements

52
<PAGE>

RAGEN MACKENZIE GROUP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON SHARES
ISSUABLE UNDER
COMMON STOCK ADDITIONAL DEFERRED TREASURY STOCK
----------------------- PAID-IN COMPENSATION ----------------------- RETAINED
SHARES AMOUNT CAPITAL ARRANGEMENTS SHARES AMOUNT EARNINGS TOTAL
----------- ---------- --------- ------------ ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, September 28, 1996......... 9,893,100 $ 99 $ 18,244 $ - $ - $ 34,180 $ 52,523
Stock options exercised........... 670,425 7 1,812 1,819
Repurchase and retirement of
common stock................... (322,770) (4) (1,713) (1,717)
Issuance of common stock.......... 2,134 11 11
Noncash compensation - Stock
options........................ 2,223 2,223
Net income........................ 15,389 15,389
----------- ---------- --------- -------- ---------
BALANCE, September 26, 1997......... 10,242,889 102 20,577 49,569 70,248
Stock options exercised........... 1,871,563 19 7,291 7,310
Repurchase and retirement of
common stock................... (234,127) (2) (1,579) (1,581)
Issuance of common stock.......... 4,965 33 33
Issuance of common stock in
conjunction with initial
public offering................ 1,572,100 16 18,618 18,634
Purchase of treasury stock........ (50,600) (511) (511)
Noncash compensation - Stock
options........................ 2,932 2,932
Net income........................ 11,874 11,874
----------- ---------- --------- ----------- ---------- -------- ---------
BALANCE, September 25, 1998......... 13,457,390 135 47,872 (50,600) (511) 61,443 108,939
Stock options exercised........... (349) 78,500 805 456
Tax benefit related to stock
options exercised.............. 107 107
Purchase of treasury stock........ (626,000) (7,151) (7,151)
Employee stock purchase plan
shares issued.................. 2 15,903 159 161
Amortization of deferred
compensation awards............ 116 116
Amounts contributed under
deferred compensation
arrangements................... 1,641 1,641
Issuance of shares for
acquisition of CPS............. 65 40,000 370 435
Net income........................ 15,942 15,942
----------- ---------- --------- ------------ ----------- ---------- -------- ---------
BALANCE, September 24, 1999......... 13,457,390 $ 135 $ 47,697 $ 1,757 (542,197) $ (6,328) $ 77,385 $ 120,646
=========== ========== ========= ============ =========== ========== ======== =========
</TABLE>

See Notes to Consolidated Financial Statements

53
<PAGE>

RAGEN MACKENZIE GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS

The accompanying consolidated financial statements include Ragen MacKenzie
Group Incorporated and its subsidiaries (collectively, the Company). Ragen
MacKenzie Group Incorporated (RMGI), a Washington corporation, is a holding
company engaged, through its subsidiaries, in securities brokerage and related
investment services that include retail and institutional brokerage of
securities, investment research, market making, trading, underwriting,
distribution of corporate securities and correspondent clearing. RMGI's two
operating subsidiaries, Ragen MacKenzie Incorporated (RMI) and Ragen MacKenzie
Investment Services, Inc. (formerly Columbia Pacific Securities, Inc.) (RMIS),
are each registered with the Securities and Exchange Commission (the SEC) as a
broker/dealer, and have retail offices located in seven western states of the
United States. RMI is a member firm of the New York Stock Exchange (the NYSE).

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of RMGI and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated upon consolidation.

REPORTING PERIOD: The Company utilizes fiscal periods to report its results
of operations. The Company's fiscal year ends on the Friday on or immediately
prior to September 30. Results of operations for the fiscal years ended
September 24, 1999, September 25, 1998, and September 26, 1997, consist of 52-
week periods.

REVENUE RECOGNITION: Principal transactions and commission revenue and
expense are recorded primarily on a settlement-date basis, which is not
materially different from recording such transactions at trade date.

Securities owned and securities sold but not yet purchased are recorded at
quoted fair values, with resulting unrealized appreciation and depreciation
included in revenues from principal transactions.

FAIR VALUE OF FINANCIAL INSTRUMENTS: All of the Company's financial
instruments are carried at fair value or contracted amounts which approximate
fair value.

Assets, which are recorded at contracted amounts approximating fair value,
consist primarily of short-term secured receivables, including securities
purchased under agreements to resell, securities borrowed, and certain other
receivables. Similarly, the Company's short-term liabilities, including
borrowings, securities sold under agreements to repurchase, and certain other
payables, are recorded at contracted amounts approximating fair value. These
instruments generally have variable interest rates and short-term maturities, in
many cases overnight, and accordingly, are not materially affected by changes in
interest rates.

CASH: Cash as reflected in the consolidated statements of cash flows
consists of balances in bank accounts used in operations and excludes amounts
segregated under federal or other regulations.

RECEIVABLE FROM AND PAYABLE TO BROKERS/DEALERS: Amounts receivable from and
payable to brokers/dealers consist primarily of the contract value of securities
which have not been delivered or received as of the date of the consolidated
statements of financial condition.

RECEIVABLE FROM AND PAYABLE TO CUSTOMERS: Amounts receivable from and
payable to customers arise from normal securities margin and cash transactions.
Securities owned by customers and either held as collateral for these
transactions or held in safekeeping are not reflected in the consolidated
statements of financial condition. Management considers the receivables
adequately collateralized. As such, no allowances for credit losses have been
provided for the receivables. Receivables from and payable to customers are
recorded on a settlement-date basis.

54
<PAGE>

SECURITIES UNDER AGREEMENT TO RESELL AND REPURCHASE: Repurchase and resale
agreements are treated as financing arrangements and are carried at contract
amounts reflective of the amounts at which the securities will be subsequently
reacquired or resold as specified in the respective agreements. Resale
agreements are collateralized by U.S. Government and government agency
obligations. The Company's policy is to take physical possession or control of
securities purchased under agreements to resell. The Company monitors the market
value of the underlying securities as compared to the related receivable,
including accrued interest, and requires additional collateral where deemed
appropriate.

FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS: Furniture and equipment
are stated at cost, and are depreciated using the straight-line method over the
estimated useful life of the asset, generally three to five years. Leasehold
improvements are amortized using the straight-line method over the lesser of the
respective lease term or the estimated life of the improvement. Management
periodically evaluates furniture, equipment, and leasehold improvements for
impairment whenever events or circumstances indicate the carrying amount may not
be recoverable.

SECURITIES-LENDING ACTIVITIES: Securities borrowed and securities loaned
are financing arrangements which are recorded at the amount of cash collateral
advanced or received. Securities-borrowed transactions require the Company to
deposit cash, letters of credit, or other collateral with the lender. With
respect to securities loaned, the Company receives collateral in the form of
cash or other collateral in an amount generally in excess of the market value of
securities loaned. The Company monitors the market value of securities borrowed
and loaned on a daily basis, with additional collateral obtained or refunded as
necessary.

INCOME TAXES: The Company accounts for income taxes under the asset and
liability method. Under this method, deferred income taxes are recorded for the
temporary differences between the financial reporting and tax bases of the
Company's assets and liabilities. These deferred taxes are measured by the
provisions of currently enacted tax laws.

RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities, which requires that an entity recognize all derivatives in the
statement of financial condition and measure those instruments at fair value.
Changes in such fair value are required to be recognized in earnings to the
extent the derivative is not effective as a hedge. The Company is in the process
of evaluating the impact of this new accounting standard and the impact on the
Company's financial position is unknown at this time. The FASB subsequently
issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, which
postpones initial application until fiscal years beginning after June 15, 2000.
The Company will adopt SFAS No. 133 in fiscal 2001. Such adoption will be
applied prospectively.

USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS: 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 contingent liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the period.
Such estimates relate to the fair value of certain financial instruments. Actual
results could differ from such estimates.

NOTE 3: ACQUISITION OF COLUMBIA PACIFIC SECURITIES, INC.

On March 30, 1999, RMGI completed an acquisition of all of the outstanding
common stock of Columbia Pacific Securities, Inc. and subsequently renamed the
subsidiary Ragen MacKenzie Investment Services, Inc. (hereinafter referred to as
RMIS). The transaction was accounted for using the purchase method of accounting
and, as such, the consolidated financial statements include the results of RMIS
from the date of acquisition. The consideration paid for the acquisition, which
totaled $1,445,000, included the issuance of 40,000 shares of the Company's
common stock held in treasury and cash as specified in the purchase agreement.
The excess of the purchase price over the estimated fair value of net assets
acquired, which was recorded as goodwill, was $1,039,000 and is being amortized
over 15 years using the straight-line method of amortization. Pro Forma
financial information showing the results of operations as if the acquisition
had occurred at the beginning of the year is not presented as the acquisition
would not have had a material impact on previously reported results.

55
<PAGE>

NOTE 4: CASH AND MARKET VALUE OF SECURITIES REQUIRED TO BE SEGREGATED UNDER
FEDERAL OR OTHER REGULATIONS

As a clearing broker, the Company is subject to reserve requirements
pursuant to Rule 15c3-3 under the Securities Exchange Act of 1934. At September
24, 1999, cash and market value of securities required to be segregated under
federal or other regulations relate to amounts segregated for the exclusive
benefit of customers ($188,239,000) and proprietary accounts of introducing
brokers ($3,470,000) under Rule 15c3-3. Such amounts were in excess of required
deposits of $178,916,000 and $658,000, respectively, by $9,323,000 and
$2,812,000, respectively. At September 25, 1998, cash and market value of
securities required to be segregated under federal or other regulations relate
to amounts segregated for the exclusive benefit of customers under Rule 15c3-3,
and were in excess of the required deposit of $286,179,000 by $29,818,000.
Amounts segregated consist primarily of securities purchased under agreement to
resell. These agreements, which are accounted for as collateralized financing
transactions, are recorded at their contractual amounts and totalled
$191,077,000 and $315,365,000 at September 24, 1999, and September 25,1998,
respectively.

Securities purchased under agreements to resell were delivered by
appropriate entry into the Company's accounts for the exclusive benefit of
customers and proprietary accounts of introducing brokers that are each
maintained at a custodian bank under written custodial agreements that
explicitly recognize the Company's interest in the securities. At September 24,
1999, these securities, all of which were U.S. Government and government agency
obligations, had a market value of $192,990,000. The agreements to resell
securities purchased were with one counterparty and have a stated maturity of
one day.

NOTE 5: MARKETABLE SECURITIES OWNED AND MARKETABLE SECURITIES SOLD BUT NOT YET
PURCHASED

Marketable securities owned and marketable securities sold but not yet
purchased consist of trading securities at quoted market values as follows (in
thousands):

<TABLE>
<CAPTION>
SEPTEMBER 24, 1999 SEPTEMBER 25, 1998
------------------ ------------------
SOLD BUT SOLD BUT
NOT YET NOT YET
OWNED PURCHASED OWNED PURCHASED
----- --------- ----- ---------
<S> <C> <C> <C> <C>
Corporate bonds, debentures, and notes............... $ 3,825 $ 10 $ 2,212 $ 14
U.S. Government and government
agency obligations............................. 116,262 118,998 158,471 163,764
Collateralized mortgage obligations.................. 2,923 114 4,001 8
State and municipal obligations...................... 2,461 4,112
Corporate stocks..................................... 310 133 614 309
-------- -------- -------- --------
$125,781 $119,255 $169,410 $164,095
======== ======== ======== ========
</TABLE>

Securities sold but not yet purchased represent obligations of the Company
to deliver the specified security, and thereby create a liability to purchase
the security in the market at prevailing prices. Accordingly, these transactions
result in off-balance-sheet risk, as the Company's ultimate obligation to
satisfy the sale of securities sold but not yet purchased may exceed the amount
recognized in the consolidated statements of financial condition.

NOTE 6: BORROWINGS

Borrowings under a secured credit facility authorized up to $85,000,000 are
callable on demand, collateralized by 90% of the value of certain securities
pledged ($107,043,000 at September 25, 1998), and bear interest at the
prevailing broker rate (5.9% at September 25, 1998). No borrowings under this
facility were outstanding at September 24, 1999.

NOTE 7: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

At September 24, 1999, and September 25, 1998, the market value of the
securities sold subject to repurchase was $38,814,000 and $46,819,000,
respectively, and the average effective interest rate on the transactions at
these dates was 5.6% and 6.0%, respectively.

56
<PAGE>

NOTE 8: INCOME TAXES

Taxes on income included in the consolidated statements of income consist
of the following (in thousands):

FISCAL YEAR ENDED
--------------------------
1999 1998 1997
---- ---- ----

Federal current tax expense.............. $8,614 $8,327 $6,984
Federal deferred tax expense (benefit)... (465) (503) 2,476
------ ------ ------
Total taxes on income.................... $8,149 $7,824 $9,460
====== ====== ======

The components of the provision (benefit) for deferred income taxes consist
of the following (in thousands):

FISCAL YEAR ENDED
-------------------------
1999 1998 1997
---- ---- ----

Deferred compensation and benefit plans.... $(615) $ (185) $1,727
Other liabilities and accrued expenses..... 161 (217) 245
Other...................................... (11) (101) 504
----- ------ ------
Total deferred tax expense (benefit)....... $(465) $ (503) $2,476
===== ====== ======

A reconciliation of the statutory federal income tax rate with the
Company's effective income tax rate is as follows:

FISCAL YEAR ENDED
-------------------------
1999 1998 1997
---- ---- ----

Statutory rate........................... 35 % 35 % 35 %
Tax exempt interest and other, net....... (1)
Nondeductible stock option plan expense.. 5 3
--- --- ---

Effective tax rate....................... 34 % 40 % 38 %
=== === ===

The tax effects of temporary differences that give rise to deferred tax
assets, included in other assets, are as follows (in thousands):

SEPTEMBER 24, SEPTEMBER 25,
1999 1998
---- ----
Deferred compensation and benefit plans.... $ 823 $ 208
Other liabilities and accrued expenses..... 946 1,107
Other...................................... 340 329
------ ------
Total deferred tax asset................... $2,109 $1,644
====== ======

There were no deferred tax liabilities at September 24, 1999, or September
25, 1998. The Company has determined that no valuation allowance against
deferred tax assets at September 24, 1999, or September 25, 1998, was necessary
since it is more likely than not that the Company will generate sufficient
taxable income to provide for realization of the deferred tax asset.

57
<PAGE>

NOTE 9: LEASES, COMMITMENTS, AND CONTINGENT LIABILITIES

The Company leases certain office space under noncancellable operating
leases which expire through 2006. Certain of these leases contain escalation
clauses based upon increased costs incurred by the lessor. Future minimum
rentals under the terms of the lease agreements are as follows (in thousands):

FISCAL YEAR ENDING SEPTEMBER
----------------------------
2000......................... $1,845
2001......................... 1,647
2002......................... 1,046
2003......................... 698
2004......................... 524
Thereafter...................... 244
------

$6,004
======

Total rental expense under the leases for fiscal 1999, 1998, and 1997 was
$1,660,000, $1,286,000, and $990,000, respectively.

In the normal course of business, there are various lawsuits, claims, and
contingencies pending against the Company, which in the opinion of management,
will be resolved with no material impact on the Company's financial position or
results of operations.

NOTE 10: NET CAPITAL REQUIREMENTS

The broker/dealer subsidiaries of the Company are subject to the Uniform
Net Capital Rule 15c3-1 (the Rule) under the Securities Exchange Act of 1934,
which requires the maintenance of minimum net capital. RMI has elected to
compute net capital under the alternative provisions of the Rule, which require
RMI to maintain net capital, as defined, equal to the greater of $1,000,000 or
2% of aggregate debit items arising from customer transactions, as defined. At
September 24, 1999, RMI's net capital was $100,808,000, which was 57% of
aggregate debit items, and which exceeded the minimum net capital requirement of
$3,531,000 by $97,277,000.

RMIS follows the primary (aggregate indebtedness) method under the Rule,
which requires the maintenance of minimum net capital and requires that the
ratio of aggregate indebtedness to net capital, both as defined, not exceed 15
to 1. At September 24, 1999, RMIS had net capital of $447,000, which was
$347,000 in excess of its required net capital of $100,000, and had a ratio of
aggregate indebtedness to net capital of 2.3 to 1.

The net capital rules of the NYSE also provide that equity capital may not
be withdrawn or cash dividends paid without notification if resulting net
capital would be less than 5% of aggregate debit items.

NOTE 11: EMPLOYEE BENEFITS

The Company maintains voluntary defined contribution 401(k) plans for each
of its two operating subsidiaries that are available to all employees subject to
certain eligibility criteria. Under these plans, employees may defer a portion
of their compensation limited by overall maximums, subject to antidiscrimination
tests as set forth in the Internal Revenue Code (IRC). RMI provides a
discretionary matching contribution (100% of the participant's contribution) on
compensation deferred up to a maximum of 4% of the participant's total earnings.
RMI does not match the contribution for participants with total earnings greater
than a specified limit. RMI plan participants are 100% vested in individual and
employer matching contributions. RMIS provides a matching contribution equal to
25% of the first 4% of the participant's total earnings deferred under its plan.
Additionally, RMIS provides a discretionary profit sharing contribution
determined annually by the plan sponsor. Annual matching and profit sharing
contributions by RMIS are subject to individual and overall plan limitations.
RMIS plan participants are 100% vested in individual and employer matching
contributions while employer profit sharing contributions vest ratably over a
five-year period after two years of service are completed. The Company's accrual
for matching and profit sharing contributions under these plans was $175,000 in
1999, $120,000 in 1998, and $110,000 in 1997.

58
<PAGE>

In 1992, the Company adopted a key person death benefits plan, an unfunded
plan under which certain payments would have been made to the estates of key
employees upon their deaths. In February 1997, the Company's Board of Directors
approved the termination of the key person death benefits plan. Upon
termination, the Company recorded a benefit of $5,000,000, which constitutes
reversal of the amount previously accrued for plan benefits. The Company had no
outstanding obligations nor any future obligations under the key person death
benefits plan at termination date.

NOTE 12: SHAREHOLDERS' EQUITY

REORGANIZATION AND INITIAL PUBLIC OFFERING: In June 1998, the Company
effected a reorganization (the Reorganization), under which holders of common
stock of RMI exchanged their shares for shares of RMGI, RMI became a wholly
owned subsidiary of RMGI, and the initial public offering (IPO) of common stock
of RMGI was completed. As RMI and RMGI were entities under common control, the
accompanying financial statements give effect to the share exchange and merger
in a manner similar to a pooling-of-interests. Accordingly, the financial
statements reflect the transaction as if it had occurred as of the beginning of
the earliest period presented, and the assets, liabilities and shareholders'
equity are recorded based upon their historical carrying amounts. No intangible
assets were created and recorded as a result of this transaction.

Upon the successful completion of the IPO, the Company's variable-award,
book-value-based stock option plans, which were assumed by RMGI in the
Reorganization, were converted to fixed-award, fair-value-based stock option
plans. These plans are to be operated and accounted for as fixed-award plans
under the provisions of Accounting Principles Board Opinion (APB) No. 25. This
conversion resulted in a new measurement date for all then outstanding options
and in a compensation charge based upon the difference between the initial
public offering price of the Company's common stock and the book value
established at the most recent period immediately preceding the IPO.
Accordingly, the Company recorded compensation expense of $1,782,000 based on
the difference between the book value of the Company's common stock immediately
preceding the IPO and the fair market value of the stock (based on the initial
public offering price of $14.00 per share) for all variable-award, book-value-
based stock options outstanding on the date of consummation of the IPO. As a
result of the conversion of the Company's stock option plans, changes in the
market value of the Company's common stock will not result in future
compensation expense for these options. Additionally, the Company recorded
compensation expense of $1,698,000 (based on the initial public offering price
of $14.00 per share), which reflects the increase in the value of certain stock
appreciation rights outstanding under the Share Repurchase Plan, as discussed
below. The expenses recorded as a result of the new measurement date for the
outstanding options and increase in the value of the stock appreciation rights
(Repurchase SARs) outstanding on the date of the IPO are classified as
compensation charges related to IPO in the accompanying consolidated statements
of income.

TREASURY STOCK: In August 1998, the Board of Directors authorized the
repurchase of up to 1,000,000 shares of the Company's common stock over the
following 12 months. Purchases of the common stock were to be made from time to
time at prevailing prices in the open market, by block purchases, or in
privately negotiated transactions. The repurchased shares were to be accounted
for as treasury stock and may be used for the Company's employee stock option
plans and other general corporate purposes. The Company repurchased 626,000
shares, at a total cost of $7,151,000, during 1999 and 50,600 shares, at a total
cost of $511,000, during 1998.

During 1999, shares accounted for as treasury stock were issued for the
following purposes: 78,500 shares upon the exercise of options under the
Company's employee stock option plans; 15,903 shares upon the exercise of
options under the Company's employee stock purchase plan; and 40,000 shares in
connection with the acquisition of RMIS. No treasury shares were issued during
1998.

STOCK OPTIONS: In June 1998, the Company adopted the 1998 Stock Incentive
Compensation Plan (the 1998 Plan) pursuant to which an aggregate of 2,000,000
shares of common stock are authorized for issuance to employees, officers,
directors, and independent contractors of the Company. The 1998 Plan includes
stock option (incentive and nonqualified), stock appreciation right, stock award
(including restricted stock), performance award and other stock-based award
features. No instruments other than incentive stock options and nonqualified
stock options have been granted. Options to purchase shares of common stock
granted to nondirectors are generally nonqualified options that vest over a
three-year term and expire three and one-half years from the date of grant.
Initial options granted to nonemployee directors are nonqualified options that
vest after one year and expire ten years from the date of grant. Subsequent
annual options granted to nonemployee directors are immediately exercisable on
the date of grant and generally expire within four years after grant date.
Options are generally granted at 100% of the fair market value of the share at
the date of grant but are not required to be.

59
<PAGE>

The 1998 Plan became effective immediately prior to the effective date of
the Reorganization, at which time all preexisting plans of RMI were suspended.
No additional options will be granted under the suspended plans.

At September 24, 1999, there were 2,329,405 shares of unissued common stock
reserved for issuance under the 1998 Plan and the suspended plans, of which
options for the purchase of 525,879 shares were available for future grants. The
price ranges of options exercised were $5.29 to $8.50 in 1999, $2.98 to $7.05 in
1998, and $2.45 to $6.00 in 1997. A summary of stock option activity under the
stock option plans follows:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding, September 27, 1996................. 1,913,730 $ 3.36
Granted................................... 436,490 5.68
Exercised................................. (670,425) 2.71
Expired and canceled...................... (86,975) 3.74
----------
Outstanding, September 26, 1997................. 1,592,820 4.18
Granted................................... 698,528 8.22
Exercised................................. (1,871,563) 4.62
Expired and canceled...................... (39,820) 5.37
----------
Outstanding, September 25, 1998................. 379,965 9.32
Granted................................... 1,361,769 10.58
Exercised................................. (78,500) 6.67
Expired and canceled...................... (28,648) 9.32
----------
Outstanding, September 24, 1999................. 1,634,586 10.50
==========
</TABLE>

Additional information regarding options outstanding as of September 24,
1999, is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDINGS OPTIONS EXERCISABLE
- ----------------------------------------------------------------- -------------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.29 - $9.78 352,674 1.79 $ 7.66 212,494 $ 6.55
10.00 592,591 2.57 10.00
10.09 - 12.00 493,375 3.00 11.37 26,042 11.94
14.00 - 18.44 195,946 5.75 14.92 117,833 14.03
--------- --------
3.29 - 18.44 1,634,586 2.91 10.50 356,369 9.42
========= ========
</TABLE>

60
<PAGE>

The Company accounts for stock option grants to employees and nonemployee
directors in accordance with APB No. 25. Pro forma information regarding net
income is required under SFAS No. 123 and has been determined as if the Company
had accounted for all post 1995 stock option grants based on the fair value
method. Had compensation cost for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates for awards under
those plans consistent with the variable plan accounting prescribed in SFAS No.
123, the Company's net income for each of the fiscal years would have been
adjusted to the pro forma amounts indicated below (in thousands, except per
share amounts):

1999 1998 1997
------ ------ ------
Net income:
As reported.......... $ 15,942 $ 11,874 $ 15,389
Pro forma............ 13,707 13,836 17,418

<TABLE>
<CAPTION>
1999 1998 1997
----------------- ------------------- -----------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Earnings per common share:
As reported............. $ 1.22 $ 1.20 $ 1.05 $ 1.01 $1.54 $ 1.44
Pro forma............... 1.05 1.04 1.22 1.18 1.74 1.63
</TABLE>

In the table above, pro forma compensation expense associated with option
grants is recognized over the vesting period. The impact of applying SFAS No.
123 on pro forma disclosure is not representative of the potential impact on pro
forma net earnings for future years, which will include the cumulative effect of
expense related to vesting of post 1995 grants.

The per share weighted average fair value of stock options granted during
the years ended September 24, 1999, September 25, 1998, and September 26, 1997,
was $3.87, $2.34, and $0.51, respectively, on the date of grant using the Black-
Scholes option-pricing model with the following weighted average assumptions for
stock option grants in 1999, 1998, and 1997, respectively: expected dividend
yield of -0-% for all three years; risk-free interest rates of 4.5%, 5.5%, and
5.9%; expected volatility of 44% in 1999 and 37% in 1998; and expected lives of
3.0, 2.4, and 1.8 years. Under the provisions of SFAS No. 123 for nonpublic
entities, no assumptions were made for expected volatility in the calculation
related to fiscal 1997.

PERFORMANCE-BASED ARRANGEMENTS: Prior to consummation of the Reorganization
and IPO, RMI entered into arrangements with certain employees, entitling the
employees to receive fully vested options subject to attainment of specific
performance goals, generally related to commission volume. Performance-based
arrangements outstanding at the time of the Reorganization were assumed by RMGI.
Under the performance-based arrangements, 168,940 and 400,735 options to receive
shares or rights to receive options to purchase shares of common stock have been
committed to employees at September 24, 1999, and September 25, 1998,
respectively. Rights to receive options will convert into outstanding stock
options at such time as performance measures are met. Performance-based
arrangements typically terminate two to five years from the date of grant if
performance has not been achieved. Prior to the IPO, such arrangements may have
required the Company to make a cash payment to the option award recipient to the
extent that the maximum option price in the contractual arrangement was below
the fair market value of the common stock at the date the performance measures
were met. Per share exercise amounts related to the outstanding commitments at
September 24, 1999, range from $5.43 to $9.50. Compensation expense for fiscal
1998 and 1997 included $349,000 and $250,000, respectively, under such
arrangements.

Generally, options under the plans, as well as unmet performance-based
arrangements, become exercisable in full immediately prior to the occurrence of
a "Corporate Transaction" or "Change in Control" as defined in the plan
documents, if such instruments are not assumed or continued at the closing of
such transaction.

61
<PAGE>

DEFERRED COMPENSATION PLAN: In June 1998, the Company adopted a
nonqualified and unfunded deferred compensation plan (the Deferred Compensation
Plan) for the executive officers and other highly compensated employees, as
defined in the plan. Eligible employees may elect to defer a portion of their
compensation during two six-month deferral periods that begin each January 1 and
July 1 based upon the level of their prior calendar-year compensation. Eligible
participants elect to have their deferred balances measured as if they were
invested in short-term U.S. Treasury securities or common stock of the Company.
Investment elections are measured and credited to each participant account at
the end of each deferral period at a price ranging from 75% to 85% of the
average fair market value during the last five trading days of the deferral
period based upon the level of the participant's prior calendar-year
compensation. Participants vest in the deferred compensation accounts two years
after the end of the corresponding deferral period, and generally forfeit their
unvested account balance if they terminate their employment during the vesting
period. Deferred compensation amounts allocated as if they were invested in
common stock of the Company will be settled in shares authorized under the
Company's 1998 Plan while all other deferred amounts will be settled in cash.
Compensation cost is based on the difference between the amounts deferred and
the fair market value of the projected settlement amount at the end of the
deferral period and is amortized to expense over the two-year vesting period.
The initial deferral period of the plan began July 15, 1998. At September 24,
1999, participant amounts deferred under this plan, including amortization of
the related discount, amounted to $2,257,000, of which $1,757,000 is included as
a component of shareholders' equity and $500,000 is included in accrued
compensation and related benefits in the accompanying statement of financial
condition. At September 25, 1998, participant amounts deferred under this plan
amounted to $412,000, which is included in accrued compensation and related
benefits in the accompanying consolidated statements of financial condition.
Compensation expense includes $128,000 of expense related to amortization of the
discount under this plan for fiscal 1999 and none for fiscal 1998.

EMPLOYEE STOCK PURCHASE PLAN: In June 1998 the Company adopted an employee
stock purchase plan (the ESPP) which allows eligible employees of the Company to
acquire shares of the Company's common stock through payroll deductions of up to
15% of their compensation at a price equal to 85% of the fair market value, as
defined in the plan. Purchases are effected at the completion of six-month
offering periods that begin each January 1 and July 1 and are limited for each
participant to an aggregate market value of $15,000 in any calendar year.
Employees who are eligible to participate in the Company's Deferred Compensation
Plan are not eligible to participate in the ESPP. The initial offering period of
the plan began July 1, 1998. An aggregate of 200,000 shares of common stock are
authorized for issuance under the ESPP. Employees purchased 15,903 shares in
fiscal 1999 at an average per share purchase price of $10.13. The Company
utilized treasury shares for all of the shares purchased. No shares were issued
under the ESPP in fiscal 1998. The plan is intended to operate in accordance
with Section 423 of the IRC and, accordingly, is considered to be non-
compensatory under APB No. 25 and related interpretations. The per share
weighted average fair value of stock options granted under the ESPP during the
year ended September 24, 1999, was $3.31 on the date of grant using the Black-
Scholes option-pricing model with the following weighted average assumptions:
expected dividend yield of -0-%, risk-free interest rate of 4.8%, expected
volatility of 44%, and expected life of six months.

SHARE REPURCHASE PLAN: In February 1997, the Company's Board of Directors
approved the adoption of the 1997 Share Repurchase Plan (the Share Repurchase
Plan). Under terms of the Share Repurchase Plan, an eligible shareholder was
entitled to elect to receive a Repurchase SAR upon the redemption of the
shareholder's stock in the Company. Upon satisfactory election, and subject to
certain limitations regarding maximum number of Repurchase SAR shares to be
issued to an individual within any 12-month period, a Repurchase SAR was granted
as of the date of share redemption for each share redeemed by the Company. The
amount to be paid to the Repurchase SAR holder was generally determined as the
appreciation, if any, in the Company's book value from the grant date through
the close of the eighth fiscal quarter thereafter times the number of Repurchase
SAR shares. Under the Share Repurchase Plan, the Company granted 160,159 and
124,500 Repurchase SARs during fiscal year 1998 and 1997, respectively, and
accrued compensation expense of $1,833,000 and $66,000, respectively, during
these periods for the outstanding rights. The 1998 expense includes $1,698,000
which reflects the increase in the value of the Repurchase SARs outstanding on
the date of the IPO as discussed above.

The Company's Board of Directors suspended the Share Repurchase Plan in
February 1998 in connection with the planned Reorganization and terminated the
Share Repurchase Plan concurrent with the successful completion of the IPO.

62
<PAGE>

NOTE 13: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

In the normal course of business, the Company's customer and correspondent
clearance activities obligate the Company to settle transactions with brokers
and other financial institutions even if its customers fail to meet their
obligations to the Company. Customers are required to complete their
transactions on settlement date, generally three business days after trade date.
If customers do not fulfill their contractual obligations, the Company may incur
losses. The Company has established procedures to reduce this risk by requiring
deposits from customers for certain types of trades.

The Company also buys and sells collateralized mortgage obligations. The
settlement dates for these transactions may be longer than other transactions,
occasionally up to 30 days. Due to this longer settlement period, the risk that
the Company may incur losses if customers do not fulfill their contractual
obligations is greater. The Company has established procedures to reduce this
risk and believes it is unlikely there will be a material impact on the
financial statements.

As customers write option contracts or sell securities short, the Company
may incur losses in the event customers do not fulfill their obligations and the
collateral in the customer's account is not sufficient to fully cover losses
which customers may incur from these strategies. To control this risk, the
Company monitors required margin levels daily, and customers are required to
deposit additional collateral, or reduce positions, when necessary.

From time to time, the Company also enters into financial futures contracts
for the purpose of hedging certain dealing activities. As such, any futures
contract commitments are considered held for trading purposes and are carried at
market value. Financial futures contracts are transactions in which one party
agrees to deliver a financial instrument to a counterparty at a specified price
on a specified date. Risk arises from the possibility of unfavorable changes in
the market price of the underlying financial instrument.

At September 24, 1999, the Company had no outstanding financial futures
commitments. At September 25, 1998, the contract value of the Company's
financial futures commitments was $100,000. The contract amounts of these
instruments reflect the Company's extent of involvement in the particular class
of financial instrument. They do not include positions which may substantially
reduce any potential market risk and do not represent the Company's risk of loss
due to counterparty nonperformance.

The fair value of the financial futures contracts, based upon the net
unrealized gain or loss in the market value of the contracts at September 25,
1998, was not material. The average fair value of such financial instruments for
the years ended September 24, 1999, and September 25, 1998, and the total net
gain or loss arising from such trading activities during these periods, was not
material.

NOTE 14: EARNINGS PER COMMON SHARE

Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS
are required to be computed using the methods specified in SFAS No. 128,
Earnings per Share. Basic EPS is calculated using the weighted average number of
common shares outstanding for the period and diluted EPS is computed using the
weighted average number of shares and dilutive common equivalent shares
outstanding calculated under the treasury stock method. For the purpose of
calculating the dilutive effect of stock options in diluted EPS for periods
prior to the completion of the Company's IPO, the Company utilizes the per-share
book value at the end of each corresponding period as the Company's share
repurchase plan required selling shareholders to offer their shares to the
Company for redemption at book value as calculated in accordance with the terms
of the share repurchase plan.

63
<PAGE>

The following table sets forth the computations for basic and diluted
earnings per common share (in thousands, except per share amounts):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NUMERATOR:
Net income....................................... $ 15,942 $ 11,874 $ 15,389

DENOMINATOR:
Weighted average basic shares outstanding........ 13,054 11,346 10,014
Dilutive effect of employee stock plans.......... 198 407 657
-------- -------- --------
Weighted average diluted shares outstanding...... 13,252 11,753 10,671
======== ======== ========
Earning per common share:
Basic............................................ $ 1.22 $ 1.05 $ 1.54
======== ======== ========
Diluted.......................................... $ 1.20 $ 1.01 $ 1.44
======== ======== ========
</TABLE>

Options to purchase 392,547 shares and 135,000 shares for fiscal 1999 and
1998, respectively, were not included in the computation of diluted earnings per
share because the options' exercise prices were greater than the average market
price of the common shares for the related period.

NOTE 15: SEGMENT REPORTING DATA

In 1999, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The Company offers a wide variety of
products and services, primarily those of a full service broker-dealer, through
its two operating segments: retail distribution and institutional distribution.
The Company's reportable segments are managed separately based on the types of
products and services offered and their related client bases.

The retail distribution segment includes brokerage services and products
(such as purchase and sale of securities, investment advisory services, and
margin lending) provided to individual investors through retail branches of the
Company's two broker-dealer subsidiaries, net interest income earned on account
balances of individual investors, correspondent brokerage services, and market
making of equity and fixed income securities which is generally conducted to
facilitate transactions by individual investors.

The institutional distribution segment includes securities brokerage
services emphasizing the sale of equities and fixed income products to
institutions, investment banking services (such as mergers and acquisitions
advisory services and management and participation in underwritings, exclusive
of sales credits related to individual investors which are included in the
retail distribution segment), and market making of certain fixed income
securities, including collateralized mortgage obligations and U.S. government
and government agency obligations, where the couterparties are generally other
broker-dealers and banks.

All accounting policies are the same as those described in the "Summary of
Significant Accounting Policies." Segment revenues and expenses in the table
below consist of those that are directly attributable, combined with segment
amounts based on Company allocation methodologies, except for certain
nonrecurring items identified below which have not been allocated between
segments. Intersegment revenues and charges are eliminated between segments.
Intersegment items relate only to interest charged by the retail distribution
segment to the institutional distribution segment to finance its related trading
securities.

64
<PAGE>

The Company has not disclosed asset information by segment as the
information is not produced internally. However, total assets attributable to
the institutional distribution segment are predominately comprised of fixed
income trading securities, which include U.S. government and government agency
obligations and collateralized mortgage obligations, and certain securities
purchased under agreements to resell. Total assets attributable to the retail
distribution segment generally include all of the assets not included in the
institutional distribution segment.

Financial information by segment for the three years in the period ended
September 24, 1999 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
RETAIL INSTITUTIONAL
DISTRIBUTION DISTRIBUTION TOTAL
------------ ------------ -----
<S> <C> <C> <C>
1999
Total operating revenues.................. $ 49,174 $ 19,985 $ 69,159
Interest income, net...................... 16,802 (1,595) 15,207
Net revenues.............................. 65,976 18,390 84,366
Income before taxes on income(A).......... 18,472 5,619 24,091

1998
Total operating revenues.................. 46,490 16,445 62,935
Interest income, net...................... 15,107 (2,007) 13,100
Net revenues.............................. 61,597 14,438 76,035
Income before taxes on income(B).......... 15,295 4,403 19,698

1997
Total operating revenues.................. 45,017 13,385 58,402
Interest income, net...................... 11,893 (1,408) 10,485
Net revenues.............................. 56,910 11,977 68,887
Income before taxes on income(C).......... 22,594 2,255 24,849
</TABLE>

- -----------------
(A) Retail distribution amount includes $683,000 of nonrecurring legal and
other costs incurred in connection with the proposed sale of the Company
to Wells Fargo (Note 17).

(B) Retail distribution amount includes nonrecurring compensation charges
related to the Company's IPO of $3,480,000 for the conversion of the
Company's variable-award, book-value-based stock option plans to
fixed-award, fair-value-based stock option plans and compensation expense
related to then outstanding Repurchase SARs (Note 12).

(C) Retail distribution amount includes a nonrecurring benefit of $5,000,000
that the Company realized in conjunction with the reversal of the amount
previously accrued for plan benefits under the key person death benefits
plan (Note 11).

65
<PAGE>

NOTE 16: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following information represents the Company's unaudited quarterly results
of operations for fiscal years 1999 and 1998. These quarterly results reflect
all normal recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the results (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
1999
---------------------------------------
FISCAL QUARTER
---------------------------------------

FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
Total operating revenues...................... $18,113 $15,715 $18,141 $17,190
Interest income............................... 9,375 8,968 8,566 8,370
------- ------- ------- -------
Total revenues................................ 27,488 24,683 26,707 25,560
Interest expense.............................. 5,771 5,228 4,900 4,173
------- ------- ------- -------
Net revenues.................................. 21,717 19,455 21,807 21,387
Total noninterest expenses(A)................. 14,781 13,830 15,587 16,077
------- ------- ------- -------
Income before taxes on income................. 6,936 5,625 6,220 5,310
Taxes on income............................... 2,365 1,902 2,102 1,780
------- ------- ------- -------
Net income.................................... $ 4,571 $ 3,723 $ 4,118 $ 3,530
======= ======= ======= =======
Earnings per common share(C):
Basic.................................... $ 0.34 $ 0.28 $ 0.32 $ 0.27
Diluted.................................. 0.34 0.28 0.32 0.27

<CAPTION>
1998
-------------------------------------
FISCAL QUARTER
-------------------------------------

FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
Total operating revenues...................... $18,516 $15,251 $14,844 $14,324
Interest income............................... 9,412 8,953 8,863 9,206
------- ------- ------- -------
Total revenues................................ 27,928 24,204 23,707 23,530
Interest expense.............................. 6,244 5,910 5,645 5,535
------- ------- ------- -------
Net revenues.................................. 21,684 18,294 18,062 17,995
Total noninterest expenses(B)................. 15,321 12,884 16,196 11,936
------- ------- ------- -------
Income before taxes on income................. 6,363 5,410 1,866 6,059
Taxes on income............................... 2,463 2,055 1,266 2,040
------- ------- ------- -------
Net income.................................... $ 3,900 $ 3,355 $ 600 $ 4,019
======= ======= ======= =======
Earnings per common share(C):
Basic.................................... $ 0.38 $ 0.32 $ 0.05 $ 0.30
Diluted.................................. 0.36 0.31 0.05 0.30
</TABLE>

- ---------------------
(A) Fourth quarter noninterest expense includes $683,000 of legal and other
costs incurred in connection with the proposed sale of the Company to Wells
Fargo (Note 17).

(B) Third quarter noninterest expense includes compensation charges related to
the Company's IPO of $3,480,000 for the conversion of the Company's
variable-award, book-value-based stock option plans to fixed-award,
fair-value-based stock option plans and compensation expense related to
then outstanding Repurchase SARs (Note 12).

(C) Summation of quarters' earnings per common share may not equal the annual
amounts due to the averaging effect of the number of shares and share
equivalents throughout the year.

66
<PAGE>

NOTE 17: SUBSEQUENT EVENT

On September 28, 1999, RMGI entered into an Agreement and Plan of Merger (the
Merger Agreement) with Wells Fargo & Company (Wells Fargo) and Romero
Acquisition Corp., a wholly owned subsidiary of Wells Fargo. Under the terms of
the Merger Agreement, Romero Acquisition Corp. will merge with RMGI and RMGI
will become a wholly owned subsidiary of Wells Fargo. In the acquisition, Wells
Fargo will issue $18.75 worth of its common stock in exchange for each
outstanding share of RMGI's common stock, subject to adjustment if the average
price of Wells Fargo's common stock is below $36 or above $42 per common share
over a period of time as specified in the Merger Agreement.

As a condition to Wells Fargo entering into the Merger Agreement, RMGI and Wells
Fargo entered into a Stock Option Agreement (the Option Agreement), pursuant to
which RMGI granted to Wells Fargo an irrevocable option to purchase up to
2,570,093 authorized and unissued shares of Company common stock at a price of
$15.50 per share, exercisable upon the occurrence of certain events related to
the termination of the Merger Agreement. Under certain circumstances, RMGI may
be required to purchase the option or the shares acquired pursuant to the
exercise of the option.

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors of
Ragen MacKenzie Group Incorporated and Subsidiaries
Seattle, Washington

We have audited the consolidated financial statements of Ragen MacKenzie
Group Incorporated and subsidiaries (the Company) as of September 24, 1999, and
September 25, 1998, and for each of the three years in the period ended
September 24, 1999, and have issued our report thereon dated November 18, 1999;
such consolidated financial statements and report appear on pages 49 through 67
of this Annual Report on Form 10-K. Our audits also included the financial
statement schedule of the Company listed in the index on page 48 and appearing
on pages 69 through 71. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

Deloitte & Touche LLP

Seattle, Washington
November 18, 1999

<PAGE>

SCHEDULE 1--CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

RAGEN MACKENZIE GROUP INCORPORATED (PARENT ONLY)

CONDENSED STATEMENTS OF FINANCIAL CONDITION

SEPTEMBER 24, 1999 AND SEPTEMBER 25, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
------

CASH........................................................................ $ 1 $ 1
INVESTMENT IN SUBSIDIARIES, AT EQUITY (a)................................... 127,484 111,101
OTHER ASSETS................................................................ 1,004
-------- --------
TOTAL.................................................................. $128,489 $111,102
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

LIABILITIES:
Payable to subsidiary (a)................................................ $ 7,843 $ 2,163

SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value - Authorized 10,000,000 shares;
no shares issued and outstanding........................................ - -
Common stock, $.01 par value - Authorized 50,000,000 shares;
issued and outstanding, 13,457,390 shares............................... 135 135
Additional paid-in capital............................................... 47,697 47,872
Common shares issuable under deferred compensation arrangements,
less unamortized purchase discount of $334.............................. 1,757
Treasury stock - 542,197 and 50,600 shares, respectively, at cost........ (6,328) (511)
Retained earnings........................................................ 77,385 61,443
-------- --------
Total shareholders' equity............................................. 120,646 108,939
-------- --------

TOTAL.................................................................. $128,489 $111,102
======== ========
</TABLE>

___________________
(a) Eliminated in consolidation.

This condensed financial information should be read in connection with the Notes
to Consolidated Financial Statements contained in the 1999 Annual Report on Form
10-K and incorporated herein by reference.

<PAGE>

SCHEDULE 1--CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT (CONTINUED)

RAGEN MACKENZIE GROUP INCORPORATED (PARENT ONLY)

CONDENSED STATEMENTS OF INCOME AND SHAREHOLDERS' EQUITY

FISCAL YEAR ENDED SEPTEMBER 24, 1999 AND
PERIOD FROM APRIL 16, 1998 (INCEPTION) TO SEPTEMBER 25, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
INCOME:
Equity in undistributed net income from subsidiaries (a) (b)........................ $ 15,977 $ 4,019

EXPENSES:
Amortization of Goodwill............................................................ 35 -
-------- ---------
Net income.......................................................................... 15,942 4,019

SHAREHOLDERS' EQUITY:
Shareholders' equity at beginning of period......................................... 108,939
Initial capitalization.............................................................. 1
Effect of reorganization in June 1998............................................... 84,968
Issuance of common stock in conjunction with initial public stock offering.......... 18,634
Noncash compensation - Stock options................................................ 1,782
Stock options exercised............................................................. 563 46
Employee stock purchase plan shares issued.......................................... 161
Amortization of deferred compensation awards........................................ 116
Amounts contributed under deferred compensation arrangements........................ 1,641
Issuance of shares for acquisition of CPS........................................... 435
Purchase of treasury stock.......................................................... (7,151) (511)
-------- ---------

End of period....................................................................... $120,646 $ 108,939
======== =========
</TABLE>

___________________
(a) Eliminated in consolidation.

(b) 1998 amount represents equity in undistributed net income from Ragen
MacKenzie Incorporated after the merger between Ragen MacKenzie Group
Incorporated and Ragen MacKenzie Incorporated effective June 22, 1998.

<PAGE>

SCHEDULE 1--CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT (CONTINUED)

RAGEN MACKENZIE GROUP INCORPORATED (PARENT ONLY)

CONDENSED STATEMENTS OF CASH FLOWS

FISCAL YEAR ENDED SEPTEMBER 24, 1999 AND
PERIOD FROM APRIL 16, 1998 (INCEPTION) TO SEPTEMBER 25, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................................. $ 15,942 $ 4,019
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed equity in earnings of subsidiaries................................. (15,977) (4,019)
Stock appreciation rights expense funded by Parent............................... (1,698)
Amortization of goodwill......................................................... 35
--------- --------
Net cash used by operating activities.................................................. 0 (1,698)

INVESTING ACTIVITIES:
Contributions to subsidiary............................................................ (18,634)
Cash paid for Columbia Pacific Securities, Inc. (CPS).................................. (1,010)
--------- --------
Net cash used by investing activities.................................................. (1,010) (18,634)

FINANCING ACTIVITIES:
Initial capitalization................................................................. 1
Proceeds from initial public offering, net of issuance costs........................... 18,634
Advances from subsidiary, net.......................................................... 7,437 2,163
Proceeds from issuance of common stock................................................. 724 46
Purchase of treasury stock............................................................. (7,151) (511)
--------- --------
Net cash provided by financing activities.............................................. 1,010 20,333
--------- --------
NET INCREASE IN CASH......................................................................... 0 1

CASH:
Beginning of period.................................................................... 1
--------- --------
End of period.......................................................................... $ 1 $ 1
========= ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Issuance of common stock in connection with acquisition of CPS......................... $ 435
</TABLE>

<PAGE>

EXHIBIT INDEX

Exhibit
Number Description of Document
- ------- -----------------------
2.1# Agreement and Plan of Merger by and among Wells Fargo & Company,
Romero Acquisition Corp. and Ragen MacKenzie Group Incorporated, dated
September 28, 1999.
3.1+ Amended and Restated Articles of Incorporation of Ragen MacKenzie
Group Incorporated.
3.2+ Bylaws of Ragen MacKenzie Group Incorporated.
10.1+ Master Note of RMI in favor of Bank America National Trust and Savings
Association, dated July 9, 1997.
10.2+ Security Agreement between RMI and Bank America National Trust and
Savings Association, dated October 14, 1995.
10.3+ Lease Agreement between Wright-Carlyle Seattle and RMI, dated November
8, 1983, as amended December 19, 1988, August 24, 1992, June 1, 1993,
July 20, 1995, April 30, 1997 and June 6, 1997.
10.4++ Amendments to Lease Agreement between EOP Northwest Properties, L.L.C
(as successor in interest to Wright-Carlyle Seattle) and RMI, dated
September 26, 1997, September 21, 1998 and November 6, 1998.
10.5+ Form of Noncompetition and Nonsolicitation Agreement executed as of
April 14, 1998, by RMGI and each of Lesa A. Sroufe, Robert J. Mortell,
Jr., Mark A. McClure, V. Lawrence Bensussen and John L. MacKenzie.
10.6+ Agreement and Release between RMI and Scott McAdams, dated March 22,
1998.
10.7# Stock Option Agreement between Ragen MacKenzie Group Incorporated and
Wells Fargo and Company, dated September 28, 1999.
10.9+ RMI 1996 Stock Incentive Compensation Plan.
10.10+ RMI 1997 Share Repurchase Plan.
10.11+ RMGI 1998 Stock Incentive Compensation Plan.
10.12+ ABC Brokerage Accounting System Agreement between Pershing Division
of Donaldson, Lufkin & Jenrette Securities Corporation and RMI, dated
April 1, 1997.
10.13* Employment Agreement between RMI and James P. Kerr.
10.14+ Employment Agreement between RMI and Mark A. McClure, dated June 16,
1994, as amended by an addendum dated June 3, 1997.
10.15+ RMGI Employee Stock Purchase Plan.
10.16+ Executive Performance Bonus Plan.
10.17+ RMI Agreement to Grant Stock Option to Mark A. McClure dated February
25, 1997.
10.18++ RMGI Deferred Compensation Plan.
10.19* Amended and Restated Stock Option Grant Program for Nonemployee
Directors under the Ragen MacKenzie Group Incorporated 1998 Stock
Incentive Compensation Plan.
10.21+ Severance and Correspondent Clearing Agreement between RMI and Brooks
G. Ragen, executed April 17, 1998.
10.22++ First Amendment to Severance and Correspondent Clearing Agreement,
dated June 19, 1998, between RMI and Brooks G. Ragen.
10.23++ Second Amendment to Severance and Correspondent Clearing Agreement,
between RMI and Brooks G. Ragen, dated September 21, 1998.
10.24* Amendment to Lease Agreement between EOP Northwest Properties, L.L.C
(as successor in interest to Wright-Carlyle Seattle) and RMI, dated
April 5, 1999.
21.1* Subsidiaries of the Registrant
23.1* Consent of Deloitte & Touche LLP
27.1* Financial Data Schedule.

- ------------------
* Filed herewith.
+ Incorporated by reference to the Company's Registration Statement on Form
S-1, as amended (Registration No. 333-50735).
++ Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 25, 1998.
# Incorporated by reference to the Company's Current Report on Form 8-K filed
on September 30, 1999.

<PAGE>

EXHIBIT 10.13

Ragen MacKenzie
Incorporated 999 3rd Avenue, Suite 4300
Seattle, Washington 98104
206-343-5000

Mr. James P. Kerr
VIA FAX

Dear Jim:

I am delighted to extend an offer of at will employment to you with the
following terms:

1. You will assume the position of President and become a member of the Board
of Directors of Ragen MacKenzie Group Incorporated (RMGI) and Ragen
MacKenzie Incorporated (RMI). This must be voted upon, however based on my
discussions with Board Members, I expect there will be no objections.

2. For the first two years from the commencement of your employment, your
annual cash compensation will be at least $500,000 per year, consisting of a
monthly salary of $20,833.33 and an annual bonus of at least $250,000. This
compensation does not include amounts under #3 and #4. In the event your
employment is terminated for any reason other than for voluntary resignation
or cause during this initial two year period of employment, you will still
receive payments specified in items #2, 3, and 4. Otherwise, except for the
death benefit specified in #4, payments will be made only so long as you
continue to be employed.

3. A one time cash payment of $134,500 upon commencement of employment in
recognition of your forfeiting some deferred compensation at your present
employer.

4. A one time cash payment of up to $300,000 to compensate you for the value of
your 1998 calendar year bonus from your present employer that you estimate
will be forfeited upon employment at Ragen MacKenzie. The total one-time
cash payment will be divided into three installments that will be paid,
assuming your continued employment, as follows: $100,000 within 60 days of
commencement of employment; $100,000 on 12/31/1999; and $100,000 on
12/31/2000. If you receive any bonus from your present employer related to
your 1998 calendar year service, the total $300,000 payment due from Ragen
MacKenzie will be reduced by the amount received (up to $300,000) by you;
the reduction in amount will be applied first to the 12/31/2000 installment,
next to the 12/31/1999 installment, and finally to the initial installment.
Your estate is entitled to the payments under #4 if you die prior to
12/31/2000.

5. A nonqualified stock option to purchase 100,000 shares of RMGI common stock.
This option is to be granted at the commencement of your employment and will
be issued pursuant to the 1998 Stock Incentive Compensation Plan. The option
will be priced at the closing market price of RMG common stock on the date
you commence employment. It will have a 3 1/2 year term in which to exercise
the option, with 1/3/rd/ of the shares vesting annually on each anniversary
of the option grant date.

6. After joining RMI, you may solicit and hire an assistant of your choice at a
wage mutually agreed upon between yourself and RMI.

OFFICES IN THE PACIFIC NORTHWEST AND ALASKA

<PAGE>

7. You agree that you will not divulge at any time any nonpublic information
received by you concerning RMI's clients, accounts, and business or
financial aspects.

8. This offer expires at the close of business on midnight Tuesday, January 5,
1999. If it is accepted, you will promptly advise your present employer and
RMI will make a public announcement with one business day of the date you
advise your present employer. Your employment will commence the date of the
public announcement by RMI or RMGL. RMI will reimburse you for traveling to
Minneapolis to advise your employer of your resignation.

If this is acceptable, please sign below and fax or send me a copy. I look
forward to hearing from you.

Sincerely,

/s/ Lesa Sroufe
Lesa Sroufe
Chairman & Chief Executive Officer, Ragen Mackenzie Group Incorporated

Accepted:

/s/ James P. Kerr
- -----------------------------

<PAGE>

EXHIBIT 10.19

AMENDED AND RESTATED
STOCK OPTION GRANT PROGRAM
FOR
NONEMPLOYEE DIRECTORS UNDER THE
RAGEN MACKENZIE GROUP INCORPORATED
1998 STOCK INCENTIVE COMPENSATION PLAN

The following provisions set forth the terms of the stock option grant
program (the "Program") for nonemployee directors of Ragen MacKenzie Group
Incorporated (the "Company") under the Company's 1998 Stock Incentive
Compensation Plan (the "Plan"). The following terms are intended to supplement,
not alter or change, the provisions of the Plan, and in the event of any
inconsistency between the terms contained herein and in the Plan, the Plan shall
govern. All capitalized terms that are not defined herein shall be as defined in
the Plan.

1. Eligibility

Each director of the Company elected or appointed who is not otherwise
an employee of the Company or any Subsidiary (an "Eligible Director") shall be
eligible to receive Initial Grants and Annual Grants under the Plan, as
discussed below.

2. Initial Grants

A Nonqualified Stock Option to purchase 25,000 shares of the Company's
Common Stock ("Initial Grant") shall be granted to each Eligible Director upon
such Eligible Director's initial election or appointment to the Board. Initial
Grants shall become fully vested and exercisable one year after the date of
grant, assuming continued service on the Board for such period.

3. Annual Grants

Commencing with the 1999 Annual Shareholders' Meeting, each Eligible
Director shall automatically receive a Nonqualified Stock Option to purchase
5,000 shares of Common Stock immediately following each year's Annual Meeting
(each, an "Annual Grant"); provided that any Eligible Director who received an
Initial Grant within three months prior to an Annual Meeting shall not receive
an Annual Grant until immediately following the second Annual Meeting after the
date of such Initial Grant. Annual Grants shall be fully vested and exercisable
on the date of grant.

4. Committee Grants

Commencing immediately following the 1999 Annual Shareholders Meeting,
each Eligible Director shall automatically receive a Nonqualified Stock Option
to purchase 1,000 shares of Common Stock immediately upon such Eligible
Director's appointment and annual reappointment to any committee of the Board
(each, a "Committee Grant"); provided, that no Eligible Director shall be
eligible to receive more than one Committee Grant per year for each committee on
which such director serves. Committee Grants shall be fully vested and
exercisable on the date of grant.

5. Committee Meeting Grants

Each Eligible Director shall automatically receive a Nonqualified Stock
Option to purchase 300 shares of Common Stock for each meeting of a committee of
the Board attended by such Eligible Director (each, a "Committee Meeting
Grant"); provided, that no Eligible Director shall be eligible to receive more
than four
<PAGE>

Committee Meeting Grants per year for each committee on which such director
serves. Committee Meeting Grants shall be fully vested and exercisable on the
date of grant.

6. Option Exercise Price

The exercise price of an Option shall be the Fair Market Value of the
Common Stock as applicable, on the date of grant.

7. Manner of Option Exercise

An Option shall be exercised by giving the required notice to the
Company, stating the number of shares of Common Stock with respect to which the
Option is being exercised, accompanied by payment in full for such Common Stock,
which payment may be in whole or in part (a) in cash or check, (b) in shares of
Common Stock, owned by the Eligible Director for at least six months (or such
shorter period necessary to avoid a charge to the Company's earnings for
financial reporting purposes) having a Fair Market Value on the day prior to the
exercise date equal to the aggregate Option exercise price, or (c) by delivery
of a properly executed exercise notice, together with irrevocable instructions
to a broker, to properly deliver to the Company the amount of sale or loan
proceeds to pay the exercise price, all in accordance with the regulation of the
Federal Reserve Board.

8. Term of Options

Each Option shall expire three years from the date of grant thereof,
but shall be subject to earlier termination as follows:

(a) In the event that an Eligible Director ceases to be a director of
the Company for any reason other than the death of the Eligible Director, the
unvested portion of any Option granted to such Eligible Director shall terminate
immediately and the vested portion of the Option may be exercised by the
Eligible Director only within one year after the date he or she ceases to be a
director of the Company or prior to the date on which the Option expires by its
terms, whichever is earlier.

(b) In the event of the death of an Eligible Director, the unvested
portion of any Option granted to such Eligible Director shall terminate
immediately and the vested portion of the Option may be exercised only within
one year after the date of death of the Eligible Director or prior to the date
on which the Option expires by its terms, whichever is earlier, by the personal
representative of the Eligible Director's estate, the person(s) to whom the
Eligible Director's rights under the Option have passed by will or the
applicable laws of descent and distribution or the beneficiary designated
pursuant to Section 10 of the Plan.

9. Corporate Transactions

In the event of any Corporate Transaction, each Initial Grant that is
at the time outstanding shall automatically accelerate so that each such grant
shall, immediately prior to the specified effective date for the Corporate
Transaction, become fully vested and exercisable.

10. Amendment

The Board may amend the provisions contained herein in such respects as
it deems advisable. Any such amendment shall not, without the consent of the
Eligible Director, impair or diminish any rights of an Eligible Director or any
rights of the Company under an Option.

Provisions of the Plan (including any amendments) that were not
discussed above, to the extent applicable to Eligible Directors, shall continue
to govern the terms and conditions of Options granted to Eligible Directors.

-2-

<PAGE>

EXHIBIT 10.24

Tenant Expansion Amendment
Improvement Allowance

TENTH AMENDMENT

This Tenth Amendment (the "Amendment") is made and entered into as of the
5/th/ day of April, 1999, by and between EOP Northwest Properties, L.L.C., a
Delaware limited liability company ("Landlord"), and Ragen MacKenzie
Incorporated, a Washington corporation ("Tenant").

WITNESSETH

A. WHEREAS, Landlord (as successor in interest to Wright-Carlyle Seattle, a
Washington general partnership) and Tenant (as successor in interest to
Cable, Howse & Ragen) are parties to that certain lease dated the 8/th/
day of November, 1983, for space currently containing approximately 35,285
rentable square feet (the "Original Premises") described as Suite Nos.
3710, 3760, 3780, 4150 and 4300 on the thirty-seventh (37/th/), forty-first
(41/st/) and forty-third (43/rd/) floors of the building commonly known as
First Interstate Center and the address of which is 999 Third Avenue,
Seattle, WA 98104 (the "Building"), which lease has been previously amended
or assigned by instruments dated December 19, 1998, August 24, 1992
("Second Amendment"), June 1, 1993 ("Third Amendment"), July 20, 1995
("Fourth Amendment"), April 30, 1997 ("Fifth Amendment"), June 6, 1997
("Sixth Amendment"), September 26, 1997 ("Seventh Amendment"), September
21, 1998 ("Eighth Amendment") and November 6, 1998 ("Ninth Amendment")
(collectively, the "Lease"); and

B. WHEREAS, Tenant has requested that additional space known as Suite Nos.
4160 and a portion of Suite 4140 containing approximately 2,367 rentable
square feet on the forty-first (41/st/) floor of the Building shown on
Exhibit A hereto (the "05/15/99 Expansion Space") be added to the Original
Premises and that the Lease be appropriately amended and Landlord is
willing to do the same on the terms and conditions hereinafter set forth;

C. WHEREAS, the Lease by its terms shall expire on February 28, 2002 ("Prior
Expiration Date"), and the parties desire to extend the Term of the Lease
only for the 05/15/99 Expansion Space, all on the terms and conditions
hereinafter set forth;

NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:

1. Expansion and Effective Date. Effective as of the Expansion Effective
----------------------------
Date (as hereinafter defined), the Premises, as defined in the Lease,
is increased from 35,285 rentable square feet on the thirty-seventy
(37/th/), forty-first (41/st/) and forty-third (43/rd/) floors to
37,652 rentable square feet on the thirty-seventh (37/th/), forty-
first (41/st/) and forty-third floors (43/rd/) by the addition of the
05/15/99 Expansion Space, and from and after the Expansion Effective
Date, the Original Premises and the 05/15/99 Expansion Space,
collectively, shall be deemed the Premises, as defined in the Lease.
The Lease term for the 05/15/99 Expansion Space shall commence on the
Expansion Effective Date and end on the 05/15/99 Expansion Expiration
Date (defined below). The 05/15/99 Expansion Space is subject to all
the terms and conditions of the Lease except as expressly modified
herein and except that Tenant shall not be entitled to receive any
allowances, abatements or other financial concessions granted with
respect to the Original Premises unless such concessions are expressly
provided for herein with respect to the 05/15/99 Expansion Space.

A. The Expansion Effective Date shall be May 15, 1999 ("Expansion
Effective Date").

B. The Expansion Effective Date shall be delayed to the extent that
Landlord fails to deliver possession of the 05/15/99 Expansion
Space for any reason, including but not limited to, holding over
by prior occupants. Any such delay in the Expansion Effective
Date shall not subject Landlord to any liability for any loss or
damage resulting therefrom. If the Expansion Effective Date is
delayed, the 05/15/99 Expansion Expiration Date under the Lease
shall not be similarly extended.

<PAGE>

II. Extension. The Term with respect to the 05/15/99 Expansion Space only is
---------
hereby extended for a period of twenty-seven (27) months and shall expire
on May 31, 2004 ("05/15/99 Expansion Expiration Date"), unless sooner
terminated in accordance with the terms of the Lease.

III. Monthly Rent.
------------

In addition to Tenant's obligation to pay Rent for the Original Premises,
Tenant shall pay Landlord the sum of Four Hundred Ninety Two Thousand Six
Hundred Fifty-Five and 59/100 Dollars ($492,655.59) as Rent for the
05/15/99 Expansion Space in sixty-one (61) monthly installments as follows:

A. One (1) installment of Four Thousand Four Hundred Sixty One and 99/100
Dollars ($4,461.99) [representing seventeen (17) days at $262.47 per
diem] payable on or before May 15, 1999, as applicable to the period
beginning May 15, 1999, and ending May 31, 1999.

B. Sixty (60) equal installments of Eight Thousand One Hundred Thirty-Six
and 56/100 Dollars ($8,136.56) each payable on or before the first day
of each month during the period beginning June 1, 1999, and ending May
31, 2004.

All such Rent shall be payable by Tenant in accordance with the terms of
Section 4 of the Lease.

IV. Additional Security Deposit. Upon Tenant's execution hereof, Tenant shall
---------------------------
pay Landlord the sum of Zero Dollars ($-0-) which is added to and becomes
part of the Security Deposit, if any, held by Landlord as provided under
the Lease as security for payment of Rent and the performance of the other
terms and conditions of the Lease by Tenant. Accordingly, simultaneous with
the execution hereof, the Security Deposit is not increased from $0.00.

V. Tenant's Percentage of the Building. For the period commencing with the
-----------------------------------
Expansion Effective Date and ending on the 05/15/99 Expansion Expiration
Date, Tenant's Percentage of the Building for the 05/15/99 Expansion Space
is two thousand five hundred six ten-thousandths percent (0.2506%).

VI. Operating Costs and Taxes. For the period commencing with the Expansion
-------------------------
Effective Date and ending on the 05/15/99 Expansion Expiration Date, Tenant
shall pay for its pro rata share of Operating Costs and Taxes applicable to
the 05/15/99 Expansion Space in accordance with the terms of Sections 8 and
9 of the Lease, as amended; provided, however, during such period, the Base
Year for the computation of Tenant's pro rata share of Operating Costs and
Taxes applicable to the 05/15/99 Expansion Space is 1999.

VII. Improvements to 05/15/99 Expansion Space.
----------------------------------------

A. Condition of 05/15/99 Expansion Space. Tenant has inspected the
05/15/99 Expansion Space and agrees to accept the same "as is" without
any agreements, representations, understandings or obligations on the
part of Landlord to perform any alterations, repairs or improvements,
except as may be expressly provided otherwise in this Amendment.

B. Cost of Improvements to 05/15/99 Expansion Space. Provided Tenant is
not in default, Tenant shall be entitled to receive an improvement
allowance (the "05/15/99 Expansion Improvement Allowance") in an
amount not to exceed Twenty-Three Thousand Six Hundred Seventy and
no/100 Dollars ($23,670.00) (i.e., $10.00 per rentable square foot of
the 05/15/99 Expansion Space) to be applied toward the cost of
performing Tenant's initial construction, alteration or improvement
of the 05/15/99 Expansion Space, including but not limited to the cost
of space planning, design and related architectural and engineering
services. In the event the total cost of Tenant's initial improvements
to the 05/15/99 Expansion Space exceeds the 05/15/99 Expansion
Improvement Allowance, Tenant shall pay for such excess upon demand.
The entire unused balance of the 05/15/99 Expansion

2
<PAGE>

Improvement Allowance, if any, shall accrue to the sole benefit of
Landlord. Landlord shall pay such 05/15/99 Expansion Improvement
Allowance directly to the contractors retained to perform the
construction, design or related improvement work to the 05/15/99
Expansion Space.

C. Responsibility for Improvements to 05/15/99 Expansion Space. Landlord
shall enter into a direct contract for Tenant's initial improvements
to the 05/15/99 Expansion Space with a general contractor selected by
Landlord. Tenant shall devote such time in consultation with Landlord
or Landlord's architect as may be required to provide all information
Landlord deems necessary in order to enable Landlord to complete, and
obtain Tenant's written approval of, the plans for Tenant's initial
improvements to the 05/15/99 Expansion Space in a timely manner. All
plans for Tenant's initial improvements to the 05/15/99 Expansion
Space shall be subject to Landlord's consent, which consent shall not
be unreasonably withheld. If the cost of such improvements exceeds the
05/15/99 Expansion Improvement Allowance, then prior to commencing any
construction of improvements to the 05/15/99 Expansion Space, Landlord
shall submit to Tenant a written estimate setting forth the
anticipated cost, including but not limited to the cost of space
planning, design and related architectural and engineering services,
labor and materials, contractor's fees, and permit fees. Within a
reasonable time thereafter, Tenant shall either notify Landlord in
writing of its approval of the cost estimate or specify its objections
thereto and any desired changes to the proposed improvements. In the
event Tenant notifies Landlord of such objections and desired changes,
Tenant shall work with Landlord to reach a mutually acceptable
alternative cost estimate.

D. Tenant acknowledges that the improvement work to the 05/15/99
Expansion Space may be performed by Landlord in the 05/15/99 Expansion
Space during Normal Business Hours subsequent to the 05/15/99
Expansion Effective Date. Landlord and Tenant agree to cooperate with
each other in order to enable the improvement work to the 05/15/99
Expansion Space to be performed in a timely manner and with as little
inconvenience to the operation of Tenant's business as is reasonably
possible. Notwithstanding anything herein to the contrary, any delay
in the completion of the improvement work to the 05/15/99 Expansion
Space or inconvenience suffered by Tenant during the performance of
the improvement work to the 05/15/99 Expansion Space shall not subject
Landlord to any liability for any loss or damage resulting therefrom
or entitle Tenant to any credit, abatement or adjustment of Rent or
other sums payable under the Lease.

VIII. Early Access to 05/15/99 Expansion Space. During any period that Tenant
----------------------------------------
shall be permitted to enter the 05/15/99 Expansion Space prior to the
Expansion Effective Date (e.g., to perform alterations or improvements, if
any), Tenant shall comply with all terms and provisions of the Lease,
except those provisions requiring payment of Rent or Additional Rent as to
the 05/15/99 Expansion Space. If Tenant takes possession of the 05/15/99
Expansion Space prior to the Expansion Effective Date for any reason
whatsoever (other than the performance of work in the 05/15/99 Expansion
Space with Landlord's prior approval), such possession shall be subject to
all the terms and conditions of the Lease and this Amendment, and Tenant
shall pay Rent and Additional Rent as applicable to the 05/15/99 Expansion
Space to Landlord on a per diem basis for each day of occupancy prior to
the Expansion Effective Date.

IX. Other Pertinent Provisions. Landlord and Tenant agree that, effective as
--------------------------
of the date hereof (unless different effective date(s) is/are specifically
referenced in this Section), the Lease shall be amended in the following
additional respects:

A. Parking. Effective as of the Expansion Effective Date, Paragraph 18A,
-------
"Parking", of Exhibit C, Addendum to Lease, is deleted in its entirety
from Article IX.A of the Ninth Amendment and the following shall be
substituted in lieu thereof:

18. Parking.

3
<PAGE>

A. During the period commencing on the Expansion Effective Date
and ending on the 05/15/99 Expansion Expiration Date, Tenant
agrees to lease from Landlord and Landlord agrees to lease
to Tenant up to a maximum of twenty four (24) unreserved,
self-park parking spaces (collectively, the "Spaces") plus
two (2) unreserved valet-park parking spaces on a monthly as
available basis, as determined by Landlord, in the Building
garage ("Garage") for the use of Tenant and its employees.
During the period commencing March 1, 2002 and ending on
November 30, 2003, Tenant shall have the right to lease from
Landlord and Landlord agrees to lease to Tenant up to a
total of three (3) unreserved, self-park parking spaces
(collectively, the "Spaces") in the Building garage
("Garage") for the use of Tenant and its employees. During
the period commencing December 1, 2003, and ending May 31,
2004, Tenant agrees to lease from Landlord and Landlord
agrees to lease to Tenant up to a total of one (1)
unreserved, self-parking parking space in the Building
garage for the use of Tenant and its employees. No
deductions or allowances shall be made for days when Tenant
or any of its employees does not utilize the parking
facilities or for Tenant utilizing less than all of the
Spaces. Tenant shall not have the right to lease or
otherwise use more than the number of reserved and
unreserved Spaces set forth above.

B. Paragraph VII, "Mutual Termination Option", of the Eighth Amendment is
deleted in its entirety and is null, void and of no further force or
effect.

C. CONTINGENCY. This Tenth Amendment is expressly contingent upon
Landlord entering into a satisfactory early termination agreement with
the previous occupant of the 05/15/99 Expansion Space. In the event
Landlord is unable to enter into such termination agreement on or
before April 10, 1999, this Tenth Amendment is null, void and of no
further force or effect.

D. Deleted Provisions. Exhibit B, "Tenant Improvements", Exhibit B.1,
------------------
"Tenant Improvement Plans" and Exhibit B.2, "Tenant Improvements Paid
by Tenant", of the Lease; Exhibit D, "Tenant Improvements to be Done
in 1992 in Conjunction with the Second Amendment", of the Second
Amendment; Exhibit E, "Tenant Improvement Budget dated 07/09/92", of
the Second Amendment; Exhibit F, "Tenant Improvements to be Done in
1993 in Conjunction with the Third Amendment", of the Third Amendment;
Exhibit G, "Tenant Improvements in Conjunction with Fourth Amendment",
of the Fourth Amendment; Exhibit B.3, "Tenant Improvements in
Conjunction with Fifth Amendment", of the Fifth Amendment; Exhibit
B.4, "Tenant Improvements in Conjunction with Sixth Amendment", of the
Sixth Amendment; and Exhibit B.5, "Tenant Improvements in Conjunction
with Seventh Amendment", of the Seventh Amendment; shall all be
deleted in their entirety and are null, void and of no further force
or effect.

E. Landlord and Tenant specifically agree that neither of Tenant's
options to extend the Lease term pursuant to item 15 of Exhibit C to
the Lease shall apply to the 05/15/99 Expansion Space. Such extensions
shall apply only to the original Premises.

X. Miscellaneous.
-------------

A. This Amendment sets forth the entire agreement between the parties
with respect to the matters set forth herein. There have been no
additional oral or written representations or agreements. Under no
circumstances shall Tenant be entitled to any Rent abatement,
improvement allowance,

<PAGE>

leasehold improvements, or other work to the Premises, or any
similar economic incentives that may have been provided Tenant
in connection with entering into the Lease, unless specifically
set forth in this Amendment.

B. Except as herein modified or amended, the provisions, conditions
and terms of the Lease shall remain unchanged and in full force
and effect.

C. In the case of inconsistency between the provisions of the Lease
and this Amendment, the provisions of this Amendment shall govern
and control.

D. Submission of this Amendment by Landlord is not an offer to enter
into this Amendment but rather is a solicitation for such an
offer by Tenant. Landlord shall not be bound by this Amendment
until Landlord has executed and delivered the same to Tenant.

E. The capitalized terms used in this Amendment shall have the same
definitions as set forth in the Lease to the extent that such
capitalized terms are defined therein and not redefined in this
Amendment.

F. Tenant hereby represents to Landlord that Tenant has dealt with
no broker other than Behar Company ("Tenant's Broker") in
connection with this Amendment. Tenant agrees to idemnify and
hold Landlord and Landlord Related Parties harmless from all
claims of any brokers other than Tenant's Broker claiming to have
represented Tenant in connection with this Amendment. Landlord
hereby represents to Tenant that Landlord has dealt with no
broker in connection with this Amendment other than Wright
Runstad & Company ("Landlord's Broker"). Landlord agrees to
idemnify and hold Tenant and Tenant Related Parties harmless from
all claims of any brokers other than "Landlord's Broker"
claiming to have represented Landlord in connection with this
Amendment.

G. This amendment shall be of no force and effect unless and until
accepted by any guarantors of the Lease, who by signing below
shall agree that their guarantee shall apply to the Lease as
amended herein, unless such requirement is waived by Landlord in
writing.

5
<PAGE>

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment
as of the day and year first above written.

LANDLORD: EOP Northwest Properties, L.L.C.,
a Delaware limited liability company

By: EOP Northwest Properties, Inc.
a Delaware corporation,
Its manager

By: /s/ John Gallander
--------------------------------
Name: John Gallander
-------------------------------
Title: Vice President - Leasing
------------------------------

TENANT: Ragen MacKenzie Incorporated,
a Washington corporation

By: /s/ Robert Mortell Jr.
---------------------------------------

Name: Robert J. Mortell Jr.
-------------------------------------

Title: Vice Chairman & COO
------------------------------------

GUARANTORS (and spouses):

None
-------------------------------------

6
<PAGE>

THIS PAGE IS REQUIRED IF PROPERTY IS IN DELAWARE,
MICHIGAN, OHIO, UTAH, WASHINGTON, D.C. OR WASHINGTON STATE

LANDLORD ACKNOWLEDGEMENTS

STATE OF Colorado )
COUNTY OF Arapahoe ) ss:

I, the undersigned, a Notary Public, in and for the County and State
aforesaid, do hereby certify that John Gailander, personally known to me to be
the Vice President Leasing of EOP Northwest Properties, Inc., a Delaware
corporation, manager of EOP Northwest Properties, L.L.C., a Delaware limited
liability company, and personally known to me to be the same person whose name
is subcribed to the foregoing instrument, appeared before me this day in person
and acknowledged that as such officer of said entity being authorized so to do,
(s)he executed the foregoing instrument on behalf of said entity, by subscribing
the name of such entity by himself/herself as such officer, as a free and
voluntary act, and as the free and voluntary act and deed of said entity, for
the uses and purposes therein set forth.

Given under my hand and official seal this 17 day of May 1999.

Notary Public /s/ Patricia Ann Reichle
------------------------
[SEAL]
Printed Name /s/ Patricia Ann Reichle
------------------------

My Commission Expires: 1.14.2001
---------------------------------

TENANT ACKNOWLEDGEMENTS
Corporation

STATE OF Washington )
COUNTY OF King ) ss:

On this the 19/th/ day of April, 1999, before me a Notary Public duly
authorized in and for the said County in the State aforesaid to take
acknowledgments personally appeared Robert J. Mortell Jr. known to me to be the
Vice Chairman and COO of Ragen Mackenzie Incorporated, one of the parties
described in the foregoing instrument, and acknowledged that as such officer,
being authorized so to do, (s)he executed the foregoing instrument on behalf of
said coporation by subscribing the name of such corporation by himself/herself
as such officer and caused the corporate seal of said corporation to be affixed
thereto, as a free and voluntary act, and as the free and voluntary act of said
corporation, for the uses and purposes therein set forth.
IN WITNESS THEREOF, I hereunto set my hand and official seal.

Notary Public /s/ Yvonne Carlson
------------------
[SEAL]
Printed Name /s/ Yvonne Carlson
------------------
My Commission Expires: 4.1.2000
--------

7
<PAGE>

EXHIBIT A

Floor Plan
Showing 05/15/99 Expansion Space

[FLOOR PLAN OF EXPANSION SPACE]

<PAGE>

EXHIBIT 21.1

RAGEN MACKENZIE GROUP INCORPORATED
REGISTRANT'S SUBSIDIARIES

Ragen MacKenzie Incorporated, a Washington corporation, and Ragen MacKenzie
Investment Services, Inc., a Washington corporation, are both wholly owned
subsidiaries of the registrant and are included in the consolidated financial
statements.

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No.
333-57571 of Ragen MacKenzie Group Incorporated on Form S-8 of our reports dated
November 18, 1999, appearing in this Annual Report on Form 10-K of Ragen
MacKenzie Group Incorporated for the year ended September 24, 1999.

DELOITTE & TOUCHE LLP

Seattle, Washington
December 20, 1999

<PAGE>

<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RAGEN
MACKENZIE'S SEPTEMBER 24, 1999 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-24-1999
<PERIOD-START> SEP-26-1998
<PERIOD-END> SEP-24-1999
<CASH> 4,972
<RECEIVABLES> 186,137
<SECURITIES-RESALE> 315,525
<SECURITIES-BORROWED> 2,026
<INSTRUMENTS-OWNED> 125,781
<PP&E> 3,093
<TOTAL-ASSETS> 648,534
<SHORT-TERM> 0
<PAYABLES> 355,878
<REPOS-SOLD> 38,050
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 119,255
<LONG-TERM> 0
0
0
<COMMON> 135
<OTHER-SE> 120,511
<TOTAL-LIABILITY-AND-EQUITY> 648,534
<TRADING-REVENUE> 28,789
<INTEREST-DIVIDENDS> 35,279
<COMMISSIONS> 34,015
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 6,355
<INTEREST-EXPENSE> 20,072
<COMPENSATION> 41,345
<INCOME-PRETAX> 24,091
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,942
<EPS-BASIC> 1.22
<EPS-DILUTED> 1.20

</TABLE>