RUSHMORE FINANCIAL GROUP INC, 424B3, 1998-02-19

RUSHMORE FINANCIAL GROUP INC
424B3, 1998-02-19
INSURANCE AGENTS, BROKERS & SERVICE

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<PAGE>

Filed pursuant to Rule 424(b)(3)
SEC File No. 333-42225

PROSPECTUS
FEBRUARY 17, 1998

UP TO 1,250,000 SHARES

RUSHMORE FINANCIAL GROUP, INC.

[LOGO OF RUSHMORE FINANCIAL GROUP APPEARS HERE]

COMMON STOCK

Rushmore Financial Group, Inc., a Texas corporation ("Rushmore" or the
"Company"), is offering for sale a minimum of 750,000 shares and a maximum of
1,250,000 shares of its common stock, par value $0.01 per share (the "Common
Stock"). The offering made hereby is referred to as the "Offering."

Prior to this Offering, there has been no public market for the Common
Stock. The initial Price to Public is $5.50 per share. For a discussion of the
factors considered in determining the Price to Public for the Common Stock,
see "Underwriting." Following the Offering, it is expected that the Common
Stock will trade in the over-the-counter market and will be quoted on the
Nasdaq SmallCap Market under the symbol "RFGI". See "Underwriting."

SEE "RISK FACTORS" BEGINNING ON PAGE 6, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $5.50 $0.44 $5.06
- --------------------------------------------------------------------------------
Minimum Total.............................. $4,125,000 $330,000 $3,795,000
- --------------------------------------------------------------------------------
Maximum Total.............................. $6,875,000 $550,000 $6,325,000
- --------------------------------------------------------------------------------
</TABLE>

(1) The Company has agreed to issue to First Southwest Company as the
Representative of the Underwriters warrants exercisable for five years
after the first anniversary of the date hereof, to purchase 50,000 shares
of Common Stock at 110% of the Price to Public per share. For information
concerning indemnification arrangements with the Underwriters and other
compensation payable to the Representative, see "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $300,000.

The shares of Common Stock are offered by the several Underwriters named
herein on a best efforts basis. In the event the Underwriters have not sold a
minimum of 750,000 shares within 45 days after the date of this Prospectus,
unless extended by agreement between the Underwriters and the Company for an
additional 15 days, this Offering will terminate and all subscription funds
will promptly be returned in full to subscribers, with interest.

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to reject any
order in whole or in part. It is expected that delivery of the shares of
Common Stock will be made at the offices of First Southwest Company, Dallas,
Texas, within ten days after completion of the Offering, which will in no
event occur more than 70 days after the date of this Prospectus. There will be
no interim closing upon reaching the minimum offering.

FIRST SOUTHWEST COMPANY RUSHMORE SECURITIES CORPORATION
<PAGE>

[Logo of Rushmore Financial Group appears here]

[Map of United States showing headquarters, branch offices and states
represented.]

Rushmore Financial Group is expanding
across the United States through its
network of Securities Representatives
and insurance agents.

Rushmore Securities Licensed States

Independent Insurance Agents

<PAGE>

[Photo]
[Logo of Rushmore Financial Group
appears here]

Kimberly Greely - Marketing Assistant
G.A. Brunott, Jr. - President of Rushmore Agency

The Company's investment services business consists of securities brokerage
services, mutual fund distribution, variable life insurance and annuities
sales and other financial services offered by Rushmore Securities Corporation,
which has 115 registered representatives in 27 states. In addition, Rushmore
Investment Advisores, Inc. provides fee-based advisory services, using a
proprietary asset allocation program known as RushMap.

[Photo]

Deanna Moncus - Director of Compliance and Licensing
Clifton Sneed - Independent Insurance Agent

[Organizational chart appears here]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
INCLUDING ENTERING STABILIZING BIDS. SUCH TRANSACTIONS MAY BE EFFECTED IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. FOR A DESCRIPTION OF THESE ACTIVITIES
SEE "UNDERWRITING."
<PAGE>

[Photo]

D.M. (Rusty) Moore, Jr. - President and CEO of Rushmore, Jim W. Clark -
President of Rushmore Securities, F.E. (Fritz) Mowery - President of Rushmore
Advisors, Thomas G. Coleman, Jr. - Vice President of Rushmore Securities

[Photo]

Benjamin H. Dean - Director of RushMAP, Randi Floyd - Administrative Assistant
Bob Waggoner - Director of Funds Management
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated all share and per share data have been adjusted to give
effect to a one for two reverse stock split in October 1997. All references to
the "Company" or "Rushmore" refer to Rushmore Financial Group, Inc. and its
subsidiaries. See the "Glossary of Insurance Terms" on page G-1 for a
definition of certain insurance related terms used herein.

THE COMPANY

Rushmore is a financial services holding company formed as a Texas
corporation in September 1990 that provides a wide range of investment and
insurance services and products to its clients through a national distribution
network of 115 securities representatives operating in 27 states and more than
1,300 insurance agents in 39 states. The Company believes that it is well
positioned to take advantage of demographic trends in the aging of America and
the increasing overlap of investment services with other financial security
products. The Company's activities in these two complementary sectors of the
financial services industry, investment services and insurance services, allow
Rushmore to provide a full range of financial services to its clients and
enhance the cross-selling opportunities of its select product lines.

The Company's investment services business consists of securities brokerage
services, mutual fund distribution, variable life insurance and annuities sales
and other financial services offered by Rushmore Securities Corporation, a
Texas corporation formed in July 1980 ("Rushmore Securities"), which has 115
registered representatives operating in 27 states. In addition, Rushmore
Investment Advisors, Inc., a Texas corporation formed in January 1996
("Rushmore Advisors"), provides fee-based advisory services, using a
proprietary asset allocation program known as RushMap.

The Company's insurance services business selects and markets a wide range of
life, disability, accident and health insurance and annuity products
distributed through 22 exclusive and more than 1,300 independent agents of its
affiliated agency, Rushmore Insurance Services, Inc., a Texas corporation
formed in May 1991 ("Rushmore Agency"). Rushmore Agency is owned by D. M.
Moore, Jr., the Company's President and Chief Executive Officer, due to
regulatory requirements that prohibit a corporation from owning a life
insurance agency in Texas. Although the financial statements of Rushmore Agency
are not consolidated with those of the Company, all revenues and expenses are
passed through to the Company under an Overhead Services Agreement. See "The
Company" and Note 2 to the Financial Statements of the Company. In addition,
Rushmore Life Insurance Company, an Arizona life insurance company formed in
January 1989 ("Rushmore Life"), acquires and coinsures up to a 50% interest in
the policies written through representatives of Rushmore Agency that are issued
by full-line life insurance companies that have entered into modified
coinsurance agreements with Rushmore Life. One additional subsidiary, Rushmore
Financial Corporation, was formed in November 1993 to act as a mortgage
company, and was discontinued in March 1997. See "The Company" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Discontinued Operations."

As of September 30, 1997, the Company's total assets were $35,681,066 and
shareholders' equity was $1,404,712.

GROWTH STRATEGY

The Company's growth strategy focuses on expanding its national distribution
network and continually identifying and evaluating new products and acquisition
opportunities that are consistent with the Company's objective to provide a
full range of financial products and services. Over the past ten years, the
amount invested by the public in retirement and other financial security
products and services has grown over 185%. According to the Federal Reserve
Board of Governors, in 1986 the total amount invested in retirement and other
financial security products by households and non-profit organizations was
approximately $7.16 trillion, as compared to over $20.45 trillion at year end
1996, an 11.1% compounded annual growth rate. The Company's objective is to
capture an increasing share of the commission revenues and assets related to
the investment and insurance services industry. The key components of
Rushmore's growth strategy include:

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<PAGE>

. expanding its distribution network by recruiting and retaining high
quality and productive agents and representatives, including both
exclusive "Career Partners" insurance agents and registered securities
representatives and independent insurance agents;

. providing its sales force with a wide range of financial products and
services, including exclusive insurance and investment products;

. offering incentives to its agents and employees including favorable
commission structures, stock option plans and award programs to attract
and retain a loyal base of highly motivated personnel;

. upgrading its management information system to allow its agents and
representatives to maintain an efficient and orderly flow of sales
orders; and

. acquiring other insurance, securities and investment advisory firms and
complementary financial services companies.

The Company's primary goal through these components is to enhance shareholder
value by building a base of fully integrated financial service professionals
and a loyal, well served clientele. See "Business."

The Company's principal executive offices are located at 650 One Galleria
Tower, 13355 Noel Road, Dallas, Texas 75240, and its telephone number is (972)
450-6000. The Company's website is http://www.rushmark.com.

RECENT DEVELOPMENTS

In May 1997 the Company commenced a private placement of Common Stock to
raise operating capital. Such offering closed in November 1997, and the Company
sold 175,758 shares at a price of $1.92 per share. Because of the proximity of
the closing to this Offering and because employees and independent agents were
among the purchasers of the Common Stock, the Company will record a one-time
expense for stock-based compensation in the fourth quarter of 1997 in the
amount of $300,533.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the
Company
Minimum.................... 750,000 shares
Maximum.................... 1,250,000 shares
Common Stock to be
outstanding after the
Offering(1)(2)
Minimum.................... 2,854,877 shares
Maximum.................... 3,354,877 shares
Estimated net proceeds(3)
Minimum.................... $3,495,000
Maximum.................... $6,025,000
Use of proceeds.............. Invest $300,000 in Rushmore Life's capital
surplus, allocate $1,625,000 to $2,550,000 to
Rushmore Agency to support the addition of new
agents through internal growth and acquisitions,
allocate $625,000 to $1,550,000 to Rushmore
Securities to support the addition of new
representatives through internal growth and
acquisitions, allocate $500,000 to Rushmore
Advisors to add new marketing and advisory
personnel, and use the balance to provide
additional operating capital. See "Use of
Proceeds".
Proposed Nasdaq SmallCap
Market Symbol............... RFGI
</TABLE>
- --------
(1) Excludes 178,573 shares of Common Stock subject to stock options with an
exercise price averaging $1.34 per share and warrants to the Representative
to acquire 50,000 shares of Common Stock. Does not include any Preferred
Stock outstanding. See "Capitalization," "Management--1997 Stock Option
Plan," and "--1993 Option Plan" and "Underwriting."
(2) Includes 99,389 shares issued after September 30, 1997.
(3) After subtracting underwriting discounts and commissions and estimated
offering expenses payable by the Company.

4
<PAGE>

SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL AND OPERATING INFORMATION OF THE COMPANY

The following table sets forth certain summary consolidated historical and
pro forma financial and operating information of the Company. See "Selected and
Pro Forma Consolidated Financial Information," "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The following information should be read in conjunction with the
financial statements and the notes thereto presented elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
------- --------- ------- ------------ ------------ -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues from investment
services............... $ 828 $ 857 $ 1,523 $ 1,523 $ 999 $ 1,724 $ 1,693
Revenues from insurance
services............... 191 152 347 6,346 286 3,216 4,800
Total revenues.......... 1,031 1,020 1,885 7,884 1,297 4,981 6,535
Investment services
expense................ 749 787 1,325 1,325 865 1,485 1,485
Insurance services
expense................ (44) 33 13 6,194 32 2,867 4,429
General and
administrative
expenses............... 346 431 663 663 512 630 630
------- ------- ------- ---------- ------- -------- --------
Total expenses........ 1,051 1,251 2,001 8,182 1,409 4,982 6,544
Loss from continuing
operations............. (20) (234) (120) (302) (116) (5) (14)
Net loss................ (31) (210) (171) (158) (149) (31) (14)
Net income (loss)
applicable to common
shareholders........... (36) (216) (181) (168) (155) (44) (26)
Net income (loss) per
share of common stock
after dividends on
preferred stock........ (.09) (.18) (.13) (.09) (.11) (.03) (.01)
OTHER DATA:
Insurance agents........ 839 1,127 1,271 1,271 1,249 1,341 1,341
States represented.... 32 36 38 38 38 39 39
Securities
representatives........ 97 112 105 105 105 125 125
States represented.... 10 13 23 23 23 24 24
Insurance in force...... -- -- -- $1,018,723 -- $978,480 $978,480
Insuance in force
retained net of
reinsurance
agreements............. -- -- -- 435,442 -- 420,132 420,132
Premium income.......... -- -- -- 5,237 -- 2,845 3,949
Funds under management
Discretionary......... -- -- 4,650 4,650 2,976 13,431 13,431
Non-discretionary..... 18,960 45,221 67,763 67,763 59,030 89,452 89,452
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------ ----------------------------------
AS ADJUSTED, AS ADJUSTED,
ACTUAL PRO FORMA ACTUAL MINIMUM MAXIMUM
------- --------- ------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents.... $ 118 $ 1,368 $ 1,426 $ 4,921 $ 7,451
Amounts on deposit with
Insurers............... -- 28,095 28,894 28,894 28,894
Total assets............ 543 35,744 35,681 39,176 41,706
Policy reserves......... -- 33,436 33,258 33,258 33,258
Total indebtedness...... 39 39 48 48 48
Shareholders' equity.... 351 1,409 1,405 4,900 7,430
</TABLE>

5
<PAGE>

FORWARD-LOOKING INFORMATION

This Prospectus contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available
to the Company's management. When used in this Prospectus, words such as
"anticipate," "believe," "estimate," "expect," "intend," "should" and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the operations, results of
operations, liquidity and growth strategy of the Company, including
competitive factors and pricing pressures, changes in legal and regulatory
requirements, interest rate fluctuations, and general economic conditions, as
well as other factors described in this Prospectus. Should one or more of the
risks materialize, or should underlying assumptions prove incorrect, actual
results or outcomes may vary materially from those described herein as
anticipated, believed, estimated, expected or intended.

RISK FACTORS

In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the
Company and its business before purchasing shares of Common Stock offered
hereby. Each of the following factors may have a material adverse effect on
the Company's operations, financial results, financial condition, liquidity,
market valuation or market liquidity in future periods.

Historical Loss From Operations

The Company began operations in 1991 and has experienced losses from
operations in five of the last six years. For the year ended December 31,
1996, the Company incurred a net loss applicable to common shareholders of
$180,778, and as of such date, the Company's accumulated deficit in retained
earnings was $531,246. For the nine months ended September 30, 1997, the
Company incurred a net loss applicable to common shareholders of $43,545, and
the Company anticipates that it will incur a net loss in the fourth quarter of
1997 including a one-time charge for stock-based compensation expense of
$300,533. The Company will continue to incur substantial costs related to its
continued growth, and there can be no assurance that the Company will achieve
targeted levels of growth or profitability in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation."

Regulatory Exposure

The Company operates in two of the most highly regulated industries in the
United States, the insurance and securities businesses. Detailed restrictions
and guidelines promulgated and enforced by regulatory agencies govern
virtually every aspect of the Company's operations, as well as the operations
of Rushmore Securities and Rushmore Advisors. Violations of these rules and
regulations can result in fines, suspension or revocation of licenses and
other disciplinary action and could have a material adverse effect on the
success and profitability of the Company. The regulatory agencies involved
include the Securities and Exchange Commission ("SEC"), the National
Association of Securities Dealers, Inc. ("NASD"), the Texas State Securities
Board and other state securities and insurance regulators. For example, the
SEC and NASD require Rushmore Securities, a broker/dealer, to supervise its
sales representatives' conduct and to maintain a minimum liquid net worth at
all times and to impose, among others, "sales practices" rules which regulate
sales representatives' conduct, investor suitability rules, escrow funds
handling, and stringent record retention requirements.

Rushmore Life is subject to laws and regulations of the Arizona Department
of Insurance applicable to life insurance companies, including laws and
regulations requiring approval of changes in the control of Rushmore Life,
approval of transactions between Rushmore Life and its affiliates and
limitations on the payment of dividends.

Rushmore Agency is subject to the laws and regulations of the Texas
Department of Insurance and other states in which it conducts business,
including laws and regulations regarding agent background qualifications,
licensing, sales practices and relations with insurance companies it
represents.

6
<PAGE>

The Company's emphasis on growth coupled with the challenges of managing its
business could result in increased exposure to regulatory violations. Although
the Company has formal controls in effect to prevent violation of applicable
rules and regulations, there can be no assurance that these controls will be
sufficient to manage a larger and more complex business in the future. The
Company believes that, as of the date of this Prospectus, it is in material
compliance with all laws, rules and regulations. See "Business--Regulation."

Rushmore Agency Option Agreement

Texas insurance law does not permit a life insurance agency to be owned by a
corporation. As a result, Rushmore Agency is owned 100% by D. M. Moore, Jr.,
and its financial statements are not consolidated with those of the Company.
Pursuant to an Overhead Services Agreement, all revenues and expenses of
Rushmore Agency are passed through to the Company as permitted by regulation.
In addition, Mr. Moore has granted the Company an irrevocable option for the
Company to appoint any other qualified person to acquire the capital stock of
Rushmore Agency on its behalf. The Company believes it has taken all available
steps to obtain the benefits of ownership of Rushmore Agency, although greater
control could be obtained if the Company were permitted to own Rushmore
Agency. See "Business--Insurance Services--Rushmore Insurance Services,
Incorporated."

Competition

The securities and insurance industries are highly competitive, with many
large, diversified, well-capitalized brokerage firms, financial institutions
and other organizations. The Company, in many instances, competes directly
with such organizations for market share of commission dollars, and qualified
registered representatives and insurance agents. In 1996, approximately 97.6%
of the Company's revenues were derived from commissions generated by
securities representatives and insurance agents. While the Company believes
that its relations with its independent agents and representatives are
generally good, there can be no assurance that the Company will continue to be
able to maintain these relationships, that a majority of its agents and
representatives will continue to be affiliated with the Company or that the
Company will continue to be able to attract and retain quality independent
agents and representatives. If a significant number of the Company's agents
and representatives cease to be affiliated with the Company, the Company's
financial condition and results of operations would be adversely affected.
Many of the Company's competitors are better capitalized, have more
established reputations, greater marketing experience or prowess, better
relationships with investment product suppliers or have other competitive
advantages. Competitive pressures may adversely affect the Company and its
prospects. See "Business--Competition."

Integration of Unspecified Acquisitions

A material element of the Company's growth strategy is to expand its
existing business through strategic acquisitions. While the Company
continuously evaluates opportunities to make strategic acquisitions, it has no
present commitments or agreements with respect to any material acquisitions.
There can be no assurance that the Company will be able to identify and
acquire such companies or that it will be able to successfully integrate the
operations of any company it acquires. Further, any acquisition may initially
have an adverse effect upon the Company's results while the acquired business
is adapting to the Company's management and operating practices. There can be
no assurance that the Company's personnel, systems, procedures, and controls
will be adequate to support the Company's growth. In addition, there can be no
assurance that the Company will be able to establish, maintain or increase
profitability of an entity once it has been acquired. There can be no
assurance that the Company will be able to obtain adequate financing for any
acquisition, or that, if available, such financing will be on terms acceptable
to the Company. See "The Company."

Dependence on Key Personnel

The Company's success is largely dependent on the skills, experience and
performance of certain key members of its management, including particularly
D. M. Moore, Jr., the Company's Chief Executive Officer,

7
<PAGE>

and Jim W. Clark, President of Rushmore Securities. The loss of the services
of any key employee could have a material adverse effect on the Company's
business, financial condition, results of operations and cash flows. The
Company has not obtained key man life insurance on the lives of any individual
other than Mr. Moore. The Company has entered into three year employment
contracts with Mr. Moore and Mr. Clark, but the Company has not entered into
employment agreements with any of its other employees. Such employment
agreements are terminable only upon death, disability or for cause, including
resignation. Upon termination for any reason other than disability or for
cause, the executive is entitled to three years' severance pay. The Company's
future success and plans for growth also depend on its ability to attract,
train and retain skilled personnel in all areas of its business. See
"Management."

Control by Management

After completion of this Offering, the executive officers and directors of
the Company will own approximately 34% of the shares of Common Stock
outstanding if the minimum number of shares is sold, and 29% if the maximum
number of shares is sold. Accordingly, and because there is no cumulative
voting for directors, the executive officers and directors of the Company will
be in a position to influence strongly the election of all of the directors of
the Company and to control through their stock ownership the business of the
Company. See "Management" and Principal Shareholders."

Increase in Employees

As described in "Use of Proceeds," the Company intends to apply a
significant amount of the net proceeds of this Offering to the addition of
personnel to support the growth of its insurance services, broker dealer and
investment advisor units. While the Company believes that such additions are
needed in order to achieve the Company's growth objectives, the addition of
personnel involves a lag in the creation of revenues from such proceeds, which
could have an adverse effect on the Company's potential for earnings. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operation."

Shares Eligible for Future Sale

Sales of substantial amounts of Common Stock in the public market following
the Offering could adversely affect the market price for the Common Stock.
Upon completion of this Offering, the Company will have a maximum of 3,354,877
shares outstanding. Of these shares, the maximum of 1,250,000 shares offered
hereby will be freely tradeable without restriction or registration under the
Securities Act of 1933 (the "Securities Act") by persons other than
"affiliates" of the Company, as defined under the Securities Act. No affiliate
or member of management will purchase any shares of Common Stock in the
Offering in order for the Company to meet the minimum Offering requirement.
The remaining 2,104,877 shares of Common Stock will be "restricted securities"
as that term is defined by Rule 144 as promulgated under the Securities Act.
Upon the closing of the Offering, the Company will have options and warrants
outstanding to purchase an aggregate additional 228,573 shares of Common
Stock. See "Shares Eligible for Future Sale," "Description of Capital Stock"
and "Principal Shareholders."

Under Rule 144, the Company believes that the earliest date on which any of
the shares of its Common Stock currently outstanding will be eligible for sale
under Rule 144 is 90 days following the completion of this Offering. All
executive officers and directors and certain shareholders collectively owning
1,649,232 shares of Common Stock in the Company have executed lock-up
agreements restricting the transfer and sale of Common Stock. Pursuant to
these restrictions, the holders of such restricted shares, including all of
the Company's executive officers and directors, have agreed that they will
not, directly or indirectly, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or announce
any offer, sale, offer of sale, contract to sell, pledge, grant of any options
to purchase or sale or disposition) of any shares of Common Stock or other
capital stock of the Company, or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company without the prior written consent of the Representative,
on behalf of the Underwriters, for a period of 180 days from the date of this

8
<PAGE>

Prospectus. In addition, all directors, officers and persons owning more than
5% of shares outstanding have agreed pursuant to State Blue Sky Law
requirements to subject certain of their shares to a lock-in agreement until
the Company meets certain earnings or other requirements.

Prior to this Offering, there has been no public market for the Common Stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of additional shares of Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts
of such shares in the public market, or the perception that such sales could
occur, could materially and adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities.

Absence of Prior Market

The public offering price of the Common Stock was determined solely by
negotiations between the Company and the Representative based on several
factors that may not be indicative of future market prices. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering price. Among the factors considered in determining the price were the
Company's current financial condition and prospects, market prices of similar
securities of comparable publicly traded companies and the general condition
of the securities market. However, the public offering price of the Common
Stock will not necessarily bear any relationship to the Company's assets, book
value, earnings or any other established criterion of value.

There has been no public market for the Common Stock prior to the Offering,
and there can be no assurance that an active trading market will develop or be
sustained after completion of the Offering or that the market price of the
Common Stock will remain at or above the public offering price. In the event
that the Company's operating results are below the expectations of public
market analysts and investors in one or more future periods, it is likely that
the price of the Common Stock will be materially adversely affected. In
addition, the stock market has experienced significant price and volume
fluctuations that have affected the market prices of equity securities of many
companies and that often have been unrelated to the operating performance of
such companies. General market fluctuations may also adversely affect the
market price of the Common Stock. See "Underwriting."

No Commitment to Purchase Common Stock; Deposits of Subscriptions

The Underwriters, in selling the Common Stock, are acting as agents of the
Company on a "best efforts" basis. The Underwriters are only obligated to use
their best efforts to sell the Common Stock, and the Company will not receive
any proceeds of the Offering unless the Underwriters sell shares equal to the
minimum Offering. If the minimum Offering is not sold, potential investors
will lose the use of their funds for the Offering period, and any extension
thereof, although the funds invested by them will be returned with interest.

Possible Delisting of Common Stock from Nasdaq SmallCap Market

Nasdaq has implemented changes to the standards for companies to remain
listed on the SmallCap Market, including, without limitation, new corporate
governance standards, a new requirement that a listed company have net
tangible assets of $2,000,000, market capitalization of $35,000,000 or net
income of $500,000 and other qualitative requirements. The Company has applied
for listing of its Common Stock on the Nasdaq SmallCap Market, subject to
completion of this Offering, and believes that it will meet all criteria to
become listed and to continue its listing after completion of this Offering.
There can be no assurance, however, that an active trading market will develop
or that if such a market is developed that it will be sustained. In addition,
to obtain a listing the Company is required to maintain at least three market
makers in the Company's Common Stock. The Representative has indicated that it
will act as a market maker, and the Company believes it will have at least
three market makers by the closing of the Offering. If the Company is unable
in the future to satisfy the requirements for continued quotation on the
Nasdaq SmallCap Market, trading in the Common Stock offered hereby would be
conducted only in the over-the-counter market in what are commonly referred to
as the "pink sheets" or on the NASD Electronic Bulletin Board. As a result, an
investor may find it more difficult to dispose of or obtain accurate
quotations as to the price of the Common Stock offered hereby.

9
<PAGE>

Exercise of Representative's Warrants

In connection with this Offering, the Company will sell to the
Representative, for nominal consideration, warrants (the "Warrants") to
purchase an aggregate of 50,000 shares of Common Stock. The Warrants will be
exercisable for five years after the first anniversary of the date of this
Prospectus at an exercise price of 110% of the initial price to public set
forth on the cover page of this Prospectus. The Representative will have the
opportunity to profit from a rise in the market price of the Common Stock, if
any, without assuming the risk of ownership. To the extent that any of the
Warrants are exercised, the ownership interest of the Company's shareholders
may be diluted. The Company also has granted registration rights to the
Representative with respect to the 50,000 shares of Common Stock issuable upon
exercise of the Warrants.

Over-the-Counter Market; Penny Stock Trading Rules

The Common Stock will be traded in the over-the-counter market and may be
subject to the "penny stock" trading rules. The over-the-counter market is
characterized as volatile in that securities traded in such market are subject
to substantial and sudden price increases and decreases and at times price
(bid and asked) information for such securities may not be available. In
addition, when there is a limited number of market makers (a dealer holding
itself out as ready to buy and sell the securities on a regular basis), there
is a risk that the dealer or group of dealers may control the market in the
security and set prices that are not based on competitive forces and the
available offered price may be substantially below the quoted bid price.

Generally, at any time the bid price of the Common Stock in the over-the-
counter market is less than $5.00, the Company's equity securities will be
subject to the "penny stock" trading rules, unless the Company meets certain
other exemptions under the "penny stock" trading rules. The "penny stock"
trading rules impose additional duties and responsibilities upon broker-
dealers and salespersons effecting purchase and sale transactions in such
equity securities of the Company, including determination of the purchaser's
investment suitability, delivery of certain information and disclosures to the
purchaser, and receipt of a specific purchase agreement from the purchaser
prior to effecting the purchase transaction. Compliance with the "penny stock"
trading rules affect or will affect the ability to resell the Common Stock by
a holder principally because of the additional duties and responsibilities
imposed upon the broker-dealers and salespersons recommending and effecting
sale and purchase transactions in such securities. In addition, many broker-
dealers will not effect transactions in penny stocks, except on an unsolicited
basis, in order to avoid compliance with the "penny stock" trading rules.
Consequently, the "penny stock" trading rules may materially limit or restrict
the number of potential purchasers of the Common Stock and the ability of a
holder to resell the Company's equity securities. See "Underwriting."

Lack of Dividends

The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. In addition, the shares of Preferred Stock
outstanding are entitled to a preference over the Common Stock in the payment
of dividends. The Company intends to retain profits, if any, to fund growth
and expansion. See "Dividend Policy."

Dilution

The principal shareholders of the Company have acquired Common Stock at a
cost per share that is significantly less than that at which the Company
intends to sell the Common Stock in this Offering. Therefore, an investment in
the Common Stock offered hereby will result in the investors experiencing
immediate and substantial dilution in net tangible book value of $3.38 per
share of Common Stock, or 61.5%, as a result of the maximum Offering, and
$3.92 per share of Common Stock or 71.3% as a result of the minimum Offering.
See "Dilution."

Anti-Takeover Provisions

The Company's Articles of Incorporation and Bylaws may make it difficult to
effect a change in control of the Company and replace incumbent management.
See "Description of Securities--Anti-Takeover Provisions."

10
<PAGE>

The Articles of Incorporation authorize the Board of Directors to issue
Preferred Stock in classes or series, and to determine voting, redemption and
conversion rights and other rights related to such class or series of
Preferred Stock that, in some circumstances, could have the effect of
preventing a merger, tender offer or other takeover attempt which the
Company's Board of Directors opposes. Such provisions could also exert a
negative influence on the value of the Common Stock and of a shareholder's
ability to receive the highest value for the Common Stock in a transaction
that may be hindered by the operation of these provisions. The Company's
directors are elected for three-year terms, with approximately one-third of
the Board standing for election each year, which may make it difficult to
effect a change of incumbent management and control. In addition, directors
may be removed only for "good cause" as defined in the Company's bylaws, and
such bylaws require an action by more than two-thirds of shares outstanding to
call a special meeting of shareholders. Further, Rushmore Life is regulated by
the Arizona Department of Insurance, and no change of control of the Company
could occur without the approval of that department. See "Description of
Securities--Anti-Takeover Provisions", "--Preferred Stock", "--Classified
Board" and "Business--Regulation."

Outstanding Preferred Stock

As of the date of this Prospectus, the Company had outstanding two series of
Preferred Stock having a total liquidation value of $180,920 and bearing a
cumulative dividend rate of 9% per year. Such shares of Preferred Stock are
entitled to a preference over the Common Stock upon any liquidation of the
Company and to a preference in the payment of dividends. In addition, the
Board of Directors is authorized, without shareholder approval, to create
additional classes and series of Preferred Stock out of the total of 5,000,000
shares authorized as described above in "--Anti-Takeover Provisions." Also see
"Description of Securities."

Stabilization Transactions

The Representative has informed the Company that certain persons
participating in this Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of Common Stock including entering
stabilizing bids. In general, purchases of a security for the purposes of
stabilization or to reduce a short position could cause the price of the
security to be higher than it might be in the absence of such purchases.
Neither the Company nor the Representative makes any representation or
predictions as to the direction or magnitude of any effect that such
stabilizing transactions, if any, may have on the price of the Common Stock.
In addition, neither the Company nor the Representative makes any
representations that the Representative will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice. See "Underwriting."

11
<PAGE>

THE COMPANY

The Company was incorporated in September 1990 and began operations in March
1991. The Company's growth strategy has emphasized acquisitions of businesses
and their management. Since 1991, the Company has acquired the stock or assets
of four companies totaling more than $35 million in assets and 180 employees
and agents. The Company's securities business was acquired in 1991 in two
separate transactions by purchasing all of the common stock of Ken Davis
Securities, Inc. and the assets of Discount Securities of the Southwest, Inc.
In June 1994, Rushmore acquired a 20% interest in the holding company of
Rushmore Life (then known as First Financial Life Insurance Company) and
completed the acquisition of the entire company by merger in April 1997 in
exchange for 508,144 shares of Common Stock and $137,900. Rushmore acquired
the Wesley Financial Group in June 1995, an insurance agency marketing
organization, in exchange for 50,280 shares of Common Stock. One additional
subsidiary, Rushmore Financial Corporation, was formed in November 1993 to act
as a mortgage company and was discontinued in March 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation--
Discontinued Operations." A diagram of the organizational structure of the
Company is as follows:

RUSHMORE FINANCIAL GROUP, INC.
-------------------------------------------
| |
| |
INVESTMENT SERVICES INSURANCE SERVICES
------------------- ------------------
| | |(1) |
| | | |
-------------- ------------- -------------- -----------------
RUSHMORE RUSHMORE RUSHMORE RUSHMORE LIFE
INVESTMENT SECURITIES INSURANCE INSURANCE
ADVISORS, INC. CORPORATION SERVICES, INC. COMPANY

- --------
(1) All subsidiaries are wholly owned, except Rushmore Insurance Services,
Inc, which is owned by D. M. Moore, Jr., the Company's Chairman and Chief
Executive Officer, because the Texas Insurance Code prohibits life
insurance agencies to be owned by corporations. The financial statements
of Rushmore Agency are not consolidated with those of the Company;
however, pursuant to an Overhead Services Agreement, all revenues and
expenses of Rushmore Insurance Services, Inc. are passed through to the
Company as permitted by insurance regulations. See Note 2 to the Financial
Statements of the Company. In addition, Mr. Moore has granted the Company
an irrevocable option for the Company to appoint any other qualified
person to acquire the capital stock of Rushmore Agency on its behalf.

12
<PAGE>

USE OF PROCEEDS

The estimated net proceeds to the Company from the sale of the Common Stock
will be $3,495,000 if the minimum number of shares offered pursuant to the
Offering is sold and $6,025,000 if the maximum number of shares offered
pursuant to the Offering is sold.

The following table demonstrates the intended application of the minimum and
maximum amount of proceeds available from this Offering.

<TABLE>
<CAPTION>
MINIMUM MAXIMUM
INDENDED USE OFFERING PERCENT OFFERING PERCENT
------------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Contribution to Rushmore Agency to
support the addition of new agents
through internal growth and acquisitions
........................................ $1,625,000 46.5 $2,550,000 42.3
Contribution to Rushmore Life capital
surplus to enable the increase of
retained coinsurance.................... 300,000 8.6 300,000 5.0
Contribution to Rushmore Securities to
support the addition of new
representatives through internal growth
and acquisitions ....................... 625,000 17.9 1,550,000 25.7
Contribution to Rushmore Advisors to
support the addition of marketing and
advisory personnel...................... 500,000 14.3 500,000 8.3
Operating capital and general corporate
purposes, including:
Leasehold improvements, equipment and
software.............................. 120,000 3.4 200,000 3.3
Advertising and printing............... 40,000 1.1 100,000 1.7
General working capital................ 285,000 8.2 825,000 13.7
---------- ----- ---------- -----
$3,495,000 100.0 $6,025,000 100.0
</TABLE>

Assuming that the minimum number of shares offered pursuant to this Offering
is sold, the Company believes that the proceeds of this Offering together with
funds generated from operations will meet the Company's anticipated funding
needs at least for the next twelve months. Although the preceding table
demonstrates the Company's intended use of proceeds from the Offering, there
can be no assurance that the Company will be successful in generating
projected internal growth or identifying attractive targets. As of the date of
this Prospectus, there were no pending or contemplated acquisitions. In the
event the Company does not experience the projected need for capital in one or
more areas of its operations, the Company intends to reallocate the proceeds
from the Offering among the other areas listed in the table.

DIVIDEND POLICY

The Company paid one dividend on its Common Stock in March 1995 in the
amount of $0.04 per share, and pays dividends quarterly to the holders of its
Preferred Stock at a rate of 9% per year. The Company has no current plans to
pay any future cash dividends on the Common Stock. Instead, the Company
intends to retain all earnings, other than those required to be paid to the
holders of the Preferred Stock, to support the Company's operations and future
growth. The payment of any future dividends on the Common Stock will be
determined by the Board of Directors based upon the Company's earnings,
financial condition and cash requirements, possible restrictions in future
financing agreements, if any, restrictions in the Certificates of Designation
for the Preferred Stock, business conditions and such other factors deemed
relevant.

13
<PAGE>

DILUTION

As of September 30, 1997, the net tangible book value of the Company was
$868,053 or $.43 per share of Common Stock. Net tangible book value per share
of the Company is the amount of its tangible assets less its total
liabilities, divided by the number of shares of Common Stock outstanding.
After giving effect to the sale of the minimum and maximum number of shares of
Common Stock at the initial public Offering price per share of $5.50, and the
application of the net proceeds therefrom, the pro forma net tangible book
value per share would increase, representing an immediate increase in net
tangible book value to current holders of Common Stock, and an immediate
dilution to new investors, as illustrated in the following table.

<TABLE>
<CAPTION>
MINIMUM MAXIMUM
OFFERING OFFERING
---------- ----------
<S> <C> <C> <C> <C>
Assumed Offering price per share......................... $5.50 $5.50
Net tangible book value per share before this
Offering.............................................. .43 .43
Increase per share attributable to new investors....... 1.15 1.69
Adjusted net tangible book value per share after this
Offering................................................ 1.58 2.12
----- -----
Dilution per share to new investors...................... $3.92 $3.38
===== =====
</TABLE>

The following table summarizes, as of September 30, 1997, the number of
shares of Common Stock purchased from the Company, the total consideration
paid, and the average price per share paid by the existing shareholders and
the number of shares of Common Stock purchased from the Company and the total
consideration paid by the new investors purchasing shares of Common Stock in
this Offering at the minimum and maximum levels, after deduction of the
underwriting discounts and commissions and offering expenses payable by the
Company:

MINIMUM OFFERING
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ----------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........... 2,005,488 72.8 $ 1,958,716 35.9 .98
New Shareholders................ 750,000 27.2 3,495,000 64.1 4.66
--------- ----- ------------ -------
Total......................... 2,755,488 100.0 $ 5,453,716 100.0
========= ===== ============ =======

MAXIMUM OFFERING
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ----------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........... 2,005,488 61.6 $ 1,958,716 24.5 .98
New Shareholders................ 1,250,000 38.4 6,025,000 75.5 4.82
--------- ----- ------------ -------
Total......................... 3,255,488 100.0 $ 7,983,716 100.0
========= ===== ============ =======
</TABLE>

14
<PAGE>

CAPITALIZATION

The following table sets forth the long-term debt and capitalization of the
Company as of September 30, 1997 on an actual basis and as adjusted to reflect
the receipt of the estimated net proceeds from the sale by the Company of
750,000 shares of Common Stock pursuant to this Offering at the minimum level
and 1,250,000 shares of Common Stock at the maximum level at the initial
public Offering price of $5.50 per share and after deducting underwriting
discounts and commissions and estimated offering expenses, and the application
of the estimated net proceeds therefrom. See "Use of Proceeds."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------------
AS ADJUSTED
ACTUAL(1) MINIMUM MAXIMUM
------------ ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long term debt:........................ -- -- --
Stockholders' equity (deficit):
Preferred Stock, 9% cumulative, $10
par value, 4,300 shares issued and
outstanding......................... 43 43 43
Preferred Stock, Series A Cumulative,
$10 par value, 13,792 shares issued
and outstanding..................... 138 138 138
Common Stock, $0.01 par value;
10,000,000 shares authorized;
2,005,488 shares issued and
outstanding, actual; 2,755,488
shares issued and outstanding, as
adjusted at the minimum level;
3,255,488 shares issued and
outstanding, as adjusted at the
maximum level....................... 20 28 33
Additional paid-in capital........... 1,938 5,425 7,950
Accumulated deficit.................. (563) (563) (563)
Shareholder loans and due from
affiliate........................... (172) (172) (172)
----------- ----------- -----------
Total shareholders' equity......... 1,405 4,900 7,430
----------- ----------- -----------
Total capitalization............... $ 1,405 $ 4,900 $ 7,430
=========== =========== ===========
</TABLE>
- --------
(1) Derived from the Company's unaudited consolidated financial statements
included elsewhere in this Prospectus. See "Financial Statements."

15
<PAGE>

SELECTED AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following selected financial information should be read in conjunction
with the financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The information for the years ended
December 31, 1995 and 1996, are derived from the audited financial statements
included elsewhere in this Prospectus. The information for the nine months
ended September 30, 1997 and the pro forma information are derived from
unaudited financial statements that are included elsewhere in this Prospectus.
Such unaudited information, together with the unaudited information for the
year ended December 31, 1994, includes, in the opinion of management, all
normal recurring adjustments necessary for a fair presentation of the
information set forth therein. The results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of results for the
year ending December 31, 1997.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
------- --------- ------- ------------ ------------ -------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues from investment
services.................... $ 828 $ 857 $ 1,523 $ 1,523 $ 999 $ 1,724 $ 1,693
Revenues from insurance
services.................... 191 152 347 6,346 286 3,216 4,800
Total revenues............... 1,031 1,020 1,885 7,884 1,297 4,981 6,535
Investment services expense.. 749 787 1,325 1,325 865 1,485 1,485
Insurance services expense... (44) 33 13 6,194 32 2,867 4,429
General and administrative
expenses.................... 346 431 663 663 512 630 630
------- ------- ------- ---------- ------- -------- --------
Total expenses............. 1,051 1,251 2,001 8,182 1,409 4,982 6,544
Loss from continuing
operations.................. (20) (234) (120) (302) (116) (5) (14)
Net loss..................... (31) (210) (171) (158) (149) (31) (14)
Net income (loss) applicable
to common shareholders...... (36) (216) (181) (168) (155) (44) (26)
Net income (loss) per share
of Common Stock after
dividends on Preferred
Stock....................... (.09) (.18) (.13) (.09) (.11) (.03) (.01)
OTHER DATA:
Insurance agents............. 839 1,127 1,271 1,271 1,249 1,341 1,341
States represented......... 32 36 38 38 38 39 39
Securities representatives... 97 112 105 105 105 125 125
States represented......... 10 13 23 23 23 24 24
Insurance in force........... -- -- -- $1,018,723 -- $978,480 $978,480
Insurance in force retained
net of reinsurance
agreements.................. -- -- -- 435,442 -- 420,132 420,132
Premium income............... -- -- -- 5,237 -- 2,845 3,949
Funds under management
Discretionary.............. -- -- 4,650 4,650 2,976 13,431 13,431
Non-discretionary.......... 18,960 45,221 67,763 67,763 59,030 89,452 89,452
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------ ----------------------------------
AS ADJUSTED, AS ADJUSTED,
ACTUAL PRO FORMA ACTUAL MINIMUM MAXIMUM
------- --------- ------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents......... $ 118 $ 1,368 $ 1,426 $ 4,921 $ 7,451
Amounts on deposit with
Insurers.................... -- 28,095 28,894 28,894 28,894
Total assets................. 543 35,744 35,681 39,176 41,706
Policy reserves.............. -- 33,436 33,258 33,258 33,258
Total indebtedness........... 39 39 48 48 48
Shareholders' equity......... 351 1,409 1,405 4,900 7,430
</TABLE>

16
<PAGE>

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

The information presented in this section should be read in conjunction with
the information contained in the financial statements, including the notes
thereto, and the other financial statements appearing elsewhere in this
Prospectus.

GENERAL

The Company has posted net losses from operations in all but one year of its
existence, when in 1993 it made a small net profit. As of September 30, 1997,
it had a cumulative deficit in its retained earnings of $562,579. The Company
has emphasized the building of a national distribution network of
representatives and agents and has developed an infrastructure to effect sales
of investment and insurance products and services. Management believes it has
established the necessary corporate infrastructure to increase its revenues
without adding significant additional overhead. The Company has financed its
growth through revenues from operations and sales of its equity securities to
its officers, employees and independent agents.

One of the principal indicators of the Company's ability to compete
effectively among the many providers of financial services and products is the
number of agents and representatives it is able to attract. The number of
these persons has grown steadily, and the proceeds of this Offering will
provide the operating capital needed to increase this base. Growth in the
Company's sales force has also been accomplished through acquisitions. See
"The Company" and "Use of Proceeds." The number of agents and representatives
has increased as shown by the following table:

NUMBER OF AGENTS AND REPRESENTATIVES

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ----- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Insurance agents................... 481 645 839 1,127 1,271 1,341
Securities representatives......... 48 71 97 112 105 125
</TABLE>

Another priority for the Company has been to increase the productivity of
its representatives and agents. It has accomplished this by allowing attrition
of nonproducing sales personnel and by equipping its producing agents and
representatives with training, technology and a wide range of investment and
insurance products. The productivity of its agents and representatives, as
measured by the average amount of gross commissions per person, is indicated
by the following table. Gross commissions for purpose of this table includes
the dollar amount of all management fees, premiums or gross commissions
produced annually by the top 25 agents and representatives, who account for
more than 70% of all commissions each year:

AVERAGE COMMISSIONS PER TOP PRODUCER

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
$36,134 $37,138 $51,500 $48,382 $59,584 $57,528
</TABLE>

17
<PAGE>

RECENT DEVELOPMENTS

In May 1997 the Company commenced a private placement of Common Stock to
raise operating capital. Such offering closed in November 1997, and the
Company sold 175,758 shares at a price of $1.92 per share. Because of the
proximity of the closing to this Offering and because employees and
independent agents were among the purchasers of the Common Stock, the Company
will record a one-time expense for stock-based compensation in the fourth
quarter of 1997 in the amount of $300,533.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996

Revenues.
Total revenues increased 284% from $1,296,565 in the first nine months of
1996 to $4,980,984 during the first nine months of 1997. The increase included
a $724,474 (72.5%) increase in investment services revenues, resulting from
additional representatives, revenues generated from the business of Rushmore
Advisors and favorable equity markets during 1997; a $212,345 (74.3%) decrease
in insurance services revenues from agency operations as a result of a one-
time settlement of litigation for back-commissions from an Insurer (as defined
below) in 1996 of $156,000; and $3,142,054 from the consolidated operations of
Rushmore Life following its acquisition in full in April 1997. The revenues of
Rushmore Life included $2,092,002 net premium income, representing Rushmore
Life's quota share of policy premiums paid under coinsurance agreements, and
$1,050,052 net investment income of Rushmore Life. (Premium income can include
negative amounts arising from retrocessions of term life insurance when the
exposure to universal life insurance ceded to Rushmore Life from other life
insurance companies becomes too large. These negative balances in income from
retrocessions are netted against positive universal life income). Excluding
the revenues of Rushmore Life, the comparable revenues increased 41.8% from
$1,296,565 to $1,838,930. Revenues from insurance services from the operations
of Rushmore Agency historically are not a large amount, because the bulk of
commissions from Insurers on sales of insurance proceeds are paid directly
from the Insurers to the agents and do not pass through Rushmore Agency.

Expenses.

Investment services expenses increased 71.7% from $864,855 to $1,485,268
primarily due to commissions paid to representatives of $1,425,141 in the 1997
interim period. The increase corresponded to the growth in revenues.
Commissions paid as a percentage of commission revenue increased from the
first nine months of 1997 (87.9%) to the first nine months of 1996 (85.9%).
Direct overhead associated with investment services increased 252% from
$17,039 to $60,127, primarily due to the net premium on an errors and
omissions insurance policy implemented in 1997, offset by increased
collections from representatives for their share of such premiums.

Insurance services expense components changed substantially due to the
consolidation of Rushmore Life beginning in April 1997. In years prior to
1997, insurance services expenses included only the loss (or income) of the
Company's minority ownership in Rushmore Life, accounted for on the equity
method. The first three months of the interim 1997 period included an equity
in subsidiary loss, whereas the next six months included the consolidated
operations of Rushmore Life, including expense categories of benefit, claims
and losses, representing claims against policies coinsured by Rushmore Life in
the amount of $1,128,230, amortization of deferred acquisition costs of
$1,041,328 and other insurance company expenses of $697,655. Deferred
acquisition costs are recorded for purposes of generally accepted accounting
principles as an asset consisting of the commissions and other costs of
underwriting a new insurance policy and are amortized over the life of the
policy. Such payments are treated as an expense under statutory accounting
principles applicable to insurance companies, resulting in greater income
under generally accepted accounting principles. During the nine months ended
September 30, 1997, the average credited interest rates on outstanding
universal life policies was 5.38% (as compared to 5.69% for the year ended
1996).

General and administrative expenses increased 23% from $511,856 to $629,514
due to staff increases and office relocation expenses in 1997.

Operating Loss.

The Company's operating loss for the nine months ended September 30, 1997
decreased 99.1% from $112,404 to $1,011. The Company's net loss applicable to
common shareholders for the nine months ended

18
<PAGE>

September 30, 1997 decreased 71.9% from $155,178 or $0.11 per share to $43,545
or $0.03 per share. The net loss in 1997 included $12,212 of preferred
dividends paid compared to $5,816 in 1996.

Pro forma revenues and expenses for the nine months ended September 30, 1997
were $6,534,609 and $6,544,383 respectively, compared to $4,980,984 and
$4,981,995 for the actual nine months, a net operating loss difference of
$9,774 pro forma compared to $1,011 actual. The principal difference is due to
showing the full nine months of revenue and expense of Rushmore Life in the
pro forma figure as though Rushmore Life had been acquired on January 1, 1996.
Pro forma results are not necessarily indicative of actual results, but are
helpful to demonstrate the full effect of an acquisition accounted for as a
purchase transaction.

1996 COMPARED TO 1995

Revenues.

Revenues increased 84.9% from $1,019,662 in 1995 to $1,885,492 in 1996. The
primary component of revenues in both years was commissions and other income
from investment services (84.1% of revenues in 1995 and 80.8% of revenue in
1996). The increase during 1996 included a 77.7% increase in investment
services, and a 128.9% increase in insurance services. The growth in revenue
was due to an increase in producing representatives, more favorable market
conditions, and the settlement proceeds described above.

Expenses.

Investment services expenses included commissions paid to representatives,
which increased 74.0% from $713,308 to $1,241,476, resulting from increased
sales of securities. Commission expense as a percentage of commission revenue
was 83.1% in 1996 and 83.2% in 1995. Direct overhead increased 13.2% from
$74,058 to $83,803 due primarily to licensing fees to expand operations to
additional states.

Insurance services expense in both years consisted solely of the equity in
subsidiary loss, which decreased 61.1% from $33,184 to $12,893.

General and administrative expenses increased 54.0% from $430,551 to
$663,172 due to legal fees and expenses associated with litigation.

Operating Loss.

Operating loss decreased 49.9% from $231,439 to $115,852. The Company's net
loss applicable to common shareholders decreased 16.3% from $216,065 or $0.18
per share in 1995 to $180,778 or $0.13 per share in 1996. Net loss in 1996 of
$180,778 included a loss from discontinued operations of $50,504 and preferred
dividends paid of $9,887 compared to income from discontinued operations of
$24,207 and preferred dividends paid of $5,844 in 1995.

1995 COMPARED TO 1994

Revenues.

Revenues declined 1.1% from $1,031,421 in 1994 to $1,019,662 in 1995. The
primary component of revenues in both years was revenue from investment
services (80.3% of revenues in 1994 and 84.1 % of revenues in 1995). The 3.5%
increase in revenues from investment services from 1994 to 1995 was offset by
a decrease of 20.4% in revenues from insurance services, due to a disruption
in revenues following a change of Insurers.

Expenses.

Investment Services expenses consist of commissions paid to representatives
and direct overhead related to Rushmore Securities and Rushmore Advisors.
Commissions increased 6.1% from $672,284 to $713,308 corresponding generally
to the increase in sales of securities. Direct overhead decreased 2.9% from
$76,235 to $74,058.

Insurance Services expenses in 1994 and 1995 consisted of the equity in
subsidiary loss attributed to the Company's 25% interest in Rushmore Life
during 1994 and 1995, which decreased from a $44,373 profit in 1994 to a
$33,184 loss in 1995, resulting from a chargeback of a litigation settlement
in 1995 from an Insurer.

General and administrative expenses increased 24.1% from $346,973 in 1994 to
$430,551 in 1995 due to increased staffing and upgrading of computer hardware
and software.

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<PAGE>

Operating Loss.

Operating loss increased 1,069% from $19,798 in 1994 to $231,439 in 1995.
The Company's net loss applicable to common shareholders increased 510.2% from
$35,406 or $0.09 per share in 1994 to $216,065 or $0.18 per share in 1995. Net
loss included preferred dividends paid of $5,844 in 1995 compared to preferred
dividends paid of $4,730 in 1994. Operating loss in 1995 was offset by a
$24,207 net profit from discontinued operations.

DISCONTINUED OPERATIONS

The Company experienced net losses totaling $61,925 during the three years
and nine months ended September 30, 1997 from its mortgage lending operation,
which was discontinued in March 1997. The revenues and expenses of such
operations are combined and reflected as a loss from discontinued operations.

LIQUIDITY

Cash Flows from Operating Activities. The Company's net loss of $170,891 for
the year ended December 31, 1996 was offset by non-cash depreciation expense
and a loss from equity in subsidiary resulting in a net cash flow used by
operating activities in the amount of $79,558. For the nine months ended
September 30, 1997, the net loss of $31,333 was offset by numerous items from
the consolidation of Rushmore Life following its acquisition in a transaction
accounted for as a purchase in April 1997, and the net cash flows provided by
operating activities was $134,309.

Cash Flows From Investing Activities. The Company acquired $26,749 of fixed
assets during 1996 consisting primarily of office furniture and equipment. In
the nine months ended September 30, 1997, the Company purchased $50,373 of
capitalized equipment and recorded $119,353 for the purchases of the remaining
interest in Rushmore Life and received cash of $1,329,149 in the acquisition.

Cash Flows from Financing Activities. The Company raised $251,180 during the
year ended December 31, 1996, from the proceeds of sales of Common and
Preferred Stock, including $68,572 from its officers and directors. During the
nine months ended September 30, 1997, the Company raised $62,188 from the sale
of Common Stock. The remaining changes in both periods resulted from loan
principal payments, additional borrowings and dividends. Rushmore Life
generates significant cash flow from operations deficiencies from charges in
connection with mortality and administration of universal life and investment
products, however, such deficiency is offset by receipts from universal life
products constituting cash flows from financing activities.

Credit Facilities and Resources. The Company's cash and short term
investments at September 30, 1997 was $1,426,363, of which $1,290,170 is held
by Rushmore Life and is not immediately available to the Company for operating
needs. The Company will be entitled to a dividend from Rushmore Life after
January 1, 1998 in an amount equal to Rushmore Life's net profit on a
statutory accounting basis. As of September 30, 1997, such profit was
$192,273. The Company is entitled to receive monthly management fee payments
from Rushmore Life equal to $14,000 plus expenses directly attributable to
Rushmore Life. The Company does not have any unused lines of credit available
to it and must rely on the proceeds of securities sales and operating revenue
to fund its liquidity requirements. The Company believes that the proceeds of
the Offering and revenues from operations during 1998 will be adequate to meet
its cash needs for at least the next twelve months.

The Company intends to use the net proceeds from this Offering to invest
$300,000 in Rushmore Life's capital surplus, allocate $1,625,000 to $2,550,000
to Rushmore Agency to support the addition of new agents through internal
growth and acquisitions, allocate $625,000 to $1,550,000 to Rushmore
Securities to support the addition of new representatives through internal
growth and acquisitions, allocate $500,000 to Rushmore Advisors to add new
marketing and advisory personnel, and use the balance used to provide
additional operating capital and general corporate purposes. See "Use of
Proceeds".

The Company has historically grown through acquisitions and will continue to
review companies for possible acquisition. Any such future acquisitions will
be financed through Company securities or new sources of funding, although
certain proceeds of this Offering may be applied to fund acquisitions if they
are not otherwise required to meet the Company's basic cash needs.

20
<PAGE>

BUSINESS

Rushmore is a financial services holding company that provides a wide range
of investment and insurance services and products to its clients through a
national distribution network of 115 securities representatives operating in
27 states and more than 1,300 insurance agents in 39 states. The Company
believes that it is well positioned to take advantage of demographic trends in
the aging of America and the increasing overlap of investment services with
other financial security products. The Company's activities in these two
complementary sectors of the financial services industry, investment services
and insurance services, allow Rushmore to provide a full range of financial
services to its clients and enhance the cross-selling opportunities of its
select product lines.

The Company's investment services business consists of securities brokerage
services, mutual fund distribution, variable life insurance and annuities
sales and other financial services offered by Rushmore Securities Corporation
("Rushmore Securities"), which has 115 registered representatives operating in
27 states. In addition, Rushmore Investment Advisors, Inc. ("Rushmore
Advisors") provides fee-based advisory services, using a proprietary asset
allocation program known as RushMAP.

GROWTH STRATEGY

The Company's growth strategy focuses on expanding its national distribution
network and continually seeking out and evaluating new products and
acquisition opportunities that are consistent with the Company's objective to
provide a full range of financial products and services. Over the past ten
years, the amount invested in retirement and other financial security products
and services has grown over 185%. According to the Federal Reserve Board of
Governors, in 1986 the total amount invested in retirement and other financial
security products by households and non-profit organizations was approximately
$7.16 trillion, as compared to over $20.45 trillion at year end 1995, an 11.1%
compounded annual growth rate. The Company's objective is to capture an
increasing share of the commission revenues and assets related to the
investment and insurance services industry. The key components of Rushmore's
growth strategy include:

. providing its sales force with a wide range of financial products and
services, including exclusive insurance and investment products;

. offering incentives to its agents and employee, including favorable
commission structures, stock option plans and award programs to attract
and retain a loyal base of highly motivated personnel;

. upgrading its management information system to allow its agents and
representatives to maintain an efficient and orderly flow of sales
orders; and

. acquiring other insurance, securities and advisory firms and
complementary financial services companies.

Insurance Services. The Company intends to expand its coinsurance activities
with existing and new carriers, and actively seeks to acquire other full-line
life insurance companies licensed in multiple states to begin selling the
products of such companies through the Company's agency force. The Company
intends to contribute $300,000 of the proceeds of the Offering to Rushmore
Life in order to increase its capital surplus and increase the percentage of
coinsurance retained. The Company will also pursue acquisitions of blocks of
life insurance in

21
<PAGE>

force. There is no assurance the Company will be able to acquire life
insurance companies or blocks of business on terms acceptable to the Company.
The Company will also allocate $1,625,000 to $2,550,000 to Rushmore Agency to
support the addition of new agents through internal growth and acquisitions.

Securities Brokerage. Rushmore Securities's strategy is to continue its
growth by means of recruiting quality representatives, opening new branch
offices, acquiring other broker-dealers and increasing its volume of business
referred from other Rushmore subsidiaries and customers. The Company will
devote $625,000 to $1,550,000 from the proceeds of this Offering to these
expansion plans.

Advisory Services. Rushmore Advisors' strategy is to increase its assets
under management by maximizing cross-selling opportunities to clients of
Rushmore Securities and Rushmore Agency and acquiring other investment
advisory firms. Rushmore Advisors will emphasize three profit centers in these
efforts: (i) the Rushmore Managed Asset Program ("RushMAP"), (ii) estate and
financial planning for high net worth individuals, corporations and pension
funds, and (iii) a partnership investment that is structured as a "fund of
funds", or a grouping of experienced money managers selected to meet specific
return objectives within a defined risk tolerance level. The Company will
devote approximately $500,000 from the proceeds of the Offering to these
plans.

INVESTMENT SERVICES

See the "Glossary of Insurance Terms" on page G-1 for a definition of
certain insurance terms used below.

Securities Brokerage--Rushmore Securities Corporation. Rushmore Securities
provides investment services to its clients through a network of 115
registered representatives operating in 27 states, as of the date of this
Prospectus. Rushmore Securities conducts its activities in eight branch
offices. Rushmore Securities is a member of the NASD, the Municipal Securities
Rulemaking Board ("MSRB") and the Securities Investors Protection Corporation
("SIPC").

Rushmore Securities functions as a full commission retail broker for clients
to whom it makes trading recommendations, on a discretionary or non-
discretionary basis, and as a discount broker as to unsolicited orders from
its customers and from trades initiated by other Rushmore subsidiaries. It
also sells mutual funds and variable annuity products.

Rushmore Securities acts as a broker/dealer for a full line of securities
products, including stocks, bonds, mutual funds, variable annuities and
certificates of deposit. It is known as a "fully disclosed" originating
broker, meaning that it does not hold clients' funds, does not clear clients'
trades on securities markets, and is not a member of any stock exchange.
Instead, it forwards all clients' trades to one of the clearing firms with
which it maintains a contractual relationship to execute such trades on the
appropriate market. The Company currently has clearing agreements with
Southwest Securities, Inc. and the Representative. This arrangement allows the
Company to reduce some of the risk associated with trading and the amount of
net capital it is required to maintain under applicable securities laws.

Most of Rushmore Securities' registered representatives are also licensed as
insurance agents with Rushmore Agency. All such persons are employees of
Rushmore Securities and are compensated on the basis of commissions on sales
of investment securities. Each representative executes an agreement with
Rushmore Securities to sell securities to their clients exclusively through
Rushmore Securities and comply with Rushmore Securities' rules and procedures
and all applicable federal and state laws. Rushmore Securities supervises the
efforts of these representatives through 31 registered securities principals
and branch office managers, who earn commissions and overrides on sales by
persons under their supervision.

Rushmore Securities is continually seeking to add new representatives,
especially those with prior brokerage experience and an established client
base. Rushmore Securities believes it competes effectively for registered
representatives based on its favorable commission structure, its ability to
provide its representatives access to all securities markets and research
reports from leading analysts, and the opportunity for representatives to earn
stock options in the Company. Through its affiliate, Rushmore Advisors,
Rushmore Securities also provides its representatives the flexibility to
generate commission-based or fee-based income.

22
<PAGE>

Investment Advisory Services--Rushmore Investment Advisors, Inc. The Company
formed Rushmore Advisors in January 1996, in order to provide fee-based
investment advisory and money management services to its clients. As of
September 30, 1997, Rushmore Advisors provided services to 59 clients in six
states, with more than $17 million under management. As of the date of this
Prospectus, the Company had two portfolio managers to serve its clients.

Rushmore Advisors enters into investment advisory agreements with its
clients that outline the services to be provided and the compensation to be
paid. Such agreements are required by regulatory authority to contain various
provisions, including the right of the client to terminate the agreement at
will. The agreements in force provide for annual compensation to Rushmore
Advisors of up to 2.5% of funds under management.

The investment philosophy of Rushmore Advisors is to provide superior
returns without materially increasing the associated investment risk. In
equities, Rushmore Advisors seeks to achieve long-term capital appreciation by
limiting its selections to listed stocks trading at more than $12 per share,
with consistent records of earnings growth and strong balance sheets. With
fixed income securities, Rushmore Advisors seeks income and preservation of
capital through a diversified portfolio for each client considering its income
needs and risk tolerance.

Rushmore Advisors does not execute trades of the clients' investment
transactions, nor does it hold its clients' funds or securities. As of
September 30, 1997, it had discretionary authority to direct the investments
of approximately 72% of the funds under its management. The client may specify
which securities broker to use to effect its investment trades, but virtually
all trades effected by Rushmore Advisors are conducted through Rushmore
Securities, which executes such trades on a discounted basis.

Rushmore Advisors cooperates with Rushmore Securities in providing its
services to clients of both firms through the Rushmore Managed Asset Program
("RushMAP"). RushMAP is a proprietary system used to provide strategic and
tactical asset management allocation of mutual funds and equities for accounts
beginning at $100,000.

Rushmore Advisors directs its marketing efforts to high net worth
individuals, corporations and pension plans having substantial funds to invest
and who can benefit from the efforts of a professional money manager. Rushmore
Advisors seeks to obtain clients having portfolios of at least $100,000 and
believes it can fill a niche being neglected by larger money managers.

Rushmore Advisors' marketing efforts are performed by its portfolio
managers, and it does not currently employ a separate sales force. While this
limits the amount of time its personnel can spend on marketing to new clients,
it permits its managers to interact directly with potential customers for its
services. Rushmore Advisors also relies on Rushmore Agency's and Rushmore
Securities' network of brokers and agents to market the RushMAP investment
management products. The Company plans to hire a marketing officer during
1998.

INSURANCE SERVICES

Rushmore Insurance Services, Inc. The Company markets life, health and
disability insurance and annuities to individuals and small businesses through
a network of exclusive and independent agents. The Rushmore Agency group has
primarily marketed policies under national marketing agreements with
Massachusetts General Life Insurance Company, a subsidiary of Conseco
Companies ("Conseco"), Southwestern Life Insurance Company and Great Southern
Life Insurance Company, the companies with which it has entered into
coinsurance arrangements (the "Insurers"). For the nine months ended September
30, 1997, the gross revenues generated from insurance written with the
Insurers accounted for 66% of Rushmore Agency's total revenues. Rushmore
Agency's agents also market policies issued by 38 other life insurance
companies, of which most are rated "A" or better by A.M. Best, that have
appointed Rushmore Agency and its agents to sell on their behalf (the "Other
Insurers"). The Company's agents are employed by or have contracts with
Rushmore Agency, which is owned by D. M. Moore, Jr., Chairman and Chief
Executive Officer of Rushmore, because the Texas Insurance Code does not
permit life insurance agencies to be owned by corporations. However, pursuant

23
<PAGE>

to an Overhead Services Agreement all revenues and expenses of Rushmore Agency
are passed through to the Company as permitted by regulatory requirements. In
addition, Mr. Moore has granted the Company an irrevocable option for the
Company to appoint any other qualified person to acquire the capital stock of
Rushmore Agency on its behalf.

Insurance Products. The Company's insurance agents sell a wide range of
insurance and annuity products issued by the Insurers and Other Insurers.
These include life insurance in the form of term life, universal life and
variable universal life (universal life products are flexible premium life
insurance policies under which the policyholder may change the death benefit
from time to time and vary the amount or timing of premium payments); health
insurance including cancer insurance, major medical, group health; fixed and
variable annuities; and group and individual long-term disability insurance.
Agents who sell variable life and annuity products are licensed as securities
representatives with Rushmore Securities.

Rushmore Agency has entered into an agreement with the American Financial
Freedom Association, a not-for-profit organization ("AFFA"), to administer
AFFA and serve as its exclusive marketing organization for insurance services
and investment services and other benefits to AFFA members. AFFA offers its
members, including Rushmore clients, the opportunity to participate in lower
cost group insurance and other benefits of AFFA, including discounted optical
and dental benefits, prescription drug cards and consumer discounts. Rushmore
Agency has also entered into a national marketing agreement with Legion
Insurance Company to market its individual and group health insurance plans to
AFFA members through the Career Partners Group.

Sales and Marketing. As of the date of this Prospectus, the Company either
employed or contracted with more than 1,300 insurance agents in 39 states.
With the exception of 22 agents who are employed by the Company in its Career
Partners Group, all others are independent agents who have been appointed by
Rushmore Agency, the Insurers and Other Insurers to sell policies of the
Insurers and Other Insurers as part of Rushmore Agency's marketing
organization.

In July 1997, the Company's Career Partners Group began developing full-
time, career-oriented agents to market the products and services of the
Insurers and Other Insurers on an exclusive basis. The Career Partners agents
market bundled and packaged products, primarily to individuals in the small
business and self-employed market in Texas. Rushmore Agency plans to expand
the Career Partners Group to other states.

Rushmore Agency continually seeks to recruit new agents to join its
marketing force. It recruits primarily existing licensed agents who are
dissatisfied with their current affiliations. It also recruits previously
unlicensed persons with proven sales backgrounds whom it trains to become
licensed. The Company utilizes both advertising and referrals to locate
qualified persons. Rushmore Agency is able to compete for new agents on the
basis of the quality of the insurance products it offers, the opportunity for
increased income through higher payouts and a more diversified product
portfolio, sales training, and the opportunity to participate in the Company's
Stock Option Plans. The Company has added 74 insurance agents during the nine
months ended September 30, 1997, and has terminated or lost 4 agents during
such period.

Rushmore Life Insurance Company. A key feature of the Company's strategy has
been to acquire a life insurance subsidiary to capture, through coinsurance
agreements, a portion of the premiums from sales of insurance policies in
addition to commissions. The Company acquired a 20% interest in Rushmore Life
in 1994, and in April 1997 completed a merger transaction to acquire the
balance of Rushmore Life in exchange for 508,144 shares of Rushmore Common
Stock and $137,900. Rushmore Life is chartered as a life reinsurance company
in the State of Arizona and is not licensed in any other state. Its business
is therefore limited to coinsuring policies written by Rushmore agents and
issued by full-line life insurance companies that have entered into modified
coinsurance agreements with Rushmore Life.

Rushmore Life's coinsurance arrangements typically consist of a modified
coinsurance agreement, under which Rushmore Life receives between 33 1/3% and
50% of the premium income and associated insurance risk on policies written by
Rushmore Agency's agents. Because Rushmore Life's retention limit is $25,000
per policy, the differential between such retention and the amount coinsured
with the Insurer is then reinsured back to the Insurer or another reinsurance
carrier. A portion of the net proceeds of the Offering will be contributed to

24
<PAGE>

Rushmore Life to permit it to increase its retention limit and add new
insurance to its books. Rushmore Life earns a spread between the net coinsured
premium income and the lower reinsurance premium. In the case of the
coinsurance arrangement with the block of insurance written with Conseco,
Rushmore Life is also party to an administrative services agreement pursuant
to which a subsidiary of Conseco administers the block. Rushmore life will
continue to pursue national marketing and coinsurance agreements with other
full-line life insurance companies.

COMPETITION

The brokerage and insurance industries are highly competitive with many
large, diversified, well-capitalized brokerage firms, financial institutions
and other organizations. The Company, in many instances, competes directly
with such organizations for market share of commission dollars, and qualified
registered representatives and insurance agents.

Insurance Services. The Company's agency operations are intensely
competitive in all of its phases, and there are more than 2.5 million
insurance agents in the United States representing more than 1,100 life and
health insurance companies. The Company believes it is able to compete
effectively on the basis of the quality and prices of the insurance products
offered by the Insurers, its ability to incent it agents to sell the Company's
products through the Company's commission structure, administrative and
marketing support, achievement awards, management opportunities and ownership
opportunities, and the loyalty of its client base. See "Management--1993
Option Plan."

Securities Brokerage. Rushmore Securities' sales market is characterized by
intense competition among more than 5,400 NASD member firms employing more
than 500,000 registered representatives. Most of the Company's competitors are
very large, well capitalized global organizations that offer a full range of
investment products. Rushmore Securities believes it is able to compete
effectively due to Rushmore Securities' access to the same securities as
larger firms and the experience and qualification of its sales force. Rushmore
Securities believes it competes effectively for registered representatives
based on its favorable commission structure, its ability to provide its
representatives access to all securities markets and research and the
opportunity to earn stock options in the Company. In addition, Rushmore
Securities has benefited from the increase in securities trading volume during
recent years. Combined, listed companies on the New York Stock Exchange and
American Stock Exchange and NASDAQ have increased from 6,414 in 1987 to 9,272
in 1997 with market capitalization increasing from $2.67 trillion in 1987 to
$10.68 trillion in 1997, according to reports published by such exchanges.
Combined average daily share volume for the New York Stock Exchange and
American Stock Exchange and NASDAQ have increased from 341 million shares in
1987 to 1.1 billion shares in 1997.

Investment Advisory. Rushmore Advisors attracts funds for management
utilizing the broad network of brokers and agents of Rushmore Insurance and
Rushmore Securities. Rushmore Advisors also utilizes a network of CPA's and
other professionals who actively market fee-based advisory services. Rushmore
Advisors markets its services emphasizing its flexible fee structure and its
investment track record, which it believes is competitive within the industry.
Rushmore Advisors has an information system that provides direct and timely
access to the world markets and information systems, as well as, a proprietary
investment management reporting system that is in compliance with the
performance reporting standards of the Association of Investment Management
and Research ("AIMR").

EMPLOYEES

As of September 30, 1997, Rushmore had a total of 151 employees, including
127 in its securities operations, 17 in its insurance services area, 2 in its
advisory business, and 5 in its executive offices. A total of 22 are located
at the Company's offices in Dallas. All but seven employees are compensated on
the basis of commissions and other incentive-based compensation.

The Company is under contract with an additional 1,300 independent agents to
market life insurance in 39 states.

25
<PAGE>

None of the Company's employees is represented by a union, and the Company
believes that its relationship with its employees and agents is satisfactory.

PROPERTIES

The Company leases 12,305 square feet in two offices at the Dallas Galleria
One Office Tower. Certain of the Company's registered representatives maintain
facilities comprising 5,190 square feet as branch offices of Rushmore
Securities. The Company believes these facilities are adequate to meet its
requirements for the foreseeable future, although it may open additional
branch offices.

REGULATION

The Company's business is subject to a high degree of regulation. The
insurance and securities businesses are two of the most highly regulated
industries in the United States, and regulatory pressures can have a direct
effect on the Company's operations.

Insurance Regulation. Rushmore Life is subject to comprehensive state
insurance regulation by the Division of Insurance of the State of Arizona.
Additionally, Rushmore Life will be subject to regulation in any other states
in which it conducts business in the future. The powers of the Commissioner of
Insurance in Arizona and other states include the granting and revocation of
certificates of authority to transact insurance business, review of adequacy
of reserves and of guaranty funds and surplus required by statute,
determination of the form and content of required financial statements,
approval of policy forms, and review of Rushmore Life's business practices so
as to ascertain that certain standards are met. These supervisory agencies
periodically examine the business and accounts of insurers and require
insurers to file detailed annual convention statements.

Rushmore Life can also be required under the solvency or guaranty laws of
the State of Arizona to pay assessments (up to prescribed limits) to fund
liabilities of insurance companies that become impaired or insolvent. These
assessments may be abated or deferred if they would endanger the ability of
Rushmore Life to fulfill its contractual obligations. The amount of any future
assessments under these laws cannot reasonably be estimated.

Arizona and substantially all other states regulate members of insurance
holding company systems. Under the insurance holding company statute in
Arizona, the insurance authorities in such state must approve in advance the
direct or indirect acquisition of 10% or more of the voting securities of an
insurance company chartered in Arizona. Such statutes also regulate certain
transactions among affiliates, including the payment of dividends or service
fees by an insurance company to its holding company parent. In states such as
Arizona, without the consent of the state's insurance authority, an insurance
company may not pay during any year dividends to its holding company parent in
excess of the lesser of net gains from operations, which generally represent
net income, or 10% of the insurance company's surplus, which generally
represents paid in capital and retain earnings.

The Company has entered into an Administrative Services Agreement with
Rushmore Life, approved by the Arizona Department of Insurance, that allows
the Company to charge a share of its overhead and all direct costs to Rushmore
Life.

In the event Rushmore Life should fail to comply with applicable insurance
laws and regulations, the Commissioner of Insurance of Arizona is empowered,
depending upon the circumstances and the particular provisions in question, to
impose fines and/or penalties against Rushmore Life, suspend or revoke
Rushmore Life's certificate of authority, to direct supervision of or appoint
a conservator for Rushmore Life's property and conduct of its business or to
seek such other relief as the circumstances and interest of Rushmore Life
policy holders and creditors may require.

Rushmore Agency is subject to regulation as an insurance agency by the Texas
Department of Insurance. Such regulations includes the requirement for all
agents to pass tests and background checks. Rushmore Agency

26
<PAGE>

is subject to periodic examination and can be fined, censured or even
liquidated if it is found to be in violation of applicable standards.

Securities Regulation. Rushmore Securities is subject to regulation by the
Securities and Exchange Commission, the NASD, the SIPC, the Texas State
Securities Board and the securities exchanges. The NASD and State Securities
Board regularly inspect Rushmore Securities' books and records to determine
compliance with laws applicable to securities dealers.

Investment Adviser Regulation. Depending on their size, investment advisers
are subject to regulation by the Securities and Exchange Commission or state
securities regulators. Until Rushmore Advisors has $25 million under
management, it will be regulated by the Texas State Securities Board. Such
regulation covers testing and background checks on officers and employees of
the advisor, review and approval of business methods, compensation structures
and advisory agreements, and advertising.

LEGAL PROCEEDINGS

The Company is engaged from time to time in routine litigation incidental to
its business. On May 23, 1997, Rushmore filed suit against the former chief
executive officer of the holding company of Rushmore Life in Rushmore Capital
Corporation and First Financial Life Insurance Company v. Donald E. Ebbert,
First Financial Marketing Services, Inc. and First Travel, Inc., Cause No.
907-4793-L in the 193rd District Court of Dallas County, Texas. The Company
alleges that after he resigned from the company and had all of his stock
ownership redeemed, Mr. Ebbert and his affiliates failed to turn over all
money, property and books and records of Rushmore Life in his possession. In
addition, the Company alleges that he overstated to the Company the value of a
block of insurance business coinsured to an Insurer, resulting in an
overpayment of the redemption price to him and entitling the Company to be
relieved of any further obligation under the redemption agreement. In January
1998, the defendants filed a counterclaim against the Company and a third
party complaint against the Company's directors, alleging that the Company
breached the redemption agreement by failing to allow him to effect the sale
of the block of insurance business, and charged the Company with oppression of
a minority shareholder, tortious interference with contract and breach of
fiduciary duty. The Company believes that it has valid defenses to the
counterclaim and third party complaint and intends to pursue its primary claim
vigorously.

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<PAGE>

MANAGEMENT

The executive officers, directors and key employees of the Company upon
completion of the Offering and their respective ages and positions are as
follows:

<TABLE>
<CAPTION>
TERM AS
NAME AGE POSITION(S) DIRECTOR EXPIRES
---- --- ----------- ----------------
<S> <C> <C> <C>
Dewey M. (Rusty)
Moore, Jr. ............ 48 Chairman, President, Chief Executive Officer and Director 1999
Jim W. Clark............ 45 President of Rushmore Securities, Director and Secretary 2000
Frederick E. (Fritz)
Mowery................. 42 President of Rushmore Advisors and Director 1998
Robert W. Hendren....... 44 Chief Financial Officer
Timothy J. Gardiner..... 42 Director 1999
H. Gary Curry........... 57 Director 1998
Mark S. Adler........... 43 Director 2000
James Fehleison(a)...... 39 Director 1999
Harlan T. Cardwell,
III.................... 41 Director 1998
Gayle C. Tinsley(a)..... 67 Director 2000
<CAPTION>
KEY EMPLOYEES
-------------
<S> <C> <C> <C>
Christine E. Miller..... 59 Vice President of Administration
Howard M. Stein......... 49 Controller
G. A. Brunott, Jr....... 47 President of Rushmore Agency
Thomas G. Coleman,
Jr. ................... 46 Vice President of Rushmore Securities
Benjamin H. Dean........ 34 Director of RushMAP
Richard C. Lee.......... 32 Director of Career Partners Division
</TABLE>
- --------
(a) Will become a director and member of Audit Committee and Compensation
Committee following the closing of the Offering.

Dewey M. (Rusty) Moore, Jr., is the founder and has been President of the
Company since its formation in 1990. Prior to that he was a senior vice
president and national sales director of a large insurance and securities
marketing organization. Mr. Moore graduated with a bachelor in business
administration degree from Southern Methodist University in 1971.

Jim W. Clark has been President of Rushmore Securities since 1991 and
Secretary of the Company since 1993. He is a general securities registered
principal and financial operations principal and supervises all registered
representatives and branch office operations. Mr. Clark is a graduate of Texas
Tech University with a bachelor of arts degree.

Frederick E. (Fritz) Mowery has been President of Rushmore Advisors since
January 1996. From November 1990 to September 1995, he was a senior portfolio
manager with Comerica Bank-Texas, and from September 1995 to January 1996, he
was President of Guardian Financial Management. He is a certified financial
planner and a graduate of Texas Tech University with a bachelor in business
administration degree.

Robert W. Hendren began serving as Chief Financial Officer in January 1998.
Prior to that he served from October 1997 to January 1998 as an examiner for
the Oklahoma Department of Insurance, from June 1997 to October 1997 as Chief
Financial Officer of United Benefit Managed Care Corp. and from September 1985
to June 1997 as Chief Financial Officer of National Health Insurance
Corporation. Mr. Hendren is a certified public accountant, a Fellow of the
Life Management Institute and holds a bachelor of business administration
degree from Oklahoma State University.

Timothy J. Gardiner has been a director of the Company since April 1997. He
has been a regional director of Managed Economics for Doctors, Inc. since
1991, a company engaged in financial planning to members of the medical
profession. He holds a bachelor of arts degree from Florida Atlantic
University.

28
<PAGE>

H. Gary Curry has been a director of the Company since April 1997 and an
officer and director of Rushmore Life since 1989. He has been President of
ORBA Financial Management, Inc. since 1982, which is a financial services
marketing organization providing product and support services to financial
services professionals. He holds a bachelor of science degree from California
State University.

Mark S. Adler has been a director of the Company since April 1997 and a
director of Rushmore Life since 1996. He has served since 1990 as President
and a co-founder of A&R Financial and Insurance Services, Inc., a company that
markets insurance and investment services to Public Safety Unions throughout
California. Mr. Adler is a 1978 graduate of San Diego State University with a
bachelor of arts degree.

James Fehleison will become a director following the Offering. He is
currently the Chief Financial Officer of First Southwest Holdings, Inc., the
parent of the Representative of the Underwriters. From 1995 to 1997, he was
Chief Financial Officer of the corporate services division of Fidelity
Investments. From 1985 to 1995, he was Senior Vice President and Controller of
Rauscher Pierce Refsnes, Inc. He is a certified public accountant with a
bachelor of business administration degree from Texas Tech University.

Harlan T. (Tra) Cardwell, III has served as a director of the Company since
April 1997. He served from 1983 to 1992 as a loan officer for Herring National
Bank. He is also director of the Company's annuity division since April 1992
and is a certified financial planner. Mr. Cardwell holds a bachelor of science
degree and a master of science degree from Texas Tech University and is a
graduate of the Southwestern School of Banking at Southern Methodist
University.

Gayle C. Tinsley will become a director following the Offering. He has
served as a consultant to small businesses since 1988 in the areas of business
and marketing plan development and capital funding. Prior to 1988, he was Vice
President of Sales, Marketing and Technical Services of VMX Corporation, and
is a former President and Chief Executive Officer of Docutel/Olivetti
Corporation. Mr. Tinsley has held management positions with Xerox Corporation,
Recognition Equipment, Inc. and IBM Corporation. He is a graduate of East
Texas State University with a bachelor of science degree.

Christine E. Miller has served as Vice President of Administration of the
Company since February 1992 and has been employed by the Company since its
inception.

Howard M. Stein has served as Controller of the Company since February 1995
and was Chief Financial Officer until January 1998. Prior to joining the
Company, from 1987 until 1992 he was a Controller for First Gibraltar Bank and
from 1992 to 1994 he was Controller and Chief Financial Officer of FTS Life
Insurance Agency, Inc. He is a certified public accountant in the State of
Texas and holds a bachelor of business administration degree from the
University of Texas.

G.A. (Chip) Brunott, Jr. has served as President of Rushmore Agency since
January 1996 and as director of marketing from 1993 to 1996. He has a
background in retail sales, small business management and church and ministry
organization. He holds a bachelor of arts degree from Washburn University and
a master of theology degree from Dallas Theological Seminary.

Thomas G. Coleman, Jr. has served as Vice President of Rushmore Securities
in charge of its discount brokerage division since February 1994. From 1988 to
1994 he was a registered representative with Ellsworth Investments, Inc. Mr.
Coleman is a certified public accountant and holds a bachelor of business
administration degree from Southern Methodist University.

Benjamin H. Dean has served as director of RushMAP since July 1996. From
November 1992 until May 1996, he was manager of advisory services for 1st
Global Capital Corp. Mr. Dean is a certified financial planner. Mr. Dean holds
a bachelor of business administration degree from the University of North
Texas.

Richard C. Lee has served as director of Rushmore Agency's Career Partners
Division since April 1997. Prior to that, he served as President of ASA
Promotions from 1989 to 1996, a specialty advertising and promotions firm for
the telecommunications industry.

29
<PAGE>

COMMITTEES OF DIRECTORS

Following the completion of the Offering, the Board of Directors will have
the following committees:

<TABLE>
<CAPTION>
COMMITTEE MEMBERS
--------- -------
<S> <C>
Executive................... D. M. Moore, Jr.--Chairman
Jim W. Clark
F. E. Mowery
Audit....................... James Fehleison--Chairman
Gayle C. Tinsley
Compensation................ Gayle C. Tinsley--Chairman
James Fehleison
</TABLE>

The Executive Committee conducts the normal business operations of the
Company except for certain matters reserved to the Board of Directors. The
Audit Committee recommends an independent auditor for the Company, consults
with such independent auditor and reviews the Company's financial statements.
The Compensation Committee recommends to the Board of Directors the
compensation of officers and key employees for the Company and the granting of
stock options. Messrs. Fehleison and Tinsley are considered to be independent
directors for these and other purposes.

COMPENSATION OF DIRECTORS

The Company pays each non-employee director a fee of $2,500 per year, plus a
meeting fee of $250 for each Board meeting attended, and automatically grants
to each director non-qualified stock options for 2,500 shares of Common Stock
per year.

EXECUTIVE COMPENSATION

The following summary compensation table sets forth the total annual
compensation paid or accrued by the Company to or for the account of the Chief
Executive Officer and each other executive officer of the Company whose total
cash compensation for the fiscal year ended December 31, 1996 exceeded
$100,000:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
SECURITIES
SALARY BONUS OTHER LONG TERM UNDERLYING
NAME AND PRINCIPAL POSITION ($) ($) ($) COMPENSATION AWARDS OPTIONS (#)
- --------------------------- ------- ----- -------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
D. M. Moore, Jr......... $60,000(1) -- $114,124(2) -- 23,823
</TABLE>
- --------

(1) Only $3,602 of such amount was paid at the election of Mr. Moore.
(2) Constitutes commissions paid for sales of securities and insurance.

The Company has hired Robert W. Hendren to be the Company's Chief Financial
Officer beginning in February 1998, at an annual salary of $108,000, and has
granted him 10,000 shares of Common Stock at par value and options to purchase
15,000 shares of Common Stock at the initial price to public per share in the
Offering. The shares and options will vest in installments over five years.

1997 STOCK OPTION PLAN

The Rushmore Financial Group, Inc. 1997 Stock Option Plan (the "1997 Option
Plan") provides for the grant to eligible employees and directors of options
for the purchase of Common Stock. The 1997 Option Plan covers, in the
aggregate, a maximum of 500,000 shares of Common Stock and provides for the
granting of both incentive stock options (as defined in Section 422 of the
Internal Revenue Code of 1986) and nonqualified stock options (options which
do not meet the requirements of Section 422). Under the 1997 Option Plan, the
exercise price may not be less than the fair market value of the Common Stock
on the date of the grant of the option. As of September 30, 1997, options for
37,000 shares had been granted under the 1997 Option Plan at an exercise price
of $1.92 per share, including options for 1,250 shares granted to D. M. Moore,
Jr. In order to comply with

30
<PAGE>

certain "blue sky" qualification requirements, the Board of Directors of the
Company has adopted resolutions prohibiting the grant of options for one year
following the date of this Prospectus in an amount that, together with all
already outstanding options under the 1997 Option Plan and the 1993 Option
Plan, would exceed 15% of the total number of shares outstanding upon
completion of this Offering.

The Board of Directors administers and interprets the 1997 Option Plan and
is authorized to grant options thereunder to all eligible employees of the
Company, including officers. The Board of Directors designates the optionees,
the number of shares subject to the options and the terms and conditions of
each option. Options under the 1997 Option Plan generally vest over a five
year period. Certain changes in control of the Company will cause the options
to vest immediately. Each option granted under the 1997 Option Plan must be
exercised, if at all, during a period established in the grant which may not
exceed 10 years from the later of the date of grant or the date first
exercisable. An optionee may not transfer or assign any option granted and may
not exercise any options after a specified period subsequent to the
termination of the optionee's employment with the Company.

1993 OPTION PLAN

The Rushmore Incentive Stock Option Plan (the "1993 Option Plan") provided
for the grant of options to eligible employees, agents and directors to
purchase Common Stock. The 1993 Option Plan provided for the grant of both
incentive stock options and non-qualified stock options at exercise prices
equal to the fair market value of the Common Stock on the date of grant as
determined by the Board of Directors.

A total of 250,000 shares of Common Stock were reserved for issuance under
the 1993 Option Plan, and Options for 249,999 shares were granted between 1993
and 1997 at prices ranging from $0.20 to $1.50 per share. Of the options
granted, 123,426 shares have been exercised, and 126,573 shares remain
outstanding and expire between March 1998 and March 2004.

Of the options granted under the 1993 Option Plan, options for 130,833
shares were granted to D. M. Moore, Jr. at exercise prices ranging from $0.20
to $1.50 per share. Mr. Moore holds unexercised options under both plans for a
total of 23,823 shares at an aggregate exercise price of $14,498, and the
value of his in-the-money options is $116,529, based on an assumed Offering
price of $5.50.

STOCK PURCHASE PLAN

The Company has offered shares of Common Stock in private placements each
year since 1992 primarily to its employees, agents and representatives at a
price based on the net asset value of the shares. The amount offered to each
has varied based upon the productivity of the offeree as determined by the
Company. A total of 1,376,557 shares have been issued under such arrangements.
The Company has discontinued this plan and will use stock options to incent
its employees and agents.

LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS

The Company's Articles of Incorporation limit the liability of directors of
the Company to the Company or its shareholders to the fullest extent permitted
by Texas Business Corporation Act (the "TBCA").

The Company's Bylaws provide that the Company shall indemnify each of its
directors and officers to the maximum extent allowed by the TBCA. The TBCA
permits such indemnification, so long as such person acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company. Such indemnification may be made only upon a
determination by the Board of Directors that such indemnification is proper in
the circumstances because the person to be indemnified has met the applicable
standard of conduct to permit indemnification under the law. The Company is
also permitted to advance to such persons payment for their expenses incurred
in defending a proceeding to which indemnification might apply, provided the
recipient provides an undertaking agreeing to repay all such advanced amounts
if it is ultimately determined that he is not entitled to be indemnified.

The Company has entered into Indemnification Agreements with each officer
and director in which the Company agrees to indemnify such persons to the
fullest extent allowed by the TBCA and defines the procedures for paying
indemnity costs and expenses, including advance payments thereof.

31
<PAGE>

As of the date hereof, except as described under "Business -- Legal
Proceedings", there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted, and the Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.

Insofar as indemnification for liabilities arising from the Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with each of Messrs.
Moore and Clark, which provide for an annual salary of $138,000 and $96,000,
respectively, which may be adjusted upwards annually. Both employment
agreements provide for three year terms. Mr. Moore's agreement renews monthly,
and Mr. Clark's renews annually. In addition, each of Messrs. Moore and Clark
are entitled to additional compensation from commissions and overrides for
accounts serviced by the employee as a broker, and an override commission on
commissions earned by persons introduced by the employee to the Company and
its subsidiaries (such annual salary and additional compensation are referred
to as the "Combined Compensation").

Each employment agreement also provides that if the employee dies, his
estate shall be entitled to receive three years' Combined Compensation either
in 36 monthly installments or in cash. In addition, in the event that
employee's employment is terminated by the Company except for cause, death or
disability, the employee shall be entitled to receive three years' annual
salary, plus any additional compensation due to such employee in 36 monthly
installments.

CERTAIN TRANSACTIONS

The Company believes that all of the transactions set forth below, which
were approved by the full Board of Directors of the Company, which included
independent directors, were made on terms no less favorable to the Company
than could have been obtained from unaffiliated third parties. All future
transactions, including loans, between the Company and its officers,
directors, principal shareholders and affiliates, will be approved by a
majority of the Board of Directors, including a majority of the independent
and disinterested outside directors who will have access at the Company's
expense to the Company's or independent legal counsel, and will be on terms no
less favorable to the Company than could be obtained from unaffiliated third
parties.

D. M. Moore, Jr., the Company's President and Chief Executive Officer, owns
100% of Rushmore Agency, due to provisions of the Texas Insurance Code that
prohibit ownership of life insurance agencies by corporations. Pursuant to an
Overhead Services Agreement between Mr. Moore and the Company, all activities
of the agency are administered by Rushmore, and all revenues and expenses of
the agency are passed through to the Company. Mr. Moore has also granted the
Company an irrevocable option for the Company to appoint any other qualified
person to acquire the capital stock of Rushmore Agency on its behalf.

Mr. Moore is also the 100% owner of a company known as Rushmore Realty
Advisors, Inc., which is a licensed real estate agent in Texas ("Rushmore
Realty"). Rushmore Realty acted as the real estate agent for Rushmore in
negotiating two new office leases during 1997, and received commissions of
$27,693 that were paid by the landlord and sublessor.

32
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus
(including exercisable options) and as adjusted to reflect the sale of Common
Stock being offered by the Company hereby, for (1) each person known by the
Company to own beneficially 5% or more of the Common Stock, (2) each director
and executive officer of the Company and (3) all directors and executive
officers of the Company as a group. Except pursuant to applicable community
property laws and except as otherwise indicated, each shareholder identified
in the table possesses sole voting and investment power with respect to its or
his shares. The addresses of all such persons are in care of the Company.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK
------------------------------------------------------------
PERCENTAGE PRIOR PERCENTAGE AFTER PERCENTAGE AFTER
NAME SHARES TO OFFERING MINIMUM OFFERING MAXIMUM OFFERING
---- --------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
D. M. Moore, Jr.(1)..... 535,295 25.1 18.6 15.8
Mark S. Adler(2)........ 188,941 9.0 6.6 5.6
H. Gary Curry(2)........ 108,557 5.2 3.8 3.2
Jim W. Clark(4)......... 86,241 4.1 3.0 2.5
F. E. Mowery(3)......... 29,391 1.4 1.0 *
Robert W. Hendren....... -- -- -- --
Timothy J. Gardiner..... 26,041 1.2 * *
Harlan T. Cardwell,
III.................... 11,250 * * *
James Fehleison......... 5,000 * * *
Gayle C. Tinsley........ 12,000 * * *
All executive officers
and directors and
prospective directors
as a group
(10 persons)........... 1,002,716 46.2 34.3 29.3
</TABLE>
- --------
* Less than 1%
(1) Includes options to purchase 23,823 shares of Common Stock and 7,629
shares held of record by Mr. Moore's spouse.
(2) Includes options to purchase 1,500 shares of Common Stock.
(3) Includes options to purchase 2,334 shares of Common Stock.
(4) Includes options to purchase 35,833 shares of Common Stock.

All of the foregoing and 24 other shareholders holding a total of 1,649,233
shares have agreed with the Representative that they will not offer their
shares for sale without the Representative's consent for a period of 180 days
following the completion of the Offering. All of the foregoing persons and
certain other persons have agreed pursuant to State Blue Sky requirements to
subject certain of their shares to a lock-in agreement until the Company meets
certain earnings or other requirements.

33
<PAGE>

DESCRIPTION OF SECURITIES

The following summary of the Company's capital stock is qualified in its
entirety by reference to the Company's Articles of Incorporation and its
Bylaws, each of which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part.

COMMON STOCK

Rushmore has authorized 10,000,000 shares of Common Stock, par value $0.01
per share, of which a maximum of 3,354,877 shares will be outstanding
immediately following this Offering. Holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. All shares of Common Stock have equal voting
rights on the basis of one vote per share on all matters to be voted upon by
shareholders. Cumulative voting for the election of directors is not
permitted, so that the holders of a majority of shares outstanding have the
power to elect the entire Board of Directors. Shares of Rushmore Common Stock
have no preemptive, conversion, sinking fund or redemption provisions and are
not liable for assessment. Each share of Rushmore Common Stock is entitled to
share proportionately in any assets available for distribution upon
liquidation of Rushmore.

The Transfer Agent and Registrar for the Company's Common Stock is UMB Bank,
N.A.

PREFERRED STOCK

Rushmore has authorized 5,000,000 shares of preferred stock, par value
$10.00 per share, of which two series totaling 18,092 shares will be
outstanding immediately following this Offering with a combined liquidation
value of $180,920. The Preferred Stock may be issued in series or classes as
determined by the Board of Directors from time to time without shareholder
approval, although the Directors do not anticipate any additional issuances of
preferred stock. The Board of Directors has designated an authorized class of
100,000 preferred shares, called 9% Cumulative Preferred Stock, of which 4,300
shares were sold at a price of $10.00 per share and an authorized class of
15,000 preferred shares, called Series A Cumulative Preferred Stock, of which
13,792 shares were sold at a price of $10.00 per share. Both classes of
Preferred Stock have the following rights and preferences:

Dividends. The Company pays a 9% quarterly dividend on its par value ($0.225
per share per quarter) each January 15, April 15, July 15, and October 15 of
each year. Dividends will be paid if funds are lawfully available, and, if
not, will be cumulated and paid on the next dividend date when funds are
available. No dividends will be payable on Common Stock if any payment of a
preferred stock dividend has been missed.

Voting. Shares of Preferred Stock carry no voting rights.

Liquidation Preference. Holders of Preferred stock are entitled to receive a
payment in the amount of $10.00 per share plus any cumulated but unpaid
dividends in the event Rushmore is liquidated, before any payment is made by
Rushmore to the holders of Rushmore Common Stock with respect to their shares.

Redemption. Rushmore may call the Preferred Stock for redemption at a
redemption price of $10.00 per share.

Conversion. Shares of outstanding Preferred Stock are not convertible into
any other security of the Company.

Sinking Fund. The 9% Cumulative Preferred Stock contains a provision for a
sinking fund to enable redemption; however such sinking fund has not been
funded, and the holders have waived such omission.

Additional Issuances. No further issuances of Preferred Stock of the
existing or any new series will be made without the approval of the Audit
Committee of the Board of Directors, which is comprised of independent

34
<PAGE>

directors. No issuances of any Preferred Stock will be issued to any officer,
director or holder of more than 5% of the outstanding Common Stock on any
terms different from issuances to other nonaffiliated purchasers.

POSSIBLE ANTI-TAKEOVER PROVISIONS

Special Meetings of Shareholders; Director Nominees. The Company's bylaws
and Articles provide that special meetings of shareholders may be called by
shareholders only if the holders of at least 66 2/3% of the Common Stock join
in such action. The bylaws and Articles also provide that shareholders
desiring to nominate a person for election to the Board of Directors must
submit their nominations to the Company at least 60 days in advance of the
date on which the last annual shareholders' meeting was held, and provide that
the number of directors to be elected (within the minimum-maximum range of 3
to 21 set forth in the Articles and bylaws) shall be determined by the Board
of Directors or by the holders of at least 66 2/3% of the Common Stock. While
these provisions of the Articles and bylaws have been established to provide a
more cost-efficient method of calling special meetings of shareholders and a
more orderly and complete presentation and consideration of shareholder
nominations, they could have the effect of discouraging certain shareholder
actions or opposition to candidates selected by the Board of Directors and
provide incumbent management a greater opportunity to oppose shareholder
nominees or hostile actions by shareholders. The affirmative vote of holders
of at least 66 2/3% of the Common Stock is necessary to amend, alter or adopt
any provision inconsistent with or repeal any of these provisions.

Removal of Directors. The Articles of the Company provide that directors may
be removed from office only for "cause" by the affirmative vote of holders of
at least 66 2/3% of the Common Stock. "Cause" means proof beyond the existence
of a reasonable doubt that a director has been convicted of a felony,
committed gross negligence or willful misconduct resulting in a material
detriment to the Company, or committed a material breach of such director's
fiduciary duty to the Company resulting in a material detriment to the
Company. The inability to remove directors except for "cause" could provide
incumbent management with a greater opportunity to oppose hostile actions by
shareholders. The affirmative vote of holders of at least 66 2/3% of the
Common Stock is necessary to amend, alter or adopt any provision inconsistent
with or repeal this provision.

Classification of Directors. The Articles and bylaws divide the Board of
directors into three classes, equal or approximately equal in number, serving
staggered three year terms. The Board of Directors is presently comprised of
seven members (until subsequently changed by the Board of Directors or
shareholders in accordance with the procedures described above), with classes
having three members each. Two additional directors will take office following
the Offering. At each annual meeting of shareholders, directors in the class
whose terms are expiring shall be elected for three-year terms to succeed
those whose terms expired. The affirmative vote of holders of at least 66 2/3%
of the Common Stock is necessary to amend, alter or adopt any provision
inconsistent with or repeal this provision.

The provisions regarding classification of directors were established to
provide orderly transition and continuity in the membership of the Board of
Directors. Such procedures could, however, have the effect of providing
incumbent management a greater opportunity to oppose hostile actions by
shareholders. Moreover, it requires two annual meetings of shareholders to
consider and vote upon reelection or removal of a majority of the members of
the Board, rather than at each annual meeting of shareholders. Also, the
Company's bylaws provide that directors chosen to fill any vacancy (whether by
increase in the number of directors or as a result of resignation, removal or
other events) will serve until the next annual meeting at which their Class is
up for reelection, rather than the next annual meeting at which any Class is
elected.

Business Combination Law. The Company is subject to Part Thirteen (the
"Business Combination Law") of the Texas Business Corporation Act, which took
effect September 1, 1997. In general, the Business Combination Law prevents an
"affiliated shareholder" (defined generally as a person that is or was within
the preceding three-year period the beneficial owner of 20% or more of a
corporation's outstanding voting shares) or its affiliates or associates from
entering into or engaging in a "business combination" (defined generally to

35
<PAGE>

include (i) mergers or share exchanges, (ii) dispositions of assets having an
aggregate value equal to 10% or more of the market value of the assets or of
the outstanding common stock or representing 10% or more of the earning power
or net income of the corporation, (iii) certain issuances or transactions by
the corporation that would increase the affiliated shareholder's number of
shares of the corporation, (iv) certain liquidations or dissolutions, and (v)
the receipt of tax, guarantee, loan or other financial benefits by an
affiliated shareholder other than proportionately as a shareholder of the
corporation) with an "issuing public corporation" (which includes the Company)
during the three-year period immediately following the affiliated
shareholder's acquisition of shares unless (a) before the date such person
became an affiliated shareholder, the board of directors of the issuing public
corporation approves the business combination or the acquisition of shares
made by the affiliated shareholder on such date or (b) not less than six
months after the date such person became an affiliated shareholder, the
business combination is approved by the affirmative vote of holders of at
least two-thirds of the issuing public corporation's outstanding voting shares
not beneficially owned by the affiliated shareholder or its affiliates or
associates. The Business Combination Law does not apply to a business
combination with an affiliated shareholder that was the beneficial owner of
20% or more of the outstanding voting shares of the issuing public corporation
on December 31, 1996, and continuously until the announcement date of the
business combination. In discharging the duties of director under the Business
Combination Act or otherwise a director, in considering the best interests of
the Company, may consider the long-term as well as the short-term interests of
the Company and its shareholders, including the possibility that those
interests may be best served by the continued independence of the Company.

36
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding a maximum
of 3,354,877 shares of Common Stock. In addition, the Company has reserved
178,573 shares for issuance upon exercise of options granted under the
Company's Stock Option Plans, of which 148,573 are immediately exercisable. Of
the 3,354,877 shares to be outstanding after the Offering, the 1,250,000
shares sold to the public hereby will be freely tradeable without restrictions
or registration under the Act, except that any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Act ("Affiliates"), may generally be sold only within the
limitations of Rule 144 described below. The remaining 2,104,877 shares were
issued and sold by the Company in private transactions in reliance upon
exemptions from registration under the Act and are, therefore deemed
"restricted securities" under Rule 144, which may not be sold publicly unless
the shares are registered under the Act or are sold pursuant to an exemption
from registration under Rule 144. Under Rule 144, such restricted securities
issued pursuant to Rule 701 under the Act will become eligible for resale 90
days after the date the Company becomes subject to the reporting requirements
of the Exchange Act, although 1,505,502 of such shares are subject to the
contractual resale restrictions described below. Sales of the restricted
securities in the open market, or the availability of such shares for sale,
could adversely affect the trading price of the Common Stock.

The Company, the Company's executive officers and directors, and certain
shareholders of the Company that own in the aggregate 78.4% of the Common
Stock outstanding prior to the Offering have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities exercisable for or convertible into Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent
of the Representative.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least one year following the later of the date of the acquisition of such
shares from the issuer or an affiliate of the issuer would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of: (i) 1% of the number of shares of Common Stock then outstanding
(approximately 33,548 shares immediately after this Offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and the availability of current public information about
the Company. Rule 144 generally becomes available 90 days after the issuer has
been subject to the information reporting requirements of the Exchange Act.
Under Rule 144(k), a person who is not deemed to have been an affiliate of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
following the later of the date of the acquisition of such shares from the
issuer or an affiliate of the issuer, is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.

The Company intends to file registration statements on Form S-8 under the
Securities Act covering the offering and sale of the 750,000 shares of Common
Stock reserved for issuance under the Stock Option Plans. Accordingly, shares
of Common Stock issued upon exercise of options granted under the Stock Option
Plan will be available for sale in the open market, unless such shares are
subject to certain lock-up agreements. See "Underwriting."

37
<PAGE>

UNDERWRITING

Subject to the terms and conditions of an Underwriting Agreement, the
Company has retained the services of First Southwest Company and Rushmore
Securities Corporation, a wholly owned subsidiary of the Company (together the
"Underwriters"), to offer and sell the Common Stock offered hereby on a "best
efforts" basis at the public offering price of $5.50 per share which is
contingent upon the sale of 750,000 shares of the Company's Common Stock.

The offering period will extend for a period of 45 days from the date of
this Prospectus, unless the Underwriters and the Company agree to extend the
offering period for an additional period of 15 days (such periods are
collectively referred to as, "the Selling Period"). All proceeds from the sale
of the shares of Common Stock will be transmitted promptly to an escrow
account at Bank One Investment Management & Trust Group. In the event that
750,000 shares of Common Stock are not sold within the time provided herein,
all funds will be promptly returned to subscribers with any interest earned
thereon and without any deduction for commissions or expenses. The purchasers
will not receive stock certificates until the closing of the Offering, which
will occur not later than 70 days after the date of this Prospectus. There
will be no interim closing. No affiliate or member of management will purchase
any shares of Common Stock in the Offering in order to enable the Company to
achieve the minimum Offering. During the Selling Period, subscribers will have
no right to demand the return of their subscriptions. On behalf of the
Company, the Underwriters propose to offer the Common Stock, in part, directly
to retail purchasers at the initial public offering price set forth of the
cover page of this Prospectus and in part to certain dealers who are members
of the National Association of Securities Dealers, Inc. at such price, less a
concession not in excess of $0.26 per share. The Underwriters may allow, and
such dealers may reallow, a concession not exceeding $0.10 per share to other
dealers. The Representative of the Underwriters has advised the Company that
the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

Contingent upon the sale of 750,000 shares of the Company's Common Stock,
the Company will pay the Underwriters a commission of eight percent of the
public offering price.

Upon completion of this Offering, the Company will issue to the
Representative, for nominal consideration, warrants to purchase 50,000 shares
of Common Stock (the "Warrants"). The Warrants will become exercisable one
year after completion of this Offering, at an exercise price per share of 110%
of the initial price to public set forth on the cover page of this Prospectus
and will expire five years from the effective date of this Prospectus. The
Warrants contain provisions providing for adjustment of the exercise price and
the number and type of securities issuable upon exercise upon the occurrence
of any recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. The Warrants grant to the holder thereof
certain registration rights for the securities issuable upon exercise thereof.

The Company will pay the Representative a non-accountable expense allowance
of $75,000. The Representative's expenses in excess of the non-accountable
expense allowance, including its legal expenses, will be borne by the
Representative.

Rushmore Securities Corporation is a wholly-owned subsidiary of the Company,
and D. M. Moore, Jr. is a member of the Board of Directors of both Rushmore
Securities Corporation and the Company. Such affiliation between the Company
and Rushmore Securities is a conflict of interest under Rule 2720(b)(7) of the
Conduct Rules of the NASD. Accordingly, Rushmore Securities will not
participate in determining the initial public offering price for the Common
Stock. Instead, in accordance with Rule 2720(c), First Southwest Company will
assume the responsibilities of acting as the qualified independent underwriter
in pricing this Offering and conducting due diligence. In addition, Rushmore
Securities will not act as a market maker for the Company's Common Stock
following the offering, and will be limited to participation in secondary
market transactions exempt under Section 4(4) of the Securities Act of 1933.
The initial public offering price of the shares offered hereby is no higher
than the price recommended by First Southwest Company. Mr. James Fehleison,
Chief

38
<PAGE>

Financial Officer of First Southwest Holdings, Inc., the parent corporation of
the Representative, will join the Board of Directors of the Company upon
completion of the offering.

Until the distribution of Common Stock in this Offering is completed, rules
of the Securities and Exchange Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the Representative is permitted
to engage in certain transactions that stabilize the price of the Common
Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock. If the
Underwriters create a short position in the Common Stock in connection with
this Offering, i.e., if they sell more shares of Common Stock than are set
forth on the cover page of this Prospectus, the Representative may reduce the
short position by purchasing Common Stock in the open market. The
Representative may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Representative purchases shares
of Common Stock in the open market to reduce the Underwriters' short position
or to stabilize the price of the Common Stock, it may reclaim the amount of
the selling concession from the Underwriters and selling group members who
sold those shares as part of this offering. In general, purchases of a
security for the purposes of stabilization or to reduce a short position could
cause the price of the security to be higher than it might be in the absence
of such purchases. The imposition of a penalty bid might also have an effect
on the price of a security to the extent that it discouraged resales of any
security. Neither the Company nor the Representative makes any representation
or predictions as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor the Underwriters make any representation
that the Representative will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.

Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock was determined by negotiations between the Company and the
Representative. Among the factors considered in such negotiations were
prevailing market conditions, the results of operations of the Company in
recent periods, the market capitalizations and stages of development of other
companies which the Company and the Representative believe to be comparable to
the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant. There
can be no assurance, however, that the prices at which the Common Stock will
trade in the public market following this Offering will not be lower than the
initial offering price.

The Company and all of its current officers and directors and certain of its
shareholders have agreed not to offer, sell or otherwise dispose of any shares
of Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of First Southwest Company. Certain
directors of the Company purchased shares of Common Stock in November 1997 in
a private placement transaction. As such shares are considered underwriting
compensation under Rule 2710(c) of the Conduct Rules of the NASD, such
directors have agreed not to sell, transfer, assign, pledge or hypothecate
such shares of Common Stock for a period of one year after the date of this
Prospectus, except as provided in Rule 2710(c)(7).

The Company has agreed to indemnify the Underwriters against, and to
contribute to losses arising out of, certain civil liabilities and claims of
civil liabilities, including liabilities and claims of civil liabilities under
the Securities Act.

LEGAL MATTERS

Legal matters in connection with the Common Stock being offered hereby will
be passed upon for the Company by Glast, Phillips & Murray, a professional
corporation, Dallas, Texas. Certain legal matters will be passed upon for the
Underwriters by Thompson & Knight, P.C., Dallas, Texas.

39
<PAGE>

EXPERTS

The financial statements of the Company as of December 31, 1996, and for
each of the two years in the period ended December 31, 1996, included in this
Prospectus have been audited by Cheshier & Fuller, L.L.P., independent
accountants, as set forth in their report therein included, and have been so
included in reliance upon such report being given upon their authority as
experts in accounting and auditing.

The financial statements of First Financial Life Companies, Inc. as of
December 31, 1996 and for each of the two years in the period ended December
31, 1996, included in the Prospectus have been audited by Coopers & Lybrand
L.L.P., independent accountants, as set forth in their report therein
included, and have been so included in reliance upon such report being given
upon the authority as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2, together with all
amendments, schedules and exhibits thereto, pursuant to the Securities Act
with respect to the securities offered by this Prospectus. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the Exhibits thereto. The statements contained in this
Prospectus as to the contents of any contract or other document identified as
exhibits in this Prospectus are not necessarily complete, and in each
instance, reference is made to a copy of such contract or document filed as an
exhibit to the Registration Statement, each statement being qualified in any
and all respects by such reference. For further information with respect to
the Company and the securities offered hereby, reference is made to the
Registration Statement and exhibits which may be inspected without charge at
the Commission's principal office at Judiciary Plaza, 450 Fifth Street, NW,
Washington, D.C. 20549.

Upon consummation of this Offering, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, NW, Washington,
D.C. 20549 and at its New York Regional Office, Room 1300, 7 World Trade
Center, New York, NY 10048 and at its Chicago Regional Office, Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511.
Copies of such material may also be obtained from the Public Reference Section
of the Commission at prescribed rates. The Company's Registration Statement on
Form SB-2 as well as any reports to be filed under the Exchange Act can also
be obtained electronically after the Company has filed such documents with the
Commission through a variety of databases, including among others, the
Commission's Electronic Data Gathering, Analysis and Retrieval ("EDGAR")
program, Knight-Ridder Information, Inc., Federal Filings/Dow Jones and
Lexis/Nexis. Additionally, the Commission maintains a Website (at
http://www.sec.gov) that contains such information regarding the Company.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other reports as the Company
deems appropriate or as may be required by law.

Requests for information may be directed to Jim W. Clark, Secretary, c/o
Rushmore Financial Group, Inc., 13355 Noel Road, Suite 650, Dallas, Texas
75240, telephone number (972) 450-6000.

40
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Independent Auditor's Report............................................ F-2
Balance Sheets as of December 31, 1996 and September 30,1997
(unaudited)............................................................ F-4
Statements of Income for the two years ended December 31, 1996 and the
nine months ended September 30, 1997 (unaudited)....................... F-5
Statements of Change in Shareholders' Equity for the two years ended
December 31, 1996 and the nine months ended September 30, 1997
(unaudited)............................................................ F-6
Statement of Cash Flows for the two years ended December 31, 1996 and
nine months ended September 30, 1997 (unaudited)....................... F-8
Notes to Financial Statements........................................... F-9
FIRST FINANCIAL LIFE COMPANIES, INC.
Report of Independent Accountants....................................... F-19
Consolidated Balance Sheet as of December 31, 1996...................... F-20
Consolidated Statement of Operations for the two years ended December
31, 1996............................................................... F-21
Consolidated Statement of Stockholders' Equity for the two years ended
December 31, 1996...................................................... F-22
Consolidated Statement of Cash Flows for the two years ended December
31, 1996............................................................... F-23
Notes to Consolidated Financial Statements.............................. F-24
Statement of Financial Condition as of September 30, 1997 (unaudited)... F-29
Statement of Operations for the nine months ended September 30, 1997
(unaudited)............................................................ F-30
Statement of Shareholders' Equity for the nine months ended September
30, 1997 (unaudited)................................................... F-31
Statement of Cash Flows for the nine months ended September 30, 1997
(unaudited)............................................................ F-32
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES PRO FORMA FINANCIAL DATA
Pro Forma Consolidated Balance Sheet.................................... F-33
Pro Forma Consolidated Statements of Operations......................... F-35
Notes to Pro Forma Consolidated Financial Statements.................... F-37
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Shareholders of Rushmore Financial Group, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheet of Rushmore
Financial Group, Inc. and Subsidiaries (formerly Rushmore Capital Corporation)
as of December 31, 1996, and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for the years ended December
31, 1996 and 1995. These consolidated financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rushmore
Financial Group, Inc. and Subsidiaries as of December 31, 1996, and the
results of their operations and their cash flows for the years ended December
31, 1996 and 1995.

Cheshier & Fuller, L.L.P.
Dallas, Texas
October 10, 1997
(February 2, 1998 as to Note 12)

F-2
<PAGE>

To the Board of Directors and Shareholder of Rushmore Financial Group, Inc.
and Subsidiaries
We have reviewed the accompanying balance sheet of Rushmore Financial Group,
Inc. as of September 30, 1997 and the related statements of income and changes
in shareholder's equity and cash flows for the nine months ended September 30,
1996 and 1997, in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of Rushmore Financial Group, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to
be in conformity with generally accepted accounting principles.

Cheshier & Fuller, L.L.P.
Dallas, Texas
November 25, 1997
(February 2, 1998
as to Note 12)

F-3
<PAGE>

RUSHMORE FINANCIAL GROUP INC. AND SUBSIDIARIES

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments
Cash and short-term investments................... $ 117,738 $ 1,426,363
Amounts on deposit with reinsurer................. 28,894,316
--------- -----------
Total investments............................. 117,738 30,320,679
Deferred policy acquisition costs................... 4,281,359
Notes, accounts receivable and uncollected
premiums........................................... 27,459 219,554
Receivable from brokers and dealers................. 27,255
Prepaid expenses and advances....................... 17,019 119,126
Equity investment in subsidiary..................... 275,346
Equipment, net of accumulated depreciation.......... 67,894 108,463
Goodwill............................................ 487,387
Other assets and intangibles........................ 10,375 49,272
Net deferred federal income taxes................... 95,226
--------- -----------
Total assets.................................. $ 543,086 $35,681,066
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Future policy benefits............................ $ $ 88,016
Universal life contract liabilities............... 33,258,288
Claims payable.................................... 217,537
Notes payable..................................... 24,024 48,021
Due to affiliated companies....................... 15,220
Current federal income taxes...................... 36,260
Other liabilities................................. 152,905 628,232
--------- -----------
Total liabilities............................. 192,149 34,276,354
--------- -----------
Shareholders' Equity
Preferred stock--9% cumulative preferred stock,
$10 par value, 4,300 shares issued and
outstanding in 1996 and 1997..................... 43,000 43,000
Preferred stock--Series A cumulative preferred
stock, $10 par value, 13,792 shares issued and
outstanding in 1996 and 1997..................... 137,920 137,920
Common stock--$0.01 par value, 10,000,000 shares
authorized, 1,419,293 shares issued and
outstanding at December 31, 1996; 10,000,000
shares authorized and 2,005,488 issued and
outstanding at September 30, 1997................ 14,193 20,055
Common stock subscribed, 17,593 shares at $01.50
per share at December 31, 1996; 22,657 shares at
$1.92 per share at September 30, 1997............ 176 227
Additional paid in capital........................ 826,547 1,938,434
Retained earnings (deficit)....................... (531,246) (562,579)
Shareholder/affiliate loans
Common stock subscriptions receivable........... (26,389)
Shareholder loans............................... (98,506) (134,575)
Receivable from affiliates...................... (14,758) (37,770)
--------- -----------
Total shareholders' equity.................... 350,937 1,404,712
--------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $ 543,086 $35,681,066
========= ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ------------------------
1995 1996 1996 1997
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue
Revenue from Insurance
Services
Insurance policy income.... $2,092,002
Net investment income...... 1,050,052
Agent management fee....... $ 151,565 $ 346,968 $ 285,897 73,552
Revenue from Investment
Services
Commissions and fees....... 856,996 1,493,908 985,985 1,620,543
Asset management........... 28,705 13,376 103,292
Other........................ 11,101 15,911 11,307 41,543
---------- ---------- ---------- ----------
Total revenues........... 1,019,662 1,885,492 1,296,565 4,980,984
---------- ---------- ---------- ----------
Expenses
Insurance Services Expenses
Other insurance services
expenses.................. 697,655
Policyholder benefits...... 1,128,230
Amortization of deferred
policy acquisition costs.. 1,041,328
Equity in subsidiary loss.. 33,184 12,893 32,258
Investment services expenses
Commission expense......... 713,308 1,241,476 847,816 1,425,141
Other investment services
expenses.................. 74,058 83,803 17,039 60,127
General and administrative... 430,551 663,172 511,856 629,514
---------- ---------- ---------- ----------
Total expenses........... 1,251,101 2,001,344 1,408,969 4,981,995
---------- ---------- ---------- ----------
Operating income (loss)........ (231,439) (115,852) (112,404) (1,011)
Interest expense............. 2,989 4,535 3,521 4,163
---------- ---------- ---------- ----------
Income (loss) from continuing
operations.................... (234,428) (120,387) (115,925) (5,174)
Discontinued operations
(net)....................... 24,207 (50,504) (33,437) (25,992)
---------- ---------- ---------- ----------
Income before income taxes..... (210,221) (170,891) (149,362) (31,166)
Provision for income taxes... 167
---------- ---------- ---------- ----------
Net income (loss).............. $ (210,221) $ (170,891) $ (149,362) $ (31,333)
========== ========== ========== ==========
Net income (loss) applicable to
common shareholders (Note 8).. $ (216,065) $ (180,778) $ (155,178) $ (43,545)
========== ========== ========== ==========
Net income (loss) per share of
common stock after dividends
on Preferred Stock (Note 8)... $ (.18) $ (.13) $ (.11) $ (.03)
========== ========== ========== ==========
Weighted average common shares
outstanding................... 1,198,256 1,376,777 1,365,938 1,737,588
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED SHAREHOLDER/
PREFERRED COMMON STOCK PAID IN EARNINGS AFFILIATE
STOCK STOCK SUBSCRIBED CAPITAL (DEFICIT) LOANS TOTAL
--------- ------- ---------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... $ 62,740 $10,372 $-0- $468,631 $(150,134) $ (9,671) $ 381,938
Preferred stock issued,
318 shares............. 3,180 3,180
Common stock issued,
287,300 shares......... 2,873 253,159 256,032
Preferred stock
dividends paid......... (5,844) (5,844)
Common stock dividends
paid................... (40,958) (40,958)
Loan and advances to
officers/shareholders.. (36,531) (36,531)
Net loss................ (210,221) (210,221)
-------- ------- ---- -------- --------- --------- ---------
Balance, December 31,
1995................... 65,920 13,245 674,988 (360,355) (46,202) 347,596
Preferred stock issued,
11,500 shares.......... 115,000 115,000
Common stock issued,
94,776 shares.......... 948 135,232 136,180
Common stock subscribed,
17,593 shares.......... 176 26,214 26,390
Preferred stock
dividends paid......... (9,887) (9,887)
Stock subscriptions
receivable............. (26,389) (26,389)
Loans and advances to
officers/shareholders.. (52,304) (52,304)
Receivable from
affiliates............. (14,758) (14,758)
Net (loss).............. (170,891) (170,891)
-------- ------- ---- -------- --------- --------- ---------
Balance, December 31,
1996................... $180,920 $14,193 $176 $826,547 $(531,246) $(139,653) $ 350,937
======== ======= ==== ======== ========= ========= =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)

<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED SHAREHOLDER/
PREFERRED COMMON STOCK PAID IN EARNINGS AFFILIATE
STOCK STOCK SUBSCRIBED CAPITAL (DEFICIT) LOANS TOTAL
--------- ------- ---------- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... $ 65,920 $13,245 $ $ 674,988 $(360,355) $ (46,202) $ 347,596
Preferred stock issued,
11,500 shares.......... 115,000 115,000
Common stock issued,
79,266 shares.......... 793 99,571 100,364
Common stock subscribed,
500 shares............. 5 745 750
Preferred dividends
paid................... (5,816) (5,816)
Loans and advances...... (14,785) (14,785)
Receivable from
affiliate.............. (138,804) (138,804)
Net income (loss)....... (149,362) (149,362)
-------- ------- ----- ---------- --------- --------- ----------
Balance, September 30,
1996................... $180,920 $14,038 $ 5 $ 769,488 $(509,717) $(199,791) $ 254,943
======== ======= ===== ========== ========= ========= ==========
Balance, December 31,
1996................... $180,920 $14,193 $ 176 $ 826,547 $(531,246) $(139,653) $ 350,937
Common stock issued,
586,195 shares......... 5,862 1,107,038 1,112,900
Common stock subscribed,
22,657 shares.......... 227 43,275 43,502
Reclass subscribed
shares................. (176) (26,214) (26,390)
Preferred dividends
paid................... (12,212) (12,212)
Subscriptions
receivable............. 26,389 26,389
Loans and advances...... (36,069) (36,069)
Receivable from
affiliate.............. (23,012) (23,012)
Net income (loss)....... (31,333) (31,333)
-------- ------- ----- ---------- --------- --------- ----------
Balance, September 30,
1997................... $180,920 $20,055 $ 227 $1,938,434 $(562,579) $(172,345) $1,404,712
======== ======= ===== ========== ========= ========= ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- ---------------------------
1995 1996 1996 1997
--------- --------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss)................. $(210,221) $(170,891) $ (149,362) $ (31,333)
Adjustments to reconcile
net (loss) to net cash
provided (used) by
operating activities:
Depreciation and
amortization............. 10,491 13,859 10,455 19,552
Loss from equity
investment............... 33,184 12,893 32,258
Dividends from equity
investment............... 29,982
CHANGE IN ASSETS AND
LIABILITIES NET OF
EFFECTS FROM PURCHASE OF
RUSHMORE LIFE:
(Increase) decrease in
assets:
Deposits................ (311) (10,332) (9,695) (21,815)
Commissions and fees
receivable............. (1,738) (28,262)
Prepaid expenses........ (18,655) 9,730 6,776 (2,381)
Other assets............ 818 (2,890) (40,657) (257,675)
Deferred policy
acquisition costs...... 776,335
Deposits with
reinsurer.............. (532,685)
Uncollected premiums.... (99,575)
Increase (decrease) in
liabilities:
Accounts payable........ (22,680) 23,481 109,062 138,776
Accrued liabilities..... 23,502 72,854 27,568 880
Future policy benefits.. 3,928
Universal Life
liabilities............ 118,607
Claims payable.......... 5,188
Income tax liability.... 3,453
Deferred revenues....... (4,600) 13,054
--------- --------- ----------- -------------
Net cash flows provided
(used) by operating
activities................. (160,228) (79,558) (13,595) 134,309
--------- --------- ----------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Loans to officers and
affiliate................. (12,396) (55,754) (153,589) (59,081)
Purchase of equipment...... (20,302) (26,749) (25,438) (50,373)
Purchase of remaining
interest in equity
investment................ (119,353)
Cash acquired in
acquisition of Rushmore
Life...................... -- -- -- 1,329,149
Increase in equity
investment................ (44,050)
--------- --------- ----------- -------------
Net cash flows provided
(used) by investing
activities................. (76,748) (82,503) (179,027) 1,100,342
--------- --------- ----------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from sale of
Common Stock.............. 249,002 136,180 101,114 62,188
Proceeds from sale of
Preferred Stock........... 3,180 115,000 115,000
Proceeds from sale of
Treasury Stock............ 7,031
Preferred Stock dividends
paid...................... (5,844) (9,887) (5,816) (12,212)
Common Stock dividends
paid...................... (40,958)
Borrowings under term
loans..................... 18,119 20,000 20,000 25,000
Payments on term loans..... (29,008) (27,966) (1,002)
--------- --------- ----------- -------------
Net cash flows provided
(used) by financing
activities................. 230,530 232,285 202,332 73,974
--------- --------- ----------- -------------
Change in cash balances..... (6,446) 70,224 9,710 1,308,625
Cash at beginning of year .. 53,960 47,514 47,514 117,738
--------- --------- ----------- -------------
Cash at end of year......... $ 47,514 $ 117,738 $ 57,224 $ 1,426,363
========= ========= =========== =============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid for interest...... $ 2,989 $ 4,503 $ 3,521 $ 4,163
========= ========= =========== =============
Cash paid for income taxes.. $ -- $ -- $ -- $ --
========= ========= =========== =============
</TABLE>

Non-cash supplementary disclosure of investing activities:

The Company acquired the remaining 74.6% of Rushmore Life on April 8, 1997
for 508,144 shares of common stock, cash of $119,353 and a payable of $18,547.

The accompanying notes are an integral part of these financial statements.

F-8
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

NOTE 1--THE COMPANIES

Rushmore Financial Group, Inc. and Subsidiaries (the "Company"), was
incorporated as Dominion Associates Corporation in September 1990, and in 1991
it began doing business as an independent marketing company. The Company has
since evolved as a holding company of the financial services companies
described below, which offer insurance and investment products to clients
through a network of agents and representatives.

Rushmore Securities Corporation ("Rushmore Securities"), a wholly owned
subsidiary of the Company, was incorporated in July 1980 as Ken Davis
Securities, Inc. Rushmore Securities is registered under federal and state
securities laws as a broker-dealer and is a member of the National Association
of Securities Dealers ("NASD"). Licensed registered representatives offer
clients a variety of investments, including stocks, bonds, mutual funds,
variable annuities and public and private limited partnerships. Rushmore
Securities is a "fully disclosed introducing broker-dealer", which means that
it does not hold any customer funds or securities or have a seat on any stock
exchange. It "clears" its securities trades through Southwest Securities, Inc.
and First Southwest Company, which hold customer funds and securities and
execute trades for such transactions. The clearing broker-dealers receive a
portion of the gross commissions as compensation for handling such
transactions.
Rushmore Financial Corporation ("RFC") was organized in 1993 as a wholly
owned subsidiary. The primary business of RFC was offering consumer lending
services, including first mortgage loans, real estate loans, private mortgage
acquisitions and other services through its national marketing agreements with
a number of national lenders. The business of this subsidiary was discontinued
in March 1997 and its net results of operations are set forth in "loss from
discontinued operations".
Rushmore Investment Advisors, Inc. ("Rushmore Advisors"), was organized in
1996 as a wholly owned subsidiary. The business of Rushmore Advisors is to
provide fee-based investment advice and funds management to customers of the
Company. Rushmore Advisors is registered as an investment adviser with the
Securities and Exchange Commission and the Texas Securities Board. Rushmore
Advisors offers both discretionary and nondiscretionary management of customer
accounts, but does not hold custody of customer funds.
Rushmore Insurance Services, Incorporated ("Rushmore Agency") is an
insurance agency and an affiliate of the Company by means of service
agreements. The agency offers life, health, and disability insurance and
annuities through a network of agents. Rushmore Agency is 100% owned by D.M.
"Rusty" Moore, Jr. The Company and Mr. Moore have entered into an
administrative services agreement whereby net revenues and expenses are
charged via a management fee to Rushmore Agency by the Company as allowed by
regulatory requirements.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation Policy

The accompanying consolidated financial statements include the accounts of
Rushmore Financial Group, Inc. and its subsidiaries, Rushmore Securities, RFC,
Rushmore Advisors and Rushmore Life in 1997. All significant intercompany
transactions have been eliminated in consolidation.

Accounting Method

The Company uses the accrual method of accounting. All income is recorded
when earned, and all expenses are recorded when incurred. Securities
transactions and related commission revenue and expense are recorded on a
trade date basis.

F-9
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Equity Investment

As of December 31, 1996, the Company owned approximately 25% of the
outstanding common stock of First Financial Life Companies, Inc. ("FFLC").
FFLC owned 100% of the common stock of First Financial Life Insurance Company,
an Arizona based domestic life and disability reinsurance company. The
investment in Rushmore Life prior to 1997 is accounted for using the equity
method and the Company's proportional share of any intercompany profits or
losses are eliminated.

Subsequent to December 31, 1996, the Company acquired the remainder of FFLC
by merger and as of September 30, 1997, the Company was the owner of 100% of
FFLIC. Also subsequent to December 31, 1996, the name of FFLIC was changed to
Rushmore Life.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided on the
accelerated method over the estimated useful lives of the assets ranging from
5 to 40 years. Expenditures for maintenance and repairs are charged against
income in the year in which they are incurred, and betterments are
capitalized. When depreciable assets are sold or disposed of, the cost and
accumulated depreciation accounts are reduced by the applicable amounts, and
any profit or loss is credited or charged to income.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of accounting for
equity investments for financial and income tax reporting. Deferred tax assets
and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled.

Use of Accounting Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosures. Accordingly, the actual amounts could differ from those
estimates. Any adjustments applied to estimated amounts are recognized in the
year in which such adjustments are determined.

Summary of Noncash Investing and Financing Activities

As of December 31, 1996, the Company had $26,389 of stock subscription
receivable representing 17,593 shares of common stock.

NOTE 3--NET CAPITAL REQUIREMENTS

Pursuant to the net capital provisions of Rule 15c3-1 under the Securities
Exchange Act of 1934, Rushmore Securities is required to maintain a minimum
net capital, as defined under such provisions. Net capital and the related net
capital ratio may fluctuate on a daily basis.
At December 31, 1996, Rushmore Securities had net capital of approximately
$42,494 and net capital requirements of $5,585. Rushmore Securities' ratio of
aggregate indebtedness to net capital was 1.97 to 1. The Securities and
Exchange Commission permits a ratio of no greater than 15 to 1.

F-10
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4--CONCENTRATION RISK

At December 31, 1996, and at various other times throughout 1996, the
Company had cash balances in excess of federally insured limits. Cash accounts
in banks are insured by the FDIC for up to $100,000. The amount exceeding the
insured limit was approximately $8,000 at December 31, 1996 and $96,436 at
September 30, 1997.

NOTE 5--RELATED PARTY TRANSACTIONS

Management fees of $274,234 and $101,565 during the years ended December 31,
1996 and 1995, respectively, were charged to Rushmore Agency by the Company
for certain general and administrative services. At December 31, 1996, the
Company had $14,758 receivable from Rushmore Agency and $15,220 payable to a
corporation owned by Mr. Moore.

Notes receivable due from officers/shareholders total approximately $39,403
and bear interest of 9%. The notes are payable in 12 monthly principal and
interest installments starting August 1997.

NOTE 6--EQUIPMENT

The principal categories of equipment are summarized as follows:

<TABLE>
<S> <C>
Computer equipment and software.................................... $ 49,425
Office furniture and fixtures...................................... 47,682
Leasehold improvements............................................. 5,229
--------
Total costs........................................................ 102,336
Less accumulated depreciation...................................... 34,442
--------
$ 67,894
========

Depreciation included in the determination of net income amounted to $12,586
and $8,545 in 1996 and 1995, respectively.

NOTE 7--NOTES PAYABLE

Long term debt consists of the following:

Term notes payable to financial institutions in monthly principal
and interest installments ranging from $500 to $777 bearing
interest between 9% to 10.25% and maturing at various dates
through April 1998. The notes are secured by certain furniture and
equipment and personal guarantee of D.M. Moore, Jr. .............. $ 24,024
========
</TABLE>

NOTE 8--PREFERRED STOCK

The Company has authorized 100,000 shares of preferred stock, par value $10
per share, which may be issued in series or classes as determined by the Board
of Directors from time to time. There are two classes of Preferred Stock now
outstanding totaling 18,092 shares or $180,920. The Board of Directors has
designated an authorized class of 25,000 preferred shares, called 9%
Cumulative Preferred Stock, which was sold at a price of $10 per share and an
authorized class of 13,792 preferred shares, called Series A Cumulative
Preferred Stock which was offered at a price of $10 per share. Preferred Stock
has the following rights and preferences:

Dividends. The Company will declare and pay a 9% quarterly dividend on its
par value each year. Dividends will be paid if funds are lawfully available,
and, if not, will be accumulated and paid on the next dividend date if funds
are available, plus interest at the 9% dividend rate. No dividends will be
payable on Common Stock if any payment of a Preferred Stock dividend has been
missed.

Cumulative Preferred Stock dividends are $5,844 and $9,887 for the years
ended December 31, 1995 and 1996, respectively, and $5,816 and $12,212 for the
nine months ended September 30, 1996 and 1997, respectively.

F-11
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Voting. Shares of Preferred Stock carry no voting rights except as are
provided by law, including the right to vote as a class to approve certain
corporate transactions, such as charter amendments and mergers.

Liquidation Preference. Holders of Preferred Stock are entitled to receive a
payment in the amount of $10 per share plus any accumulated but unpaid
dividends in the event the Company is liquidated, before any payment is made
by the Company to the holders of Common Stock with respect to their shares.

Conversion. Shares of Preferred Stock are not convertible into any other
security of the Company.

Sinking Fund. The 9% Cumulative Preferred Stock calls for the creation of a
sinking fund for the purpose of redeeming these outstanding shares.
Shareholders of 9% Cumulative Preferred have entered into an oral agreement
with the Company to waive this requirement.

NOTE 9--COMMITMENTS AND CONTINGENCIES

Incentive Stock Option Plan

The Company has an Incentive Stock Option Plan available to certain key
employees and agents. The Company has authorized a maximum of 250,000 shares
to be purchased under this plan. Options for a total of 232,500 shares were
granted under the plan as of December 31, 1996 and 249,999 shares as of
September 30, 1997. At December 31, 1996 there were 109,073 shares remaining
under option which were exercisable at prices ranging from $.20 to $1.50 per
share through March 1, 2001. During 1996, no options were exercised.

The Company also has a 1997 Stock Option Plan (the "1997 Option Plan") which
provides for the grant to eligible employees and directors of options for the
purchase of Common Stock. The 1997 Option Plan covers, in the aggregate, a
maximum of 500,000 shares of Common Stock and provides for the granting of
both incentive stock options (as defined in Section 422 of the Internal
Revenue Code of 1986) and non qualified stock options (options which do not
meet the requirements of Section 422). Under the 1997 Option Plan, the
exercise price may not be less than the fair market value of the Common Stock
on the date of the grant of the option. As of September 30, 1997, options for
37,000 shares had been granted under the 1997 Option Plan at an exercise price
of $1.92 per share, including options for 1,250 shares granted to D.M. Moore,
Jr.

Shareholders' Agreement

All holders of common stock have entered into an agreement that restricts
the transfer of stock and grants the Company the option to repurchase the
stock subject to certain events as specified in the agreement.

Leases

The Company leases its offices, furniture and equipment under operating
leases which expire at various dates through 1999. Future minimum lease
payments are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997........................................................... $ 131,471
1998........................................................... 278,938
1999........................................................... 278,938
2000........................................................... 266,962
Thereafter..................................................... 190,648
----------
$1,146,957
==========
</TABLE>

Rent expense for the year totaled approximately $63,215 and $46,704 in 1996
and 1995, respectively, and is included in general and administrative expense.

F-12
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10--INCOME TAXES

The provision for income taxes for the year ended December 31, 1996 consists
of the following:

<TABLE>
<S> <C>
Current............................................................ $ --
Deferred expense (benefit)......................................... (52,948)
Change in valuation allowance...................................... 52,948
--------
$ --
========
</TABLE>

The Company has net operating losses of $491,811 that may be used to offset
future taxable income. These loss carryforwards expire at various dates
through 2011. No tax benefit has been reported in the financial statements.
The Company has recorded a valuation allowance to offset any deferred tax
benefits arising from net operating losses or temporary differences.

NOTE 11--EQUITY INVESTMENT

The following is summarized, audited financial information of FFLC.

FIRST FINANCIAL LIFE COMPANIES, INC.
BALANCE SHEET
DECEMBER 31, 1996

<TABLE>
<S> <C>
ASSETS
Cash............................................................ $ 1,395,904
Amounts on deposit with reinsurer............................... 28,095,288
Deferred policy acquisition costs............................... 5,445,861
Other assets.................................................... 330,598
-----------
Total Assets.................................................. $35,267,651
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Universal life liabilities...................................... $33,436,198
Future policy benefits and claims payable....................... 319,227
Federal taxes payable........................................... 41,439
Other liabilities............................................... 367,637
-----------
Total Liabilities............................................. 34,164,501
-----------
Common stock.................................................... 9,150
Additional paid in capital...................................... 1,510,817
Treasury stock.................................................. (471,827)
Retained earnings (deficit)..................................... 55,010
-----------
Total Shareholders' Equity.................................... 1,103,150
-----------
Total Liabilities and Shareholders' Equity.................... $35,267,651
===========
</TABLE>

F-13
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

FIRST FINANCIAL LIFE COMPANIES, INC.

STATEMENT OF INCOME

FOR THE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Insurance policy income............................. $4,154,362 $3,413,326
Net investment income............................... 1,776,869 1,883,151
Other income........................................ 67,372 43,175
---------- ----------
Total revenues.................................... 5,998,603 5,339,652
---------- ----------
Policy holder benefits on traditional products...... (93,908) 67,762
Universal life and investment products benefits..... 2,437,758 2,433,794
Amortization of deferred policy acquisition costs... 2,367,101 1,689,914
Other operating expenses............................ 1,482,975 1,352,905
---------- ----------
Total expenses.................................... 6,193,926 5,544,375
---------- ----------
Operating loss before income taxes.................. (195,323) (204,723)
Income tax expense (benefit)........................ (144,463) (73,819)
---------- ----------
Net (loss)........................................ $ (50,860) $ (130,904)
========== ==========
</TABLE>

The Company purchased stock in FFLC at various dates through April 1995 at a
cost of $329,219. The remaining balance of the Company's investment $275,346
is composed of the Company's pro rata share of income and losses and any
dividends received.

NOTE 12--SUBSEQUENT EVENTS

Name Change

On November 12, 1997 FFLIC's name was changed to Rushmore Life Insurance
Company.

Disposal of Subsidiary

On March 3, 1997 the Company sold RFC for $10. Management does not expect
this event to have a material adverse effect on the financial position or
results of operations of the Company.

Authorized Shares

On April 5, 1997 the shareholders of the Company voted to amend the Articles
of Incorporation to increase the authorized shares of common stock from
4,000,000 to 20,000,000. On October 23, 1997 the Articles of Incorporation
were amended to decrease the number of authorized shares to 10,000,000 shares
and the outstanding shares were split 1 for 2. All shares presented in these
financial statements and earnings per share calculations are retroactively
stated to reflect the capital structure changes through October 23, 1997.

Acquisition

On April 8, 1997 the Company acquired the remaining 74.6% of Rushmore Life
(formerly FFLC) in exchange for the Company's stock at a ratio of 3.04 shares
of Company stock for every 1 share of Rushmore Life stock. This acquisition
has been accounted for as a purchase. The following additional notes serve to
describe the operation of Rushmore Life that is reflected in the financial
statements at September 30, 1997 and the nine months ended September 30, 1997.

F-14
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

a. Summary of Significant Accounting Policies:

. Basis of Presentation: Rushmore Life maintains its accounts in
conformity with accounting practices prescribed or permitted by state
insurance regulatory authorities. In the accompanying financial
statements, such accounts have been adjusted to conform with generally
accepted accounting principles.

. Investments: Short-term investments, which consist of U.S. Treasury
bills, purchased with maturities of less than three months, are
reflected at amortized cost, which approximates estimated fair value.
All short-term investments are considered to be cash equivalents.

The Company has adopted Statement of Financial Accounting Standards No.
115, which prescribes accounting for certain debt and equity
securities.

. Deferred Policy Acquisition Costs: Costs which vary with and which are
directly related to the acquisition of new business have been deferred
to the extent that such costs are deemed recoverable through future
revenues. These costs primarily include commissions and allowances. For
universal life, such costs are amortized generally in proportion to the
present value (principally using the assumed credit rate) of expected
gross profits. This amortization is adjusted retrospectively when the
insurance subsidiary revises its estimates of current or future gross
profits to be realized from a group of policies. For traditional
products, such costs are amortized with interest over the premium-paying
period in proportion to the ratio of anticipated annual premium revenue
to the anticipated total premium revenue. Anticipated investment income
is considered in the determination of recoverability of deferred policy
acquisition costs.

. Future Policy Benefits: The liability for future policy benefits of
long-term duration contracts has been computed by the net level premium
method based on estimated future investment yield, mortality, morbidity,
and withdrawal experience. Reserve interest assumptions are based on
amounts guaranteed in the Modified Coinsurance Treaty. Mortality,
morbidity, and withdrawal assumptions reflect the experience of the life
insurance subsidiary modified as necessary to reflect anticipated trends
and to include provisions for possible unfavorable deviations. The
assumptions vary by plan, year of issue, and duration.

. Universal Life Contract Liabilities: With respect to universal life
contracts, the insurance subsidiary utilizes the retrospective deposit
accounting method. Contract liabilities include the accumulated fund
balances of such policies and represent the premiums received plus
accumulated interest, less mortality and administration charges.

Contract liabilities also include the unearned revenue reserve which
reflects the unamortized balance of the excess of first year
administration charges over renewal period administration charges on
universal life products. These excess charges have been deferred and
are being recognized in income over the period benefited using the same
assumptions and factors used to amortize deferred policy acquisition
costs.

. Recognition of Premium Revenue and Related Expenses: Traditional life
insurance premiums are recognized as revenue over the premium-paying
period. Future policy benefits and policy acquisition costs are
associated with the premiums as earned by means of the provision of
future policy benefits and amortization of deferred policy acquisition
costs.

Revenues for universal life products consist of policy charges for the
cost of insurance, policy administration charges, amortization of
policy initiation fees and surrender charges assessed against
policyholder account balances during the period. Expenses related to
these products include interest credited to policy holder account
balances and benefit claims incurred in excess of policyholder account
balances.

F-15
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

. Policy and Contract Claims: Policy and contract claims include
provisions for reported claims in process of settlement, valued in
accordance with the terms of the related policies and contracts.

. Reinsurance: In the normal course of business, the Company seeks to
limit its exposure to loss on any single insured and to recover a
portion of the benefits paid over such limits. This is done by ceding
reinsurance to other insurance enterprises or reinsurers under excess
coverage and coinsurance contracts.

The Company reports assets and liabilities related to insurance
contracts before the effects of reinsurance. Reinsurance receivables
and prepaid reinsurance premiums (including amounts related to
insurance liabilities) are reported as assets. Estimated reinsurance
receivables are recognized in a manner consistent with the liabilities
related to the underlying reinsured contracts.

. Income Taxes: Income tax expense (benefit) includes deferred income
taxes arising from temporary differences between the tax and financial
reporting basis of assets and liabilities. This liability method of
accounting for income taxes also requires the Company to reflect in
income the effect of a tax-rate change on accumulated deferred income
taxes in the period in which the change is enacted.

In assessing the realization of deferred income tax assets, the Company
considers whether it is more likely than not that the deferred income
tax assets will be realized. The Company has recorded a valuation
allowance to offset any deferred tax benefits arising from net
operating losses or temporary differences.

. Goodwill: Goodwill was recorded on the purchase of Rushmore Life and is
being amortized over 30 years.
b. Significant Reinsurance Treaty:

Substantially all of the Company's consolidated business activity is the
result of modified coinsurance treaties entered into with Massachusetts
General Life Insurance Company (MGL), a subsidiary of Life Partners Group,
Inc. (LPG) and Southwestern Life Insurance Company (SWL), a subsidiary of
Southwestern Life Corporation (SLC). Under the terms of the agreements,
Rushmore Life assumes a quota share risk on all policies which are issued
by MGL and SWL as a result of applications submitted by agents affiliated
with First Financial Marketing Group. The quota share percentage falls
between 33 1/3% and 50% of on all business submitted. Because the treaties
are on the basis of modified coinsurance, MGL and SWL establish 100% of the
reserves required to be held by the various state insurance regulatory
authorities. Rushmore Life, in turn, deposits with MGL and SWL an amount
equal to its quota share of the reserves. MGL and SWL pay Rushmore Life
interest on the deposits at the investment rate assumed in the pricing of
each product. These deposits are included in the amounts on deposit with
reinsurer account balance in the financial statements. Although Rushmore
Life is credited with interest based on the reserve deposits, the legal
owners of the assets are MGL and SWL, not Rushmore Life. The universal life
contract liabilities recorded on the consolidated balance sheet at
September 30, 1997 also include amounts that have been assessed to
compensate the Company for services to be performed in the future. Such
amounts are not earned in the period assessed. Such unearned revenue
amounts are recognized in income over the period benefited using the same
assumptions and factors used to amortize deferred acquisition costs.
Amounts that are assessed against the policyholder balance as consideration
for origination of the contract, often referred to as initiation or front-
end fees, are unearned revenues. At September 30, 1997, unearned revenue
reserves included in universal life contract liabilities were $3,305,517.

For the nine months ended September 30, 1997 the Company assumed premiums
of approximately $5,321,000 and paid approximately $1,362,000 in retroceded
premiums.

The Company paid approximately $1,038,000 in death benefits for the nine
months ended September 30, 1997 net of ceded benefits of approximately
$516,000.

F-16
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

MGL, Wabash Life Insurance Company (MGL's parent), SWL and Facilities
Management Installation (FMI) provide all necessary functions to fully
process, administer, and account for the insurance business of Rushmore
Life. For the nine months ended Rushmore Life paid these companies for such
services and policy maintenance as follows:

<TABLE>
<S> <C>
Wabash fees........................................................ $154,802
FMI fees........................................................... $ 15,531
MGL & SWL policy maintenance fees.................................. $228,699
</TABLE>

c. Stockholders' Equity and Restrictions:

At September 30, 1997 substantially all the net assets of Rushmore Life
cannot be transferred to the Company in the form of dividends, loans or
advances. Generally, the net assets of Rushmore Life available for transfer
to the Company are limited to the lesser of the Rushmore Life's net gain
from operations during the preceding year or 10% of the Rushmore Life's net
surplus as of the end of the preceding year as determined in accordance
with accounting practices prescribed or permitted by regulatory
authorities. Payment of dividends in excess of such amounts would generally
require approval by regulatory authorities.

Rushmore Life is domiciled in the state of Arizona, which is also the
only state in which it is licensed to conduct business. On the basis of
reporting as prescribed or permitted by the Arizona Department of
Insurance, Rushmore Life had statutory capital and surplus of approximately
$1,259,806 as of September 30, 1997 and net earnings of $192,273 for the
nine months ended September 30, 1997. Rushmore Life maintains at least
$250,000 of statutory capital and surplus in order to retain $25,000 of
risk on any one issued. Arizona law prohibits an Arizona reinsurer from
retaining insurance risk on any one insured in excess of 10% of its capital
and surplus

d. Commitments, Litigation and Contingent Liabilities:

The Internal Revenue Service (IRS) has not examined any of the federal
income tax returns of Rushmore Life.

Rushmore Life has set its retention limit for acceptance of risk on life
insurance policies at $25,000. Risk in excess of the $25,000 limit is
reinsured back to MGL and SWL pursuant to certain reinsurance agreements.
Rushmore Life pays MGL and SWL to reinsure the excess risk according to
mortality schedules which are contained in the reinsurance agreements.
Rushmore Life paid MGL and SWL approximately $1,278,298 reinsurance costs
for the nine months ended September 30, 1997. MGL has ceded to Rushmore
Life Company approximately $931,785,917 of insurance in force as of
September 30, 1997. Pursuant to the reinsurance agreements with MGL
Rushmore Life has in turn retroceded approximately $527,319,443 of
insurance in force to MGL, retaining risk equal to the difference.

SWL has ceded to Rushmore Life approximately $46,693,000 of insurance in
force as of September 30, 1997. Pursuant to the reinsurance agreement with
SWL, Rushmore Life has in turn retroceded approximately $31,028,752 of
insurance in force to SWL, retaining risk equal to the difference.

During 1995, MGL settled a class action lawsuit filed on behalf of
policyholders of certain policies held on or after April 1, 1992 and on or
before June 30, 1994. The settlement consisted of the return of excess
mortality charges incurred due to MGL's decision to pass on a portion of
the DAC tax and the repayment of certain surrender charges collected as a
result of the termination of the above policies because of the increased
mortality charges.

The Company is a party to litigation in which it alleges that the former
chief executive officer of Rushmore Life failed to turn over all money,
property and books and records of Rushmore Life in his possession upon his
termination. In addition, the Company alleges that he overstated to the
Company the

F-17
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

value of a block of insurance business coinsured to an Insurer, resulting
in an overpayment of the redemption price to him and entitling the Company
to be relieved of any further obligation under the redemption agreement. In
January 1998, the defendants filed a counterclaim against the Company and a
third party complaint against the Company's directors, alleging that the
Company breached the redemption agreement and charging the Company with
oppression of a minority shareholder, tortious interference with contract
and breach of fiduciary duty.

e. Other Operating Statement Data:

Changes in deferred acquisition costs were as follows:

<TABLE>
<CAPTION>
1997
----------
<S> <C>
Balance, April 1, 1997......................................... $5,057,695
Additions...................................................... 264,992
Amortization related to operations............................. (1,041,328)
----------
Balance, end of year........................................... $4,281,359
==========
</TABLE>
f. Federal Income Taxes:

Deferred federal income taxes were comprised of the following at
September 30, 1997:

<TABLE>
<S> <C>
Deferred federal income tax assets:
Life reserves................................................... $12,199,842
Accrued expenses................................................ 113,976
Alternative minimum tax credit carryforward..................... 69,344
-----------
Total deferred income tax assets 12,383,162
-----------
Deferred income tax liabilities:
Funds on deposit................................................ (9,824,067)
Deferred acquisition costs...................................... (2,461,411)
Other........................................................... (2,458)
-----------
Total deferred income tax liabilities.......................... (12,287,936)
-----------
Net deferred federal income tax asset.......................... $ 95,226
===========
</TABLE>

The difference between the federal income tax (benefit)computed by
applying statutory rates to income (loss) before income taxes and income
tax expense (benefit) as reported is primarily due to the small life
insurance company deduction, deferred acquisition costs, life policy
benefit reserves, and alternative minimum tax.

F-18
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders Rushmore Financial Group, Inc.
We have audited the accompanying consolidated balance sheet of First
Financial Life Companies, Inc. and Subsidiary as of December 31, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of First
Financial Life Companies, Inc. and Subsidiary as of December 31, 1996, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.

Coopers & Lybrand L.L.P.

Indianapolis, Indiana
November 20, 1997

F-19
<PAGE>

FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 1996

<TABLE>
<S> <C>
ASSETS
Investments:
Cash and short-term investments................................ $ 1,395,904
Amounts on deposit with reinsurer.............................. 28,095,288
-----------
Total investments............................................ 29,491,192
Deferred policy acquisition costs................................ 5,445,861
Notes, accounts receivable and uncollected premiums.............. 154,068
Equipment, net of accumulated depreciation....................... 6,825
Accrued investment income........................................ 495
Net deferred federal income taxes................................ 169,210
-----------
Total assets................................................. $35,267,651
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits........................................... $ 93,908
Universal life contract liabilities.............................. 33,436,198
Claims payable................................................... 225,319
Current federal income taxes payable............................. 41,439
Other liabilities................................................ 367,637
-----------
Total liabilities............................................ 34,164,501
-----------
Stockholders' equity:
Common stock, $0.01 par value; 2,000,000 shares authorized;
915,000 shares issued........................................... 9,150
Additional paid-in capital....................................... 1,510,817
Treasury stock (at cost, 363,802 shares)......................... (471,827)
Retained earnings................................................ 55,010
-----------
Total stockholders' equity................................... 1,103,150
-----------
Total liabilities and stockholders' equity................... $35,267,651
===========
</TABLE>

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

F-20
<PAGE>

FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Insurance policy income............................... $2,750,004 $1,883,372
Net investment income................................. 1,776,869 1,883,151
Other income.......................................... 67,372 43,175
---------- ----------
Total revenues...................................... 4,594,245 3,809,698
---------- ----------
Benefits and expenses:
Insurance policy benefits............................. 939,492 971,602
Amortization of deferred policy acquisition costs..... 2,367,101 1,689,914
Other operating expenses.............................. 1,482,975 1,352,905
---------- ----------
Total benefits and expenses......................... 4,789,568 4,014,421
---------- ----------
Loss before income taxes............................ (195,323) (204,723)
Provision for federal income taxes.................... (144,463) (73,819)
---------- ----------
Net loss............................................ $ (50,860) $ (130,904)
========== ==========
</TABLE>

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

F-21
<PAGE>

FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Common stock:
Balance at beginning of year.......................... $ 8,181 $ 6,496
Issuance of shares.................................... 969 1,685
---------- ----------
Balance at end of year.............................. 9,150 8,181
---------- ----------
Additional paid-in capital:
Balance at beginning of year.......................... 1,465,100 1,344,297
Issuance of shares, excess over par................... 45,717 120,803
---------- ----------
Balance at end of year.............................. 1,510,817 1,465,100
---------- ----------
Treasury stock:
Balance at beginning of year.......................... (91,276) (90,003)
Purchase of treasury stock............................ (380,551) (1,273)
---------- ----------
Balance at end of year.............................. (471,827) (91,276)
---------- ----------
Retained earnings (deficit):
Balance at beginning of year.......................... 105,870 236,774
Net earnings (loss)................................... (50,860) (130,904)
---------- ----------
Balance at end of year.............................. 55,010 105,870
---------- ----------
Total stockholders' equity.......................... $1,103,150 $1,487,875
========== ==========
</TABLE>

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

F-22
<PAGE>

FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (50,860) $ (130,904)
Adjustments to reconcile net loss to net cash used in
operating activities:
Increase (decrease) in future policy benefits...... 85,246 (6,981)
Decrease (increase) in deferred policy acquisition
costs............................................. 1,216,293 (360,163)
(Decrease) increase in claims payable.............. (57,127) 169,534
(Increase) decrease in deferred federal income
taxes............................................. (237,564) 6,623
Increase (decrease) in other liabilities........... 79,212 (218,317)
Interest income credited to deposit with
reinsurer......................................... (1,718,822) (1,833,152)
(Increase) decrease in accrued investment income,
notes, accounts receivable and uncollected
premiums.......................................... (9,002) 563,984
Increase in current federal income taxes........... 86,284 0
Depreciation expense............................... 2,730 1,365
----------- -----------
Net cash used in operating activities.......... (603,610) (1,808,011)
----------- -----------
Cash flows from financing activities:
Net change in amount on deposit with reinsurer..... 1,091,410 2,320,279
Sale of common stock............................... 46,686 122,488
Purchase of treasury stock......................... (380,551) (1,273)
Principal payment on note payable.................. 0 (60,000)
----------- -----------
Net cash provided by financing activities...... 757,545 2,381,494
----------- -----------
Net increase in cash and short-term
investments................................... 153,935 573,483
Cash and short-term investments at beginning of
year................................................ 1,241,969 668,486
----------- -----------
Cash and short-term investments at end of year....... $ 1,395,904 $ 1,241,969
=========== ===========
</TABLE>

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

F-23
<PAGE>

FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a. Principles of Consolidation: First Financial Life Companies, Inc. (FFLC)
was incorporated in the state of Texas in February 1989.

First Financial Life Insurance Company, the wholly owned subsidiary of FFLC,
is a domestic life and disability reinsurer incorporated in the state of
Arizona in January 1989.

The consolidated financial statements include the accounts of First
Financial Life Companies, Inc. and First Financial Life Insurance Company
(collectively referred to as the "Company"). Material intercompany balances
and transactions have been eliminated in the consolidated financial
statements.

b. Basis of Presentation: FFLC's life insurance subsidiary maintains its
accounts in conformity with accounting practices prescribed or permitted by
state insurance regulatory authorities. In the accompanying financial
statements, such accounts have been adjusted to conform with generally
accepted accounting principles.

c. Investments: Short-term investments, which consist of U.S. Treasury
bills, purchased with maturities of less than three months, are reflected at
amortized cost, which approximates estimated fair value. All short-term
investments are considered to be cash equivalents.

The Company has adopted Statement of Financial Accounting Standards No. 115,
which prescribes accounting for certain debt and equity securities. During
1996 or 1995, the Company held no such securities.

d. Deferred Policy Acquisition Costs: Costs which vary with and which are
directly related to the acquisition of new business have been deferred to the
extent that such costs are deemed recoverable through future revenues. These
costs primarily include commissions and allowances. For universal life, such
costs are amortized generally in proportion to the present value (principally
using the assumed credit rate) of expected gross profits. This amortization is
adjusted retrospectively when the insurance subsidiary revises its estimates
of current or future gross profits to be realized from a group of policies.
For traditional products, such costs are amortized with interest over the
premium-paying period in proportion to the ratio of anticipated annual premium
revenue to the anticipated total premium revenue. Anticipated investment
income is considered in the determination of recoverability of deferred policy
acquisition costs.

e. Future Policy Benefits: The liability for future policy benefits of long-
term duration contracts has been computed by the net level premium method
based on estimated future investment yield, mortality, morbidity, and
withdrawal experience. Reserve interest assumptions are based on amounts
guaranteed in the Modified Coinsurance Treaty (see Note 2). Mortality,
morbidity, and withdrawal assumptions reflect the experience of the life
insurance subsidiary modified as necessary to reflect anticipated trends and
to include provisions for possible unfavorable deviations. The assumptions
vary by plan, year of issue, and duration. The composition of future policy
benefits as of December 31, 1996 and 1995 and the significant assumptions used
in the calculation are as follows:

<TABLE>
<CAPTION>
12/31/96 12/31/95
LIABILITY LIABILITY MORTALITY
FOR FUTURE FOR FUTURE OR
ISSUE POLICY POLICY MORBIDITY
YEARS BENEFITS BENEFITS INTEREST RATES TABLES WITHDRAWALS
- ----- ---------- ---------- -------------------- --------- ------------------
<S> <C> <C> <C> <C> <C>
1987-90 $93,908 $100,229 Guaranteed Rate 4.5% 1980 CSO Company Experience
</TABLE>

f. Universal Life Contract Liabilities: With respect to universal life
contracts, the insurance subsidiary utilizes the retrospective deposit
accounting method. Contract liabilities include the accumulated fund balances
of such policies and represent the premiums received plus accumulated
interest, less mortality and administration charges.

F-24
<PAGE>

FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Contract liabilities also include the unearned revenue reserve which
reflects the unamortized balance of the excess of first-year administration
charges over renewal period administration charges on universal life products.
These excess charges have been deferred and are being recognized in income
over the period benefited using the same assumptions and factors used to
amortize deferred policy acquisition costs.

g. Recognition of Premium Revenue and Related Expenses: Traditional life
insurance premiums are recognized as revenue over the premium-paying period.
Future policy benefits and policy acquisition costs are associated with the
premiums as earned by means of the provision of future policy benefits and
amortization of deferred policy acquisition costs.

Revenues for universal life products consist of policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed against policyholder account balances
during the period. Expenses related to these products include interest
credited to policyholder account balances and benefit claims incurred in
excess of policyholder account balances.

h. Policy and Contract Claims: Policy and contract claims include provisions
for reported claims in process of settlement, valued in accordance with the
terms of the related policies and contracts.

i. Reinsurance: In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured and to recover a portion of the
benefits paid over such limits. This is done by ceding reinsurance to other
insurance enterprises or reinsurers under excess coverage and coinsurance
contracts.

The Company reports assets and liabilities related to insurance contracts
before the effects of reinsurance. Reinsurance receivables and prepaid
reinsurance premiums (including amounts related to insurance liabilities) are
reported as assets. Estimated reinsurance receivables are recognized in a
manner consistent with the liabilities related to the underlying reinsured
contracts.

j. Income Taxes: Income tax expense (benefit) includes deferred income taxes
arising from temporary differences between the tax and financial reporting
basis of assets and liabilities. This liability method of accounting for
income taxes also requires the Company to reflect in income the effect of a
tax-rate change on accumulated deferred income taxes in the period in which
the change is enacted.

In assessing the realization of deferred income tax assets, the Company
considers whether it is more likely than not that the deferred income tax
assets will be realized. The ultimate realization of deferred income tax
assets depends upon generating sufficient future taxable income during the
periods in which temporary differences become deductible.

k. Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions affecting the reported amounts. The Company uses
estimates and assumptions in calculating deferred acquisition costs, future
policy benefits, universal life contact liabilities, deferred incomes taxes,
and certain other accruals. Actual amounts could differ from those estimated
amounts.

2. SIGNIFICANT REINSURANCE TREATY:

F-25
<PAGE>

FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

affiliated with First Financial Marketing Group. The quota share percentage
falls between 33 1/3% and 50% on all business submitted. Because the treaties
are on the basis of modified coinsurance, MGL and SWL establish 100% of the
reserves required to be held by the various state insurance regulatory
authorities. First Financial Life Insurance Company, in turn, deposits with
MGL and SWL an amount equal to its quota share of the reserves. MGL and SWL
pay First Financial Life Insurance Company interest on the deposits at the
investment rate assumed in the pricing of each product. These deposits are
included in the amounts on deposit with reinsurer account balance in the
financial statements. Although First Financial Life Insurance Company is
credited with interest based on the reserve deposits, the legal owners of the
assets are MGL and SWL, not First Financial Life Insurance Company. The
universal life contract liabilities recorded on the consolidated balance sheet
at December 31, 1996 also include amounts that have been assessed to
compensate the Company for services to be performed in the future. Such
amounts are not earned in the period assessed. Such unearned revenue amounts
are recognized in income over the period benefited using the same assumptions
and factors used to amortize deferred acquisition costs. Amounts that are
assessed against the policyholder balance as consideration for origination of
the contract, often referred to as initiation or front-end fees, are unearned
revenues.

For the years ended December 31, 1996 and 1995, the Company assumed premiums
of approximately $7,324,000 and $8,187,000, respectively, and paid
approximately $2,086,646 and $1,841,000, respectively, in retroceded premiums
for the years then ended.

The Company paid approximately $1,167,000 and $1,124,000, respectively, in
death benefits net of ceded benefits of approximately $981,000 and $1,335,000,
respectively, for the years ended December 31, 1996 and 1995.

MGL, Wabash Life Insurance Company (MGL's parent), SWL and Facilities
Management Installation (FMI) provide all necessary functions to fully
process, administer, and account for the insurance business of First Financial
Life Insurance Company. For the years ended December 31, 1996 and 1995, First
Financial Life Insurance Company paid these companies for such services and
policy maintenance fees as follows:

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Wabash fees............................................... $213,426 $209,714
FMI fees.................................................. 21,369 22,928
MGL and SWL policy maintenance fees....................... 318,547 293,094
</TABLE>

3. INVESTMENTS AND INVESTMENT INCOME:

For the years ended December 31, 1996 and 1995, net investment income
consisted of the following:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash and short-term investments....................... $ 58,195 $ 49,999
Amounts on deposit with reinsurer..................... 1,718,822 1,833,152
---------- ----------
Gross investment income............................. 1,777,017 1,883,151
Investment expenses................................... 148 0
---------- ----------
Net investment income............................... $1,776,869 $1,883,151
========== ==========
</TABLE>

Other than amounts on deposit with reinsurer at December 31, 1996, the
Company has no investments exceeding 10% of stockholders' equity.

4. STOCKHOLDERS' EQUITY AND RESTRICTIONS:

At December 31, 1996, substantially all consolidated stockholders' equity
represents net assets of FFLC's insurance subsidiary that cannot be
transferred to FFLC in the form of dividends, loans or advances. Generally,
the net assets of FFLC's insurance subsidiary available for transfer to FFLC
are limited to the lesser of the subsidiary's net gain from operations during
the preceding year or 10% of the subsidiary's net surplus as of the end of the
preceding year as determined in accordance with accounting practices
prescribed or permitted by

F-26
<PAGE>

FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

regulatory authorities. Payment of dividends in excess of such amounts would
generally require approval by regulatory authorities.

First Financial Life Insurance Company is domiciled in the state of Arizona,
which is also the only state in which it is licensed to conduct business. On
the basis of reporting as prescribed or permitted by the Arizona Department of
Insurance, the life insurance subsidiary had statutory capital and surplus of
approximately $1,323,000 and $1,110,000 as of December 31, 1996 and 1995,
respectively, and it had net earnings (loss) of $416,690 and $(52,703) for the
years ended December 31, 1996 and 1995, respectively. First Financial Life
Insurance Company maintains at least $250,000 of statutory capital and surplus
in order to retain $25,000 of risk on any one insured. Arizona law prohibits
an Arizona reinsurer from retaining insurance risk on any one insured in
excess of 10% of its capital and surplus.

5. CAPITAL STOCK:

As of December 31, 1996, FFLC has one class of stock consisting of 2,000,000
shares authorized; 915,000 shares issued and 551,198 shares outstanding, with
a stated value of $.01 per share. FFLC had paid no dividends to capital
stockholders for the years ended December 31, 1996 or 1995.

6. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES:

The Internal Revenue Service (IRS) has not examined any of the federal
income tax returns of FFLC or its life insurance subsidiary.

The life insurance subsidiary has set its retention limit for acceptance of
risk on life insurance policies at $25,000. Risk in excess of the $25,000
limit is reinsured back to MGL and SWL pursuant to certain reinsurance
agreements. First Financial Life Insurance Company pays MGL and SWL to
reinsure the excess risk according to mortality schedules which are contained
in the reinsurance agreements. First Financial Life Insurance Company paid MGL
and SWL approximately $1,962,000 and $1,713,000 for reinsurance costs for the
years ended December 31, 1996 and 1995, respectively. MGL has ceded to First
Financial Life Insurance Company approximately $970,727,018 of insurance in
force as of December 31, 1996. Pursuant to the reinsurance agreements with
MGL, First Financial Life Insurance Company has in turn retroceded
approximately $551,708,334 of insurance in force to MGL, retaining risk equal
to the difference. At December 31, 1995, these amounts were $1,008,922,000 and
$573,969,000, respectively.

SWL has ceded to First Financial Life Insurance Company approximately
$47,995,993 of insurance in force as of December 31, 1996. Pursuant to the
reinsurance agreement with SWL, First Financial Life Insurance Company has in
turn retroceded approximately $31,573,093 of insurance in force to SWL,
retaining risk equal to the difference. At December 31,1995, these amounts
were $55,378,000 and $36,239,000, respectively.

In most reinsurance situations, the direct writer is contingently liable for
claims reinsured if the assuming company is unable to pay. The Company assumes
insurance and also retrocedes a portion back to the direct writer. Management
believes that it is unlikely that the Company would be liable for any amount
in excess of the Company's quota share.

The Company is not aware of any lawsuits or claims which are pending against
it. However, during 1995, MGL settled a class action lawsuit filed on behalf
of policyholders of certain policies held on or after April 1, 1992 and on or
before June 30, 1994. The settlement consisted of the return of excess
mortality charges incurred due to MGL's decision to pass on a portion of the
DAC tax and the repayment of certain surrender charges collected as a result
of the termination of the above policies because of the increased mortality
charges. The recording of the Company's share of this settlement resulted in a
pretax expense of approximately $306,000 for the year ended December 31, 1995.

F-27
<PAGE>

FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

7. FEDERAL INCOME TAXES:

First Financial Life Companies, Inc. and First Financial Life Insurance
Company file separate federal income tax returns.

Deferred federal income taxes were comprised of the following at December
31, 1996:

<TABLE>
<S> <C>
Deferred federal income tax assets:
Life reserves.................................................... $12,156,416
Accrued expenses................................................. 98,787
Alternative minimum tax credit carryforward...................... 59,482
-----------
Total deferred income tax assets............................... 12,314,685
-----------
Deferred income tax liabilities:
Funds on deposit................................................. (9,552,398)
Deferred acquisition costs....................................... (2,591,320)
Other............................................................ (1,757)
-----------
Total deferred income tax liabilities.......................... (12,145,475)
-----------
Net deferred federal income tax asset.......................... $ 169,210
===========
</TABLE>

For the years ended December 31, 1996 and 1995, respectively, the provision
(benefit) for income taxes consists of the following components:

<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Current tax expense (benefit)............................. $ 94,801 $ (5,051)
Deferred tax expense (benefit)............................ (239,264) (68,768)
--------- --------
Income tax benefit........................................ $(144,463) $(73,819)
========= ========
</TABLE>

The difference between the federal income tax (benefit) computed by applying
statutory rates to income (loss) before income taxes and income tax expense
(benefit) as reported is primarily due to the small life insurance company
deduction, deferred acquisition costs, life policy benefit reserves, and
alternative minimum tax.

8. OTHER OPERATING STATEMENT DATA:

Changes in deferred acquisition costs were as follows:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Balance, beginning of year............................ $ 6,662,154 $ 6,301,991
Additions............................................. 1,150,808 2,050,077
Amortization related to operations.................... (2,367,101) (1,689,914)
----------- -----------
Balance, end of year.................................. $ 5,445,861 $ 6,662,154
=========== ===========
</TABLE>

9. SUBSEQUENT EVENT:

On April 8, 1997, FFLC was purchased by Rushmore Capital Corporation
(Rushmore) for stock and cash. FFLC was merged into Rushmore and then
dissolved, leaving FFLC owned directly by Rushmore. On November 12, 1997, the
name of First Financial Life Insurance Company was changed to Rushmore Life
Insurance Company.

F-28
<PAGE>

FIRST FINANCIAL LIFE INSURANCE COMPANY

STATEMENT OF FINANCIAL CONDITION

SEPTEMBER 30, 1997
(UNAUDITED)

<TABLE>
<S> <C>
ASSETS
Investments:
Cash and Short Term Investments.................................. $ 1,190,780
Equity Securities................................................ 775
Collateral Loans................................................. 75,000
Amounts on deposit with reinsurer................................ 28,894,316
-----------
Total Investments.............................................. 30,160,871
Notes, accounts receivable and uncollected premiums................ 695,416
Equipment, net of accumulated depreciation......................... 4,478
Accrued Investment Income.......................................... 18,755
Federal Income Taxes:
Current.......................................................... -0-
Deferred......................................................... 95,226
Deferred Policy Acquisition Costs.................................. 4,281,359
-----------
TOTAL ASSETS....................................................... $35,256,405
===========
LIABILITIES AND SHAREHOLDERS EQUITY
Future Policy Benefits............................................. $ 88,016
Universal Life Liabilities......................................... 33,258,288
Claims Payable..................................................... 217,537
Federal Income Taxes
Current.......................................................... 36,260
Deferred......................................................... -0-
Other Liabilities.................................................. 378,839
-----------
Total Liabilities................................................ 33,978,940
Shareholders Equity
Common Stock..................................................... 100,000
Additional Paid-In-Capital....................................... 886,944
Unrealized loss on equity securities............................. (22)
Retained Earnings................................................ 290,543
-----------
Total Stockholders Equity...................................... 1,277,465
-----------
Total Liabilities and Shareholders Equity.......................... $35,256,405
===========
</TABLE>

F-29
<PAGE>

FIRST FINANCIAL LIFE INSURANCE COMPANY

STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)

<TABLE>
<S> <C>
Revenues:
Insurance policy income........................................... $2,237,750
Net investment income............................................. 1,567,071
Other income...................................................... 42,440
----------
Total Revenues.................................................. 3,847,261
Benefits and expenses:
Insurance policy benefits......................................... 931,330
Amortization of deferred policy acquisition costs................. 1,561,992
Other operating expenses.......................................... 1,343,277
----------
Total benefits and expenses..................................... 3,836,599
Income before income taxes.......................................... 10,662
Provision for income taxes.......................................... (2,304)
----------
Net income.......................................................... $ 12,966
==========
</TABLE>

F-30
<PAGE>

FIRST FINANCIAL LIFE INSURANCE COMPANY

STATEMENT OF SHAREHOLDERS EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)

<TABLE>
<S> <C>
Common Stock
Balance at beginning of period.................................... $ 100,000
Issuance of shares................................................ -0-
----------
Balance at end of period.......................................... 100,000
----------
Additional paid-in capital
Balance at beginning of period.................................... 886,944
Issuance of shares, excess over par............................... -0-
----------
Balance at end of period.......................................... 886,944
----------
Unrealized loss on equity securities
Balance at beginning of period.................................... -0-
Change in unrealized appreciation................................. (22)
----------
Balance at end of period.......................................... (22)
----------
Retained earnings
Balance at beginning of period.................................... 409,874
Dividends paid.................................................... (132,297)
Net income........................................................ 12,966
----------
Balance at end of period.......................................... 290,543
----------
Total Shareholders Equity........................................... $1,277,465
==========
</TABLE>

F-31
<PAGE>

FIRST FINANCIAL LIFE INSURANCE COMPANY

STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)

<TABLE>
<S> <C>
Cash flows from operating activities
Net income........................................................ $ 12,966
Items not requiring (providing) funds:
Increase in future policy benefits.............................. 16,146
Decrease in deferred policy acquisition costs................... 1,164,502
Increase in claims payable...................................... (7,782)
Decrease in URR liability....................................... (578,223)
Increase in accounts payable and accrued expenses............... 160,938
Interest income credited to deposit with reinsurer.............. (1,525,735)
Increase in accrued investment income and accounts receivable... (337,436)
Decrease in current federal income taxes........................ (5,179)
Depreciation expense............................................ 2,047
----------
Net cash used by operating activities............................. (1,097,756)
----------
Cash flows from investing activities:
Purchase of equity securities..................................... (797)
Issuance of collateral loan....................................... (75,000)
----------
Net cash used by investing activities........................... (75,797)
----------
Cash flows from financing activities:
Net change in amount on deposit with reinsurer.................... 1,104,983
Dividends paid.................................................... (132,297)
----------
Net cash provided by financing activities....................... 972,686
----------
Net decrease in cash and short-term investments..................... (200,867)
Cash and short-term investments at beginning of period.............. 1,391,647
----------
Cash and short-term investments at end of period.................... $1,190,780
==========
</TABLE>

F-32
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

PRO FORMA FINANCIAL DATA
(UNAUDITED)

PRO FORMA CONSOLIDATED BALANCE SHEET

The following unaudited pro forma consolidated balance sheet has been
derived from the balance sheet of the Company at December 31, 1996 and adjusts
such information to give effect to the acquisition of the remaining 74.6% of
Rushmore Life Insurance Company (formerly First Financial Life Insurance
Company, Inc.) on April 8, 1997 and the sale of Rushmore Financial Corporation
which was effective March 3, 1997 as if both of these transactions had
occurred at January 1, 1996. The pro forma consolidated balance sheet is
presented for informational purposes only and does not purport to be
indicative of the financial condition that actually would have resulted if the
transactions had occurred on January 1, 1996. The pro forma consolidated
balance sheet should be read in conjunction with the notes thereto and the
Company's consolidated financial statements and related notes thereto
contained elsewhere in this prospectus.

F-33
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------
COMPANY RUSHMORE ADJUSTMENTS
ACTUAL LIFE ACTUAL DR (CR) PROFORMA
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment
Cash and short-term
investments.............. $ 117,738 $ 1,395,904 $ (137,900)(1) $ 1,368,104
(7,638)(3)
Amounts on deposit with
reinsurer................ 28,095,288 28,095,288
--------- ----------- -----------
Total investments......... 117,738 29,491,192 29,463,392
Deferred policy acquisition
costs..................... 5,445,861 5,445,861
Notes, account receivable
and uncollected premiums.. 27,459 154,068 (10,515)(3) 171,012
Receivable from brokers and
dealers................... 27,255 27,255
Prepaid expenses and
advances.................. 17,019 (15,951)(3) 1,068
Equity investment in
subsidiary................ 275,346 1,196,599 (1) -0-
(1,471,945)(2)
Equipment, net of
accumulated depreciation.. 67,894 6,825 74,719
Deferred federal income
taxes..................... 169,210 169,210
Goodwill................... 381,688 (2) 381,688
Other assets and
intangibles............... 10,375 495 (576)(3) 10,294
--------- ----------- ---------- -----------
TOTAL ASSETS.............. $ 543,086 $35,267,651 $ (66,238) $35,744,499
========= =========== ========== ===========
Liabilities
Future policy benefits.... $ 93,908 $ 93,908
Universal life contract
liabilities.............. 33,436,198 33,436,198
Claims payable............ 225,319 225,319
Notes payable............. $ 24,024 24,024
Due to affiliated
companies................ 15,220 15,220
Current federal income
taxes.................... 41,439 41,439
Other liabilities......... 152,905 367,637 21,377 (3) 499,165
--------- ----------- ---------- -----------
Total liabilities......... 192,149 34,164,501 21,377 34,335,273
--------- ----------- ---------- -----------
Shareholders' equity
Preferred stock--9%
cumulative preferred
stock, $10 par value,
4,300 shares issued and
outstanding.............. 43,000 43,000
Preferred stock--Series A
cumulative preferred
stock, $10 par value,
13,792 shares issued and
outstanding.............. 137,920 137,920
Common stock--$0.01 par
value, 10,000,000 shares
authorized, 1,419,293
shares issued and
outstanding.............. 14,193 9,150 (5,081)(1) 19,274
9,150 (2)
Common stock subscribed,
17,593 shares at $1.50
per share................ 176 176
Additional paid in
capital.................. 826,547 1,510,817 1,510,817 (2) 1,880,165
(1,053,618)(1)
Treasury stock............ (471,827) (471,827)(2) -0-
Retained earnings
(deficit)................ (531,246) 55,010 42,117 (2) (531,656)
13,303 (3)
Shareholder/affiliate loans
Common stock subscriptions
receivable............... (26,389) (26,389)
Shareholder loans......... (98,506) (98,506)
Receivable from
affiliates............... (14,758) (14,758)
--------- ----------- ---------- -----------
Total shareholders'
equity................... 350,937 1,103,150 44,861 1,409,226
--------- ----------- ---------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY..... $ 543,086 $35,267,651 $ 66,238 $35,744,499
========= =========== ========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-34
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

PRO FORMA FINANCIAL DATA
(UNAUDITED)

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

The following unaudited pro forma consolidated statements of operations have
been derived from the statements of operations of the Company for the fiscal
year ended December 31, 1996 and the nine months ended September 30, 1997 and
adjust such information to give effect to the acquisition of the remaining
74.6% of Rushmore Life Insurance Company (formerly First Financial Life
Insurance Company, Inc.) on April 8, 1997 and the sale of Rushmore Financial
Corporation which was effective March 3, 1997 as if both of these transactions
had occurred January 1, 1996. The pro forma consolidated statements of
operations are presented for information purposes only and do not purport to
be indicative of the results of operations that actually would have resulted
had the acquisition and sale been consummated on January 1, 1996 nor which may
result form future operations. The Pro Forma Consolidated Statements of
Operations should be read in conjunction with the notes thereto and the
Company's consolidated financial statements and related notes thereto
contained elsewhere in this prospectus.

F-35
<PAGE>

RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------------------------------------ --------------------------------------------------
RUSHMORE RUSHMORE
COMPANY LIFE ADJUSTMENTS COMPANY LIFE ADJUSTMENTS
ACTUAL ACTUAL DR (CR) PROFORMA ACTUAL ACTUAL DR (CR) PROFORMA
---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Revenue from
Insurance Services
Insurance policy
income.............. $4,154,362 $4,154,362 $2,092,002 (1,020,367)(4) $3,112,369
Net investment
income.............. 1,776,869 1,776,869 1,050,052 (517,019)(4) 1,567,071
Aging management
fee................. $ 346,968 346,968 $ 104,167 (16,239)(4) 120,406
Other income......... 67,372 67,372 -0-
Revenue from
Investment Services
Commissions and
fees................ 1,493,908 1,493,908 1,589,928 1,589,928
Asset management..... 28,705 28,705 103,292 103,292
Other................ 15,911 15,911 15,342 26,201 41,543
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
Total revenues...... 1,885,492 5,998,603 -0- 7,884,095 1,812,729 3,168,255 (1,553,625) 6,534,609
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
Expenses
Insurance Services
Expenses
Other insurance
services expenses... 1,482,975 1,482,975 697,655 364,005(4) 1,061,660
Insurance policy
benefits............ 2,343,850 2,343,850 1,128,230 677,719(4) 1,805,949
Amortization of
deferred policy
acquisition costs... 2,367,101 2,367,101 1,041,328 520,664(4) 1,561,992
Equity in subsidiary
loss................ 12,893 (12,893)(2) -0- -0-
Investment Services
Expenses
Commission expense... 1,241,476 1,241,476 1,425,141 1,425,141
Other investment
services expense.... 83,803 83,803 60,127 60,127
General and
administrative...... 663,172 (356)(3) 662,816 629,514 629,514
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
Total Expenses...... 2,001,344 6,193,926 (13,249) 8,182,021 2,114,782 2,867,213 1,562,388 6,544,383
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss)............... (115,852) (195,323) (297,926) (302,053) 301,042 (9,774)
Interest expense..... 4,535 4,535 4,163 4,163
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing
operations........... (120,387) (195,323) (302,461) (306,216) 301,042 (13,937)
Discontinued
operations (net).... (50,504) 50,504(3) -0- (25,992) (25,992)(3) -0-
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
federal income tax... (170,891) (195,323) (302,461) (332,208) 301,042 (13,937)
Provision for federal
income tax (expense)
benefit............. 144,463 144,463 (167) (167)
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
Net income (loss)..... $ (170,891) $ (50,860) (63,753) $ (157,998) $ (332,208) $ 300,875 (17,229) $ (14,104)
========== ========== ======= ========== ========== ========== ========== ==========
Net income (loss)
applicable to common
shareholders......... $ (180,778) $ (167,885) $ (344,420) $ (26,316)
========== ========== ========== ==========
Earnings (loss) per
share of common stock
after dividends on
Preferred Stock...... $ (.13) $ (.09) $ (.20) $ (.01)
========== ========== ========== ==========
Weighted average
common shares
outstanding.......... 1,376,777 1,912,015 1,737,588 1,975,472
========== ========== ========== ==========
</TABLE>

See Notes to Pro Forma Consolidated Financial Statements.

F-36
<PAGE>

RUSHMORE FINANCIAL GROUP, INC.
AND SUBSIDIARIES

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1995

(1) Adjustment to effect the acquisition of Rushmore Life, 508,144 shares of
common stock and $137,900 cash were paid for the remaining 74.6% shares of
Rushmore Life.

(2) Entry to effect consolidation and elimination of the accounts of Rushmore
Life as if it occurred at the beginning of 1996. The acquisition has been
accounted for as a purchase.

(3) Entry to effect sale of RFC as if it had occurred at the beginning of
1996. All assets and liabilities were adjusted off of the books at
December 31, 1996 and losses from discontinued operations were adjusted
off for the year ended December 31, 1996 and the nine months ended
September 30, 1997.

(4) An entry is necessary to include the full nine months of income and
expense on a pro forma basis on Rushmore Life. As it was acquired April 8,
1997 only six months of its income and expense are included in the
consolidated results for nine months ended September 30, 1997.

F-37
<PAGE>

GLOSSARY OF INSURANCE TERMS

COINSURANCE. The sharing of an insurance risk. In life insurance this arises
most frequently in connection with reinsurance where the company which is the
direct issuer of insurance passes some of it onto another company, the
reinsurer, in order to avoid a disproportionately large risk on one insured.
The reinsurer receives a proportionate part of the premiums less commissions
and is liable for a corresponding part of all payments (dividends, cash
values, death claims) made by the direct issuing company. The reinsurer must
provide for its share of the policy reserves.

DEFERRED POLICY ACQUISITION COSTS. Expenses that vary with and are directly
related to producing or issuing insurance contracts, including commissions,
premium taxes, and other costs. Under statutory accounting principles, these
costs are expensed as incurred. Under generally accepted accounting principles
(GAAP), these costs are deferred and amortized in relation to the future gross
profits or premiums.

MODIFIED COINSURANCE. This differs from coinsurance in that it requires the
ceding company to maintain all of the life insurance reserves. At year-end the
reinsurer owes the ceding company an amount equal to the increase in the mean
reserve on reinsured policies, and since the ceding company has held the
reserve funds, it owes the reinsurer interest on the prior year's mean reserve
at a rate specified in the agreement. The result is a net transfer of funds
from the reinsurer (that is, a transfer of the difference between these
amounts); this is referred to as the "modified coinsurance reserve
adjustment." In all other respects, the agreement is the same as other
coinsurance and provides similar benefits to the ceding company.

NET AMOUNT AT RISK. Face amount of the policy less the terminal reserve.

PREMIUM. The payment, or one of the periodic payments, a policyholder agrees
to make for an insurance policy.

QUOTA SHARE REINSURANCE. A form of pro-rata (proportional) reinsurance
indemnifying the ceding company for a fixed percentage of loss on each risk
covered in the contract in consideration of the same percentage of the premium
paid to the ceding company. The reinsurer also agrees to pay a ceding
commission to cover the acquisition costs of business assumed.

RESERVE. The amount required to be carried as a liability in the financial
statements of an insurer, to provide for future commitments under policies
outstanding.

TERMINAL RESERVE. The policy reserve at the end of the policy year. It is
equal to the amount of the reserve at the beginning of the policy year (the
initial reserve) plus interest on the reserve for one year and less the cost
of insurance for the respective policy year.

UNIVERSAL LIFE INSURANCE. A flexible-premium life insurance policy under
which the policyholder may change the death benefit from time to time (with
satisfactory evidence of insurability for increases) and vary the amount or
timing of premium payments. Premiums (less expense charges) are credited to a
policy account from which mortality charges are deducted and to which interest
is credited at rates that may change from time to time.

G-1
<PAGE>

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
HEADING PAGE
- ------- ----
<S> <C>
Prospectus Summary....................................................... 3
Forward-Looking Information.............................................. 6
Risk Factors............................................................. 6
The Company.............................................................. 12
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Dilution................................................................. 14
Capitalization........................................................... 15
Selected and Pro Forma Consolidated Financial Information................ 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 21
Management............................................................... 28
Certain Transactions..................................................... 32
Principal Shareholders................................................... 33
Description of Securities................................................ 34
Shares Eligible for Future Sale.......................................... 37
Underwriting............................................................. 38
Legal Matters............................................................ 39
Experts.................................................................. 40
Available Information.................................................... 40
Index to Financial Statements............................................ F-1
Glossary................................................................. G-1
</TABLE>

Until May 18, 1998 (90 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.

UP TO 1,250,000 SHARES

COMMON STOCK

OFFERING PRICE
$5.50
PER SHARE

[LOGO OF RUSHMORE FINANCIAL GROUP APPEARS HERE]

PROSPECTUS

FEBRUARY 17, 1998

FIRST SOUTHWEST COMPANY

RUSHMORE SECURITIES CORPORATION