<PAGE>
RULE NO. 424(b)(1)
REGISTRATION NO. 333-71087
PROSPECTUS
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
$100,000,000 Investment Debentures, Series III
- --------------------------------------------------------------------------------
You should consider carefully the risk factors beginning on page 8 in this
prospectus.
The Debentures are obligations of our company and they are not insured or
guaranteed by any governmental agency, any insurance company, any affiliate of
our company or any other person or entity.
- --------------------------------------------------------------------------------
Metropolitan is offering Debentures with the following terms:
. The Debentures are unsecured debt instruments, senior only to outstanding
equity securities of Metropolitan.
. The Debentures rank equally with unsecured debt of Metropolitan and are
subordinate to all other debt of Metropolitan.
<TABLE>
<CAPTION>
Minimum Annual
Investment Term To Maturity Interest Rate(1)
---------- ---------------- ----------------
<S> <C> <C>
$100 120 Months 8.000%
$100 96 to 119 Months 7.750%
$100 72 to 95 Months 7.500%
$100 60 to 71 Months 7.250%
$100 48 to 59 Months 6.500%
$100 36 to 47 Months 6.250%
$100 24 to 35 Months 6.000%
$100 12 to 23 Months 5.570%
$250,000 120 Months 8.500%
$250,000 96 to 119 Month 8.375%
$250,000 72 to 95 Months 8.250%
$250,000 60 to 71 Months 8.125%
Installment Payment Option
$2,000 60 to 120 Months 6.000%
</TABLE>
- --------
(1) You may elect one of three options to receive principal and interest
payments on the Debentures: (a) to receive interest monthly, quarterly,
semi-annually or annually, without compounding, (b) to leave the interest
with Metropolitan and it will compound semi-annually, or (c) at the above
identified installment terms, equal monthly installments of principal and
interest in accordance with an amortization schedule that you select.
<TABLE>
<CAPTION>
Per
Debenture Total
--------- -----
<S> <C> <C>
Public Offering Price.................... 100% $100,000,000
Underwriting Discounts and
Commissions(1).......................... 0% to 6% None-$6,000,000
Proceeds, before expenses, to Issuer or
Other Persons........................... 100% to 94% $100,000,000-$94,000,000
</TABLE>
- --------
(1) You will not incur a direct sales charge. Debentures earn interest, without
deduction for underwriting discounts or commissions. We will reimburse our
underwriters for commissions paid to licensed securities sales
representatives. Sales commission rates on the sale of Debentures depend
upon the terms of the sale and upon whether the sales are reinvestments or
new purchases. See "PLAN OF DISTRIBUTION."
. Currently, there is no trading market for the Debentures and you should not
expect one to be established in the future.
. The Debentures are being issued only in book-entry form.
. This offering of Debentures is subject to withdrawal or cancellation by
Metropolitan without notice.
. We are offering the Debentures on a continuous, best efforts basis.
. There is no minimum amount of Debentures that must be sold.
. You may not purchase Debentures pursuant to this prospectus after January 31,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
METROPOLITAN INVESTMENT SECURITIES, INC.
The date of this prospectus is February 9, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
FORWARD-LOOKING STATEMENTS................................................. 2
PROSPECTUS SUMMARY......................................................... 3
RISK FACTORS............................................................... 8
USE OF PROCEEDS............................................................ 9
DESCRIPTION OF DEBENTURES.................................................. 9
PLAN OF DISTRIBUTION....................................................... 12
LEGAL MATTERS.............................................................. 13
EXPERTS.................................................................... 13
AVAILABLE INFORMATION...................................................... 13
INCORPORATION BY REFERENCE................................................. 13
</TABLE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about Metropolitan, including, among other
things:
. Our anticipated growth strategies,
. Anticipated trends in our businesses, including trends in the markets for
insurance, mortgages, annuities and real estate,
. Future interest rate trends, movements and fluctuations,
. Future expenditures for purchasing receivables, and
. Our ability to continue to control costs and accurately price the risk of
default on the payment of receivables.
----------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information that
you should consider before investing in the Debentures. You should read both
the prospectus and the accompanying Annual Report of Metropolitan on Form 10-K
for the fiscal year ended September 30, 1998, carefully before making your
investment decision.
The Metropolitan Consolidated Group Of Companies
General
Metropolitan was incorporated in the State of Washington in January, 1953.
Its principal executive offices are located at 601 West First Avenue, Spokane,
Washington 99201-5015. Its mailing address is P.O. Box 2162, Spokane,
Washington 99210-2162 and its telephone number is (509) 838-3111. Metropolitan
and its subsidiaries are collectively referred to in this prospectus as the
"Consolidated Group," while references solely to the parent company will be to
"Metropolitan."
History
Metropolitan's controlling shareholder is C. Paul Sandifur, Jr. Mr. Sandifur
has control through his voting power over a family trust and through his direct
ownership of common stock. See "Item 12" in Metropolitan's Annual Report on
Form 10-K for the year ended September 30, 1998, which is attached to this
prospectus. As a result of Mr. Sandifur's common control, we have several other
affiliates, including Summit Securities, Inc., Old Standard Life Insurance
Company and Old West Annuity & Life Insurance Company. Collectively, these
affiliated companies are referred to as "Affiliated Companies." The chart on
the next page depicts the relationship of certain significant companies in the
Consolidated Group.
Business
The Consolidated Group is engaged in a nationwide business of acquiring,
holding and selling receivables. These receivables include real estate
contracts and promissory notes that are secured by first position liens on real
estate. The Consolidated Group also invests in receivables consisting of real
estate contracts and promissory notes secured by second and lower position
liens, structured settlements, annuities, lottery prizes, and other
investments. These assets are collectively referred to in this prospectus as
"Receivables." The Receivables secured by real estate are typically non-
conventional because they were either financed by the sellers of the properties
involved or they were originated by institutional lenders who originate loans
for borrowers with impaired credit or for non-conventional properties. In
addition to Receivables, the Consolidated Group invests in other assets,
including U.S. Treasury obligations, corporate bonds and other securities.
The Consolidated Group's capital to invest in these Receivables comes from
several sources. The Consolidated Group uses funds generated from the sale and
securitization of Receivables, collateralized borrowings, Receivable cash
flows, the sale of annuities, the sale of debentures and preferred stock, the
sale of real estate, and securities portfolio earnings.
The Consolidated Group provides services to the Affiliated Companies for a
fee and engages in various business transactions with the Affiliated Companies.
Metropolitan provides Receivable acquisition services to the Affiliated
Companies and to our insurance subsidiary, Western United Life Assurance
Company ("Western United"). Metropolitan's wholly owned subsidiary, Metwest
Mortgage Services, Inc., conducts Receivable collection and servicing
activities for the Affiliated Companies and services Receivables for
Metropolitan and for Western United.
3
<PAGE>
The Consolidated Group owns various properties acquired through repossession
and other sources. These properties are held for sale and/or development. For a
more detailed discussion of the business of the Consolidated Group, see "Item
1" in Metropolitan's Annual Report filed on Form 10-K for the year ended
September 30, 1998, which is attached to this prospectus.
Organizational Chart
(as of September 30, 1998)
[CHART APPEARS HERE]
METROPOLITAN MORTGAGE
& SECURITIES CO., INC.
|
|
_______________________________________________________________
| | |
100%| | 96.5%|
METWEST | CONSUMERS
MORTGAGE | GROUP HOLDING
SERVICES, INC. | CO., INC.
| |
| 100%|
| CONSUMERS
| INSURANCE
| CO., INC.
| |
| 75.5%|
| 24.5% WESTERN UNITED
|_______________________ LIFE ASSURANCE
COMPANY
The above chart lists the Consolidated Group's principal operating
subsidiaries and their ownership.
Metropolitan Mortgage & Securities Co., Inc.: Parent organization, invests
in Receivables and other investments, including real estate development, which
are principally funded by proceeds from Receivable investments, other
investments, and securities offerings.
Consumers Group Holding Co., Inc.: A holding company, its sole business
activity currently being that of a shareholder of Consumers Insurance Co., Inc.
Consumers Insurance Co., Inc.: Inactive property and casualty insurer, its
principal business activity currently being that of a shareholder of Western
United Life Assurance Company.
Western United Life Assurance Company: Metropolitan's largest subsidiary and
largest company within the Consolidated Group, is engaged in investing in
Receivables and other investments principally funded by annuity contract sales
and sales of life insurance policies.
Metwest Mortgage Services, Inc.: Performs loan origination, collection and
servicing functions. It is an FHA/HUD licensed servicer and lender, and is
licensed as a Fannie Mae seller/servicer.
- --------
* The remaining 3.5% of Consumers Group Holding Co., Inc. is owned by Summit
Securities, Inc.
4
<PAGE>
Offering Summary
Debenture Offering We are offering $100,000,000 in principal
amount of Investment Debentures, Series III.
They are being issued at the minimum investment
amounts, terms and rates set forth on the cover
page of this prospectus. There is no minimum
amount of Debentures that must be sold.
Debentures will be issued only in book-entry
form. See "DESCRIPTION OF DEBENTURES."
Debentures The Debentures are unsecured debt instruments
of Metropolitan. At September 30, 1998, we had
outstanding approximately $198,205,000
(principal and compounded and accrued interest)
of debenture debt and $125,702,000 (principal
and accrued interest) of collateralized debt
and similar obligations. See "CAPITALIZATION."
Principal and Interest You may elect one of three options to receive
Payments principal and interest payments on the
Debentures: (1) to receive interest monthly,
quarterly, semi-annually or annually, without
compounding, (2) to leave the interest with
Metropolitan and it will compound semi-
annually, or (3) for the installment
Debentures, equal monthly installments of
principal and interest in accordance with an
amortization schedule that you select. The
minimum investment amounts, terms and interest
rates on unissued Debentures offered hereby may
be changed from time to time by Metropolitan by
supplementing this prospectus. The terms of
Debentures issued prior to such change will not
be affected. See "DESCRIPTION OF DEBENTURES--
Payment of Principal and Interest."
Use of Proceeds We will use the proceeds from the sales of this
Debenture offering to invest in Receivables and
to make other investments, which may include
investments in existing subsidiaries, new
business ventures or to acquire other
companies. We may also use the proceeds to
retire maturing debentures, pay preferred stock
dividends, for property development and for
general corporate purposes. See "USE OF
PROCEEDS."
Risk Factors Your investment in the Debentures involves a
certain degree of risk. You should invest in
the Debentures only after reviewing the risks
described in this prospectus. See "RISK
FACTORS" for a complete discussion of the risks
associated with investing in the Debentures.
5
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Consolidated Group
at September 30, 1998.
<TABLE>
<CAPTION>
Amount
Class Outstanding
----- ------------
<S> <C>
Debt Payable:
Advances under funding facility with NationsBanc Mortgage
Capital Corp., interest at 6.625% per annum; due on March 24,
1999; collateralized by $122,129,000 in real estate contracts
and mortgage notes............................................ $118,342,972
Reverse repurchase agreements with Seattle Northwest; interest
at 5.57% per annum; due on October 1, 1998; collateralized by
$2,900,000 in U.S. Treasury Bonds............................. 2,892,750
Note payable to Summit Securities, Inc., interest at 11.0% per
annum; due on June 30, 1999; collateralized by $3,200,000 in
structured settlement agreements.............................. 2,560,000
Real estate contracts and mortgage notes payable, interest
rates ranging from 3% to 11.6% per annum, due through 2016;
collateralized by senior liens on certain of the Company's
real estate contracts, mortgage notes and real estate held for
sale.......................................................... 1,802,680
Accrued interest payable....................................... 103,909
------------
Total Debt Payable........................................... 125,702,311
============
Debenture Bonds:
Investment Debentures, Series II maturing in 1998 to 2002, at
5.5% to 11%................................................... 174,540,100
Investment Debentures Series I, maturing in 1997 to 2007 at
7.5% to 10.25%................................................ 732,900
Compound and accrued interest.................................. 22,932,294
------------
Total Debenture Bonds........................................ 198,205,294
============
Stockholders' Equity:
Preferred Stock................................................ 19,454,071
Common Stock................................................... 293,417
Additional paid-in capital..................................... 18,580,051
Net unrealized losses on investments........................... (680,619)
Retained earnings.............................................. 21,109,849
------------
Total Stockholders' Equity................................... 58,756,769
------------
Total Capitalization......................................... $382,664,374
============
</TABLE>
6
<PAGE>
Summary Consolidated Financial Data
The summary consolidated financial data shown below as of September 30, 1998
and 1997 and for the years ended September 30, 1998, 1997 and 1996 (other than
the ratio of earnings to fixed charges and preferred stock dividends) have been
derived from, and should be read in conjunction with, the consolidated
financial statements, related notes, and Management's Discussion and Analysis
of Financial Condition and Results of Operations appearing in Metropolitan's
Form 10-K, which is incorporated herein by reference and attached to this
prospectus. The consolidated financial data shown below as of September 30,
1996, 1995 and 1994 and for the years ended September 30, 1995 and 1994 (other
than the ratio of earnings to fixed charges and preferred stock dividends) have
been derived from the consolidated financial statements not included elsewhere
herein.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF INCOME DATA:
Revenues................ $ 155,955 $ 155,135 $ 156,672 $ 138,107 $ 138,186
========== ========== ========== ========== ==========
Income before minority
interest............... $ 10,453 $ 9,791 $ 8,146 $ 6,376 $ 5,702
Income allocated to
minority interests..... (126) (123) (108) (73) (224)
---------- ---------- ---------- ---------- ----------
Net income.............. 10,327 9,668 8,038 6,303 5,478
Preferred stock
dividends.............. (3,732) (4,113) (3,868) (4,038) (3,423)
---------- ---------- ---------- ---------- ----------
Income applicable to
common stockholders.... $ 6,595 $ 5,555 $ 4,170 $ 2,265 $ 2,055
========== ========== ========== ========== ==========
Ratio of earnings to
fixed charges.......... 1.75 1.77 1.46 1.35 1.29
Ratio of earnings to
fixed charges and
preferred stock
dividends(1)........... 1.37 1.31 1.14 1.03 1.04
PER COMMON SHARE
DATA(2):
Basic and diluted income
per share applicable to
common
stockholders(3)........ $ 50,728 $ 42,733 $ 32,073 $ 17,288 $ 14,996
========== ========== ========== ========== ==========
Weighted average number
of common shares
outstanding(2)......... 130 130 130 131 137
========== ========== ========== ========== ==========
Cash dividends per
common share........... $ 1,200 $ -- $ -- $ 3,800 $ 675
========== ========== ========== ========== ==========
CONSOLIDATED BALANCE
SHEET DATA:
Total assets............ $1,226,665 $1,112,389 $1,282,659 $1,078,468 $1,063,290
Debentures, line of
credit advances, other
debt payable and
securities sold, not
owned.................. 323,908 190,131 363,427 226,864 261,500
Stockholders' equity.... 58,757 54,113 46,343 40,570 32,625
</TABLE>
- --------
(1) The consolidated ratio of earnings to fixed charges and preferred stock
dividends was 1.37, 1.31, 1.14, 1.03, and 1.04 for the years ended September
30, 1998, 1997, 1996, 1995 and 1994, respectively.
Assuming no benefit from the earnings of its subsidiaries with the exception
of direct dividend payments, the ratio of earnings to fixed charges and
preferred dividends for Metropolitan alone was 1.10, 1.01, 1.11, 1.05, and
1.34 for the years ended September 30, 1998, 1997, 1996, 1995 and 1994,
respectively.
The consolidated ratio of earnings to fixed charges excluding preferred
stock dividends was as follows for the years ended September 30, 1998--1.75;
1997--1.77; 1996--1.46; 1995--1.35; and 1994--1.29. The ratio of earnings to
fixed charges excluding preferred stock dividends for Metropolitan, assuming
no benefit from the earnings of its subsidiaries with the exception of
direct dividend payments was 1.40, 1.36, 1.48, 1.40, and 1.36 for the years
ended September 30, 1998, 1997, 1996, 1995 and 1994, respectively.
(2) All information retroactively reflects the reverse common stock split of
2,250:1 which occurred during the fiscal year ended September 30, 1994.
(3) Earnings per common share, basic and diluted, are computed by deducting
preferred stock dividends from net income and dividing the result by the
weighted average number of shares of common stock outstanding. There were no
common stock equivalents or potentially dilutive securities outstanding
during any year presented.
7
<PAGE>
RISK FACTORS
When deciding whether or not to purchase the Debentures, you should
carefully consider the risks set forth in the section entitled "INTRODUCTION--
Factors Affecting Future Operating Results" of Metropolitan's Annual Report on
Form 10-K for the year ended September 30, 1998, incorporated into and attached
to this prospectus. You should also consider the following risks associated
with an investment in the Debentures:
The Indenture does not Metropolitan's and your rights and
restrict the ability of obligations in the Debentures are defined in
Metropolitan to incur an indenture dated as of July 6, 1979, and a
additional debt supplement to that indenture dated as of
December 31, 1997. The indenture does not
restrict our ability to issue additional
debentures or to incur other debt. We are not
required to maintain any specified financial
ratios, minimum net worth, minimum working
capital or a sinking fund.
Debentures are not insured The Debentures offered in this prospectus are
against the risk of loss unsecured obligations of our company and they
are not insured or guaranteed by any bank,
any governmental agency, any insurance
company, any affiliate of our company or any
other person or entity. Thus, the Debentures
have greater risk than investments that are
insured by such entities against the risk of
loss.
Debentures are not a liquid There is no trading market for the Debentures
investment due to the absence and it is not anticipated that one will
of an established trading develop. Generally, you cannot have your
market Debentures redeemed until they mature. There
are only limited situations in which
Debentures will be redeemed early. These may
include situations where there is a mutual
agreement between you and Metropolitan, or
when the "prepayment on death" provision
applies. You should consider your needs for
liquidity before investing in the Debentures
and you should be prepared to hold any
Debentures purchased in this offering until
their maturity. See "DESCRIPTION OF
CERTIFICATES."
Risks with holding book-entry Our use of book-entry Debentures rather than
Debentures because there are actual physical certificates in this offering
no physical certificates to could limit the markets for these securities,
transfer prevent a secondary market from forming and
could delay payments to you. The absence of
physical certificates for the Debentures may
prevent a secondary market from developing
because investors may be unwilling to invest
in securities if they cannot obtain delivery
of physical certificates. The use of book-
entry certificates may delay payments to you
because distributions on the Debentures would
be made first to the person in whose name the
certificates are registered.
Possible inability to continue The State of Washington regulates the amount
selling securities of securities that Metropolitan can sell
under the Debenture Company Act. Under that
Act, the amount of securities that can be
sold can be, and has previously been, limited
by the State of Washington. Because of this
limitation, we may be restricted in the
amount of securities that we are able to
offer in this offering or in future
offerings.
8
<PAGE>
USE OF PROCEEDS
If all the Debentures offered are sold, we expect net proceeds to total
$100,000,000 before deducting sales commissions and other expenses. Sales
commissions will range from zero to six percent (0%-6%) of the offering
proceeds (between $0 and $6,000,000), depending on the maturities of
Debentures sold and whether sales are reinvestments or new purchases. Other
expenses are estimated to be $215,000. There can be no assurance that any of
the Debentures can or will be sold.
In conjunction with the other funds available to us through operations
and/or borrowings, we currently plan to utilize the proceeds of the Debenture
offerings for the following purposes: priority will be given first to
(i) funding investments in Receivables and other investments, which may
include investments in existing subsidiaries, the commencement of new business
ventures or the acquisition of other companies, and then to (ii) the
development of real estate currently held by Metropolitan or acquired in the
future. Presently there are no commitments or agreements for material
acquisitions. However, the Consolidated Group continues to evaluate possible
acquisition candidates. To the extent internally generated funds are
insufficient or unavailable for the retirement of maturing debentures through
the period ending January 31, 2000, proceeds of this offering may be used for
retiring maturing debentures, preferred stock dividends and for general
corporate purposes, including debt service and other general operating
expenses. Approximately $48.0 million in principal amount of debt securities
will mature between February 1, 1999 and January 31, 2000 with interest rates
ranging from 6.1% to 10.25% and averaging approximately 7.9% per annum. See
"BUSINESS--Factors Affecting Future Operating Results" under Item 1 in our
Annual Report on Form 10-K for the year ended September 30, 1998.
Management anticipates that some of the proceeds from this offering will be
invested in money market funds, bank repurchase agreements, commercial paper,
U.S. Treasury Bills and similar securities investments while awaiting use as
described above. Due to our inability to accurately forecast the total amount
of Debentures to be sold in this offering, no specific amounts have been
allocated for any of the foregoing purposes.
In the event substantially less than the maximum proceeds are obtained, we
do not anticipate any material changes to our planned use of proceeds from
those described above.
DESCRIPTION OF DEBENTURES
General
The Debentures will be issued under an indenture dated as of July 6, 1979
and a supplement thereto dated as of December 31, 1997 (collectively, the
"Indenture"). The following statements relating to the Debentures and the
Indenture are summaries and do not purport to be complete. Such summaries are
subject to the detailed provisions of the Indenture and are qualified in their
entirety by reference to the Indenture, a copy of which is filed as an exhibit
to the Registration Statement and is also available for inspection at the
office of the trustee.
The Debentures will represent unsecured general obligations of Metropolitan
and will be issued in book-entry form without coupons, in fractional
denominations of $0.01 or more subject to the stated minimum investment amount
requirements. The Debentures will be sold to the public at 100% of their
principal amount. The Debentures will be issued in accordance with the minimum
investment amounts, maturities and interest rates set forth on the cover page
of this prospectus. The stated interest rates, maturities, and minimum
investment amounts of any unissued Debentures may be changed at any time by
Metropolitan by supplementing this prospectus. Any such change will have no
effect on the terms of the previously sold Debentures.
Debentures may be transferred or exchanged for other Debentures of the same
series, of a like aggregate principal amount, subject to the limitations set
forth in the Indenture. No service charge will be made for any transfer or
exchange of Debentures. Metropolitan may require payment of taxes or other
governmental charges imposed in connection with any such transfer or exchange.
Interest will accrue at the stated rate from the date of issue until maturity.
The Debentures are not convertible into capital stock or other securities of
Metropolitan.
9
<PAGE>
The Debentures are not subject to redemption prior to maturity, but may be
prepaid pursuant to the prepayment on death provision described below. Also,
in limited circumstances involving an investor's demonstrated financial
hardship, subject to regulatory restrictions affecting redemptions and
exchanges of securities during an offering, Metropolitan may, in its sole
discretion, consider a request for an early payout of a Debenture upon terms
mutually agreed to by the holder of the Debenture and Metropolitan. Such early
payout requests are reviewed in the order received and are subject to the
review by Metropolitan's executive management.
Payment of Principal and Interest
Interest will be payable to Debenture holders under one of several interest
payment plans. The purchaser selects an interest payment plan at the time the
Debentures are purchased and can change this plan at any time by giving
written notice to Metropolitan. The purchaser may elect to have interest paid
on a monthly, quarterly, semi-annual or annual basis, without compounding. Or,
an investor may elect to leave the accrued interest with Metropolitan in which
case it will compound semi-annually at the stated interest rate. Under the
compounding option, upon written notice to Metropolitan, the Debenture
holder(s) may withdraw the interest accumulated during the last two completed
semi-annual compounding periods as well as the interest accrued from the end
of the last compounding period to the date Metropolitan receives the notice.
Amounts compounded prior to the last two semi-annual compounding periods are
available only at maturity.
Alternatively, at the election of the Debenture holder, at the time of
investment and subject to the minimum term and investment requirements set
forth on the cover page of this prospectus, level monthly installments
comprised of principal and interest will be paid to the Debenture holder
commencing 30 days from date of issue of the Debenture until maturity. The
amount of each installment will be determined by the amortization term
designated by the Debenture holder at the time the Debenture is purchased.
Debenture holders are notified in writing between 15 and 45 days prior to
the date their Debentures will mature. When a Debenture matures, the amounts
due on maturity are placed in a separate bank trust account until paid to the
registered owner(s). Debentures do not earn interest after the maturity date.
Metropolitan will pay the principal and accumulated interest due on matured
Debentures to the registered owner(s) in cash at Metropolitan's main office in
Spokane, Washington or by check mailed to the address designated by the
registered owner.
Prepayment on Death
In the event of the death of a Debenture holder, any party entitled to
receive some or all of the proceeds from that Debenture may elect to have his
or her portion of the principal and any accrued but unpaid interest prepaid in
full in five consecutive equal monthly installments. Interest will continue to
accrue on the declining principal balance of such portion. No interest penalty
will be assessed. Any request for prepayment shall be made to Metropolitan in
writing and shall be accompanied by evidence satisfactory to Metropolitan of
the death of the registered owner or joint registered owner. Before
prepayment, Metropolitan may require the submission of additional documents or
other material which it may consider necessary to determine the portion of the
proceeds the requesting party is entitled to receive, or assurances which, in
Metropolitan's discretion, it considers necessary to fulfill its obligations.
Related Indebtedness
The Indenture pursuant to which the Debentures are issued does not restrict
Metropolitan's ability to issue additional debentures or to incur other debt.
The Indenture does not require Metropolitan to maintain any specified
financial ratios, minimum net worth or minimum working capital. There is no
sinking fund for the redemption of the Debentures. Debentures will not be
guaranteed or insured by any governmental agency. The State of Washington
regulates the amount of debt securities Metropolitan may issue, its debt to
equity ratio, certain of its investments and various other aspects of its
business. At September 30, 1998, Metropolitan had
10
<PAGE>
outstanding approximately $198,205,000 (principal and compounded and accrued
interest) of debenture debt and $125,702,000 (principal and accrued interest)
of collateralized debt and similar obligations. The Debentures offered hereby
are senior in liquidation to all outstanding equity securities of
Metropolitan. They are subordinate to Metropolitan's collateralized debt as
set forth above and are on a parity with unsecured accounts payable and
accrued liabilities. There are no limitations on Metropolitan's ability to
incur additional collateralized debt. Debenture holders should not rely on the
terms of the Indenture for protection of their investment, but should look
rather to the creditworthiness of Metropolitan and its ability to satisfy its
obligations.
Concerning the Trustee
Seattle First National Bank ("SFNB") was the trustee (the "Trustee") under
the Indenture until March 8, 1996, when SFNB sold its trust activities to
First Trust National Association ("First Trust") which assumed all of the
duties of the Trustee pursuant to the terms of the Indenture, as amended.
First Trust was acquired by US Bank National Association ("US Bank") in 1998.
US Bank has assumed all of the duties of the Trustee in accordance with the
terms of the Indenture, as amended. The Trustee is obligated under the
Indenture to oversee and, if necessary, to take action to enforce fulfillment
of Metropolitan's obligations to Debenture holders. The Trustee is a national
banking association with a combined capital and surplus in excess of $100
million. Metropolitan and certain of its affiliates may maintain deposit
accounts with and may, from time to time, borrow money from the Trustee and
conduct other banking transactions with it. At September 30, 1998, and as of
the date of this prospectus, no loans from the Trustee were outstanding. In
the event of default, the Indenture permits the Trustee to become a creditor
of Metropolitan and does not preclude the Trustee from enforcing its rights as
a creditor, including rights as a holder of collateralized indebtedness.
Rights and Procedures in the Event of Default
Events of default include (i) the failure of Metropolitan to pay interest
on any Debenture for a period of 30 days after it becomes due and payable;
(ii) the failure to pay the principal or any required installment thereof of
any Debenture when due; (iii) the failure to perform any other covenant in the
Indenture for 60 days after notice; and (iv) certain events of bankruptcy,
insolvency or reorganization with respect to Metropolitan. Upon the occurrence
of an event of default, either the Trustee or the holders of 25% or more in
principal amount of Debentures then outstanding may declare the principal of
all the Debentures outstanding to be immediately due and payable.
The Trustee must give the Debenture holders notice by mail of any default
within 90 days after the occurrence of the default, unless it has been cured
or waived. The Trustee may withhold such notice if it determines in good faith
that such withholding is in the best interests of the Debenture holders,
unless the default is a failure to pay principal or interest on any Debenture.
Subject to certain conditions, any such default, except for a failure to
pay principal or interest when due, may be waived by the holders of a majority
in aggregate principal amount of the Debentures then outstanding. Such holders
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or of exercising any power
conferred on the Trustee, except as otherwise provided in the Indenture. The
Trustee may require reasonable indemnity from holders of Debentures before
acting at their direction.
Within 120 days after the end of each fiscal year, Metropolitan must
furnish to the Trustee a statement of certain officers of Metropolitan
concerning their knowledge as to whether or not Metropolitan is in default
under the Indenture.
Modification of the Indenture
Debenture holders' rights may be modified with the consent of the holders
of 66 2/3% of the outstanding principal amounts of Debentures, and 66 2/3% of
those series specifically affected. In general, no adverse
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modification of the terms of payment and no modifications reducing the
percentage of Debentures required for modification is effective against any
Debenture holder without his or her consent.
Restrictions on Consolidation, Merger and Other Fundamental Corporate Changes
Metropolitan may not consolidate with or merge into any other corporation
or transfer substantially all its assets unless either Metropolitan is the
continuing corporation after such consolidation or merger or the person
acquiring by conveyance or transfer of such assets shall be a corporation
organized and existing under the laws of the United States or any state
thereof which assumes the performance of every covenant of Metropolitan under
the Indenture and certain other conditions precedent are fulfilled.
Transfer Agent and Registrar
Metropolitan acts as its own transfer agent and registrar of the
Debentures.
PLAN OF DISTRIBUTION
The Debentures are offered directly to the public on a continuing best
efforts basis through Metropolitan Investment Securities, Inc. ("MIS"), which
is affiliated with Metropolitan through the common control by C. Paul Sandifur
Jr. Accordingly, the offering has not received the independent selling agent
review customarily made when an unaffiliated selling agent offers securities.
No commission or other expense of the offering will be paid by the purchasers
of the Debentures. A commission will, however, be paid by Metropolitan on most
Debenture purchases up to a maximum amount of 6% of the Debenture price,
generally depending on the term of the Debenture and whether or not the
transaction is a reinvestment or new purchase. Debentures are offered only for
cash or cash equivalents. MIS will transmit such funds directly to
Metropolitan by noon of the next business day after receipt. During the three
fiscal years ended September 30, 1998, MIS has received commissions of
$3,698,362 from Metropolitan on sales of approximately $112,685,000 of
Metropolitan's debt securities.
MIS is a member of the National Association of Securities Dealers, Inc.
(the "NASD"). Due to the affiliation of Metropolitan and MIS, Rule 2720 of the
NASD Conduct Rules requires, in part, that a qualified independent underwriter
be engaged to make a recommendation regarding the interest rates to be paid on
the Debentures offered by this prospectus. Accordingly, MIS has obtained a
letter from Cruttenden Roth Incorporated ("Cruttenden"), a NASD member,
stating that the interest rates on the Debentures using a formula tied to
corresponding interest rates paid by the U.S. Treasury and regional financial
institutions are consistent with Cruttenden's recommendations which were based
on conditions and circumstances existing as of the date of the prospectus.
Metropolitan undertakes to maintain the interest rates on Debentures no lower
than those recommended by Cruttenden based on the formula. Accordingly, the
yield at which the Debentures will be distributed will be no lower than that
recommended by Cruttenden. Cruttenden has assumed the responsibilities of
acting as the qualified independent underwriter in pricing the offering and
conducting due diligence. For performing its functions as a qualified
independent underwriter with respect to the Debentures offered hereunder,
Cruttenden is to be paid $66,667.00 in fees.
The Registrant has agreed to indemnify Cruttenden against, or make
contributions to Cruttenden with respect to certain liabilities under the
Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as
amended.
There is not now and Metropolitan does not expect that there will be a
public trading market for the Debentures in the future. MIS does not intend to
make a market for the Debentures. See "RISK FACTORS."
MIS may enter into selected dealer agreements with and reallow to certain
dealers, who are members of the NASD, and certain foreign dealers who are not
eligible for membership in the NASD, a commission of up to 6% of the principal
amount of Debentures sold by such dealers.
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LEGAL MATTERS
Certain legal matters relating to the Debentures to be offered by this
prospectus will be passed upon for Metropolitan by the law firm of Kutak Rock,
Denver, Colorado.
EXPERTS
The consolidated balance sheets of Metropolitan Mortgage & Securities Co.,
Inc. and its subsidiaries as of September 30, 1998 and 1997, and the
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended September 30, 1998, incorporated by
reference in this prospectus, have been incorporated herein in reliance on the
report, which includes an explanatory paragraph describing changes in the
methods of accounting for the transfer and servicing of financial assets in
1997 and impaired loans in 1996, of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
Metropolitan is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information
filed by Metropolitan with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission in Washington, D.C. at
450 Fifth Street, N.W., Washington, DC 20549 and at certain of its regional
offices which are located in the New York Regional Office, Seven World Trade
Center, Suite 1300, New York, NY 10048, and the Chicago Regional Office,
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511.
In addition, the Commission maintains a World Wide Web site that contains
reports, proxy statements and other information regarding registrants such as
Metropolitan, that filed electronically with the Commission at the following
Internet address: (http://www.sec.gov).
Metropolitan has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement on Form S-2 under the Securities Act
of 1933, as amended, with respect to the Debentures offered hereby. This
prospectus does not contain all of the information set forth in the
Registration Statement, as permitted by the rules and regulations of the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document filed with the Commission is incorporated herein by
reference in this prospectus:
Annual Report on Form 10-K for the fiscal year ended September 30, 1998
(filed January 13, 1999).
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
Metropolitan will provide without charge to each person, including to whom a
prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information that has been referenced in this prospectus
other than exhibits to such documents. Requests for such copies should be
directed to Corporate Secretary, Metropolitan Mortgage & Securities Co., Inc.,
PO Box 2162, Spokane, Washington 99210-2162, telephone number (509) 838-3111.
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Metropolitan Mortgage & Securities Co., Inc.
[LOGO] METROPOLITAN MORTGAGE & SECURITIES CO., INC.
$100,000,000 Investment Debentures, Series III
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PROSPECTUS
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February 9, 1999
Metropolitan Investment Securities, Inc.
