<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                                   (Mark One)

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

     For the fiscal year ended  DECEMBER 31, 1997
                              ----------------------

[ ]  TRANSITION REPORT PURSUANT TO SECTION 10 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from  ________ to ________________

     Commission file number  1-13940
                             ----------------

                           EVEREN CAPITAL CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

         DELAWARE                                      36-4019175
-------------------------------            ------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)


  77 WEST WACKER DRIVE, CHICAGO, ILLINOIS                60601
 ----------------------------------------        -------------------
  (Address of principal executive offices)               (Zip)

Registrant's telephone number, including area code  (312) 574-6000
                                                   ----------------


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

                                                Name of each exchange
Title of each class                              of which registered
-------------------                          ----------------------------
Common Stock                                 New York Stock Exchange, Inc.

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

Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [ ]
<PAGE>

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

As of March 16, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $286,937,000 (based on the
closing price on the New York Stock Exchange and on the assumption that the
10,118,155 shares held by the trustee of the registrant's 401(k) and stock
ownership plan are considered held by an "affiliate").

As of March 16, 1998 the following number of shares were outstanding for each
class of the registrant's common stock:

         Common Stock,  $.01 par value - 17,411,900

Documents Incorporated by Reference - Certain sections of the Registrant's Proxy
Statement dated March 31, 1998 for Annual Meeting of Stockholders to be held May
11, 1998 are incorporated into Part III of this Form 10-K.




                                       2
<PAGE>

                                      INDEX

PART I                                                                 PAGE
------                                                                 ----
Item 1.   Business                                                       4
Item 2.   Properties                                                    16
Item 3.   Legal Proceedings                                             16
Item 4.   Submission of Matters to a Vote of Security Holders           17


PART II
-------
Item 5.   Market for Registrant's Common Equity
              and Related Stockholder Matters                           17
Item 6.   Selected Financial Data                                       19
Item 7.   Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                 20
Item 7A.  Quantitative and Qualitative Disclosures about Market Risk    37
Item 8.   Financial Statements and Supplementary Data                   40
Item 9.   Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure                                  66


PART III
--------
Item 10.  Directors and Executive Officers of the Registrant            66
Item 11.  Executive Compensation                                        69
Item 12.  Security Ownership of Certain Beneficial Owners
            and Management                                              69
Item 13.  Certain Relationships and Related Transactions                69


PART IV
-------
Item 14.  Exhibits, Financial Statement Schedules and Reports on
          Form 8-K                                                      69

POWER OF ATTORNEY AND SIGNATURES                                        S-1

EXHIBIT INDEX                                                           E-3

                                       3
<PAGE>

PART I
ITEM 1.    BUSINESS

General

         EVEREN Capital Corporation and its subsidiaries ("EVEREN" or the
"Company") is a full-service securities brokerage firm that provides a broad
range of investment services and products primarily to individuals and also to
institutions, corporations and municipalities. The Company's core strength is
its retail operations, which are focused on individual investors and which
generated more than 70% of the Company's net revenues in each of the last three
years. The Company also engages in capital markets, asset management and
clearing activities that complement and capitalize on the strength of the
Company's retail operations. The statistics in the following discussion do not
include information relating to Principal Securities Holding Corporation and its
wholly-owned subsidiary, Principal Financial Securities, Inc. ("PFSI"), which
was acquired in January 1998.

         In its retail business, conducted primarily through its wholly-owned
subsidiary, EVEREN Securities, Inc. ("EVEREN Securities"), the Company focuses
on maintaining and developing strong client relationships in local and regional
markets while providing the breadth and quality of services and products offered
by national brokerage firms. Headquartered in Chicago, the Company operates its
retail business through an integrated network of approximately 1,330 investment
consultants located in approximately 140 offices in 27 states. As of January 1,
1997, EVEREN was ranked as the twelfth largest brokerage firm in the United
States based on number of retail investment consultants, according to the
Securities Industry Association. At year end, EVEREN held over $48.9 billion of
customer assets in approximately 500,000 client accounts.

         EVEREN enjoys strong market positions in targeted regional markets with
approximately 72% of branch offices and 75% of its investment consultants
located in the states of Illinois, California, Ohio, Wisconsin, Colorado and
Texas. EVEREN's market penetration is primarily the result of the consolidation
and integration in 1990 of five prominent predecessor firms to form a network of
seasoned investment consultants.

         The Company also provides a full range of equity and fixed income
products, investment banking services and other capital markets products and
services through approximately 400 professionals located in approximately 14
offices in major cities in the United States. The Company has increased the
coordination of its investment banking, syndicate and trading activities,
focusing those activities on middle market and growth companies in selectively
targeted industries in which management believes the Company has specialized
expertise. In addition, EVEREN expanded its asset management business through a
joint venture with Mentor Investment Group, Inc. ("Mentor"), an asset management
company that had approximately $12 billion of assets under management at year
end 1997. Through its subsidiary, EVEREN Clearing Corp. ("EVEREN Clearing"), the
Company also provides securities clearing services to its trading and brokerage
areas and approximately 30 correspondent firms.

         In September 1995, the Company became independently owned when the
EVEREN Capital Corporation 401(k) and Employee Stock Ownership Plan ("KSOP")
purchased 96.6% of the Company's then outstanding Common Stock (the "Buy-out")
from Kemper Corporation ("Kemper") for an aggregate cash price of $71.4 million
($55.0 million of which was funded by bank borrowings) plus $30.0 million of the
Company's Exchangeable Preferred Stock. In October 1996, the Company completed
its initial public offering whereby 4.6 million shares of its Common Stock were
sold at a price of $18.50 per share. Approximately 70% of the Company's

                                       4
<PAGE>

Common Stock is currently employee-owned, with approximately 90% of the
Company's current employees having an ownership interest. The Company
experienced net losses in 1993, 1994 and 1995 of $3.7 million, $2.2 million and
$15.9 million, respectively. Since the Buy-out, EVEREN has experienced improved
growth and profitability relative to prior periods. For the fourth quarter of
1995, its first full quarter as an independent entity, the Company reported net
income of $6.2 million on net revenues of $131.3 million compared to net income
of $0.7 million on net revenues of $114.2 million for the fourth quarter of
1994. For the year ended December 31, 1996, the Company generated net income of
$62.5 million, including a $30.2 million after-tax gain on the sale of a
subsidiary, on net revenues of $536.6 million compared to a net loss of $15.9
million on net revenues of $490.7 million for 1995. For the year ended December
31, 1997, the Company generated net income of $46.6 million on net revenue of
$593.1 million, an 11% increase compared to 1996. Management believes that the
Company's independence and employee ownership have resulted in high levels of
employee motivation, confidence and commitment, which have in turn contributed
significantly to the Company's improved performance.

Strategy

         EVEREN is dedicated to expanding its retail brokerage franchise while
increasing the proportion of revenues and profits contributed by its capital
markets and asset management businesses. The Company continually focuses on
enhancing its profitability through revenue growth and cost containment. Key
elements of the Company's strategy include actions to:

     -    Provide a high level of value-added service to clients. Management
          seeks to provide its retail investment consultants with a work
          environment and resources that enable them to offer clients service
          equal or superior to that provided by most national brokerage firms
          and a range of products and services broader than those offered by
          most competing regional brokerage firms. Management believes that the
          Company's ability to provide clients with superior service is
          primarily attributable to the long average tenure and industry
          experience of its investment consultants, a high average level of
          support staff per investment consultant and the breadth of the
          Company's service and product offerings. The Company is also actively
          seeking to enhance the consultative, as opposed to
          transaction-oriented, approach in an effort to meet and serve its
          clients' needs more effectively.

     -    Increase penetration in existing markets. EVEREN targets select local
          markets in which its presence often equals or exceeds that of larger
          national brokerage firms. The Company is focused on achieving target
          market penetrations (generally 10% -15% market share) in most of its
          markets to realize operating efficiencies and develop a meaningful
          presence in such communities. To achieve desired market penetration,
          the Company is building its investment consultant base by recruiting
          experienced investment consultants in appropriate markets, as well as
          selectively hiring and training new investment consultants. Newly
          recruited investment consultants typically occupy available space
          within existing offices, although the Company may selectively open new
          offices in locations in which it believes it can reach desired
          penetration levels.

     -    Grow client assets and increase asset management activity. The Company
          seeks to increase the level of client wealth maintained at the Company
          by encouraging existing

                                       5
<PAGE>

          clients to maintain an increasing proportion of their financial assets
          with the Company and by attracting new clients.

          Toward this end, the Company undertook two significant initiatives in
          1996. The first initiative was the introduction of new cash management
          products that allow clients to consolidate their financial assets into
          one, full service integrated account with a variety of features. The
          second initiative was a joint venture with Mentor, which provides the
          Company's investment consultants with proprietary mutual funds to sell
          to existing and new clients. The arrangement expands the Company's
          product offerings while also allowing the Company to diversify and
          potentially increase its earnings through direct participation in
          Mentor's earnings. The Company is seeking to increase the recurring,
          fee-based revenues generally associated with asset management
          activities.

     -    Expand capital markets activity. The Company intends to increase its
          origination of equity products. To implement this strategy, the
          Company has increased the coordination of its research, investment
          banking, syndicate and equity trading activities to focus those
          activities on middle market and growth companies in a group of core
          industries. By focusing its activities, the Company expects to enhance
          its reputation in such industries and increase its penetration,
          thereby leading to the execution of a greater volume of larger, higher
          margin transactions.

     -    Pursue opportunistic acquisitions consistent with the Company's
          overall strategy. The Company intends to selectively pursue
          acquisition opportunities that either deepen penetration in its
          existing markets or add new, sufficiently penetrated, markets to its
          franchise. Management intends to selectively pursue acquisitions that
          are likely to further leverage the Company's infrastructure. In that
          regard, on January 9, 1998, the Company completed the acquisition of
          Principal Securities Holding Corporation and its wholly owned
          subsidiary, Principal Financial Securities, Inc., from Principal
          Mutual Life Insurance Company for $75 million in cash. PFSI is a
          registered securities broker-dealer and will operate as a separate
          subsidiary of EVEREN until PFSI's back office and other operating
          activities are combined with those of EVEREN Securities.

     -    Maintain rigorous cost discipline. The Company seeks to minimize
          operating costs and to convert fixed costs to variable costs as
          appropriate. The Company regularly reviews the expense levels in, and
          profit contributions of, each retail branch office and business unit
          to determine appropriate consolidation and other cost saving
          opportunities. In addition, the Company has closely aligned the
          compensation structure for branch managers and other managerial
          personnel to profitability targets and the attainment of cost
          containment goals. The Company also seeks to reduce fixed cost by
          divesting non-core businesses, such as BETA Systems, Inc. ("BETA"), a
          wholly owned data processing and quote service subsidiary, which was
          sold on April 30, 1996 for $63.5 million, and resizing certain
          business units, such as its municipal bond unit. The Company intends
          to continue to consider from time to time the divestiture, elimination
          or resizing of other non-core businesses, programs or assets in order
          to increase the focus on its retail brokerage, capital markets and
          asset management businesses.

                                       6
<PAGE>

     -    Maintain conservative risk profile. The Company continues to control
          the risk in each of its businesses. Securities inventories are
          maintained at relatively low levels, hedged to the extent practicable
          and subjected to strict risk management guidelines. The Company seeks
          to limit its exposure to trading losses by focusing its trading
          activity on facilitating its retail and institutional businesses
          rather than on trading for its own account. Management seeks to foster
          a conservative approach to risk through a number of mechanisms,
          including the linking of trader compensation to production as a
          priority over trading profits, an emphasis on compliance, a focus on
          education and the use of risk management systems monitored on a daily
          basis.

Nature of the Securities Brokerage Business

         The securities brokerage business is subject to significant risks,
including the risk of losses resulting from the underwriting or ownership of
securities, trading losses, counterparty failure to meet commitments, customer
fraud, employee fraud, issuer fraud, errors and misconduct, failure in
connection with the processing of securities transactions and litigation. The
securities brokerage business is directly affected by many factors, including
economic and political conditions, broad trends in business and finance,
legislation and regulation affecting the national and international business and
financial communities, currency values, inflation, market conditions, the
availability and cost of short-term or long-term funding and capital, the credit
capacity or perceived creditworthiness of the securities industry in the
marketplace and the level and volatility of interest rates. Such factors can
lead to lower price levels for securities and illiquid markets.

         Lower price levels of securities may result in (a) reduced volume of
securities, options and futures transactions, with a consequent reduction in
revenues, (b) losses from declines in the market value of securities held in
trading, investment and underwriting positions and (c) reduced management fees
calculated as a percentage of assets managed. In periods of low volume, levels
of profitability are further adversely affected because certain expenses remain
relatively fixed. Illiquid markets may result in the Company having difficulty
selling securities, hedging its securities positions and investing funds under
its management. The Company believes its trading strategy and risk management
procedures reduce its exposure to losses resulting from such risks, although
there can be no assurance that such losses will not occur or if they do, that
they will not be material.

Dependence on Outside Sources of Financing

         The Company, like others in the securities industry, relies on external
sources to finance a significant portion of its day-to-day operations,
principally to finance customer margin account balances and certain other
transactions. The principal sources of the Company's cash and liquidity are
commissions, repurchase agreements, collateralized bank loans and securities
lending activities. EVEREN Clearing, the Company's clearing subsidiary,
maintains credit lines aggregating approximately $535 million with several
banks, of which $304 million (including $40 million of unsecured credit
arrangements) had been drawn down as of December 31, 1997.

                                       7
<PAGE>

Retail Brokerage Activities

         EVEREN's retail business offers clients a complete range of investment
products, such as stocks, bonds and mutual funds, and investment services,
including investment advice, financial planning and asset management. Management
believes that the breadth and quality of the Company's products and services,
coupled with the productivity, tenure and experience of its investment
consultants, allow it to provide superior service to its clients and help to
distinguish EVEREN from its competitors.

         Markets

         EVEREN's investment products and services are marketed to clients by a
network of approximately 1,330 investment consultants operating out of
approximately 140 retail branch offices in 27 states. Although EVEREN
Securities' single largest office in terms of revenue in 1997 was in New York
City, approximately three-quarters of the Company's investment consultants are
located in branch offices in California (310 investment consultants), Ohio
(171), Illinois (159), Texas (126), Wisconsin (119), and Colorado (97). Many of
EVEREN's retail offices are located in smaller cities or suburban areas. The
Company's top fifteen performing branch offices accounted for 33% of retail
sales revenues in 1997.

         Retail Products and Services

         EVEREN offers a full line of investment products to its retail clients.
These include cash management accounts, listed and over-the-counter stocks,
government and corporate bonds, tax-exempt state and local government bonds,
open- and closed-end mutual funds, unit investment trusts, commodities,
individual retirement accounts ("IRAs") and a wide variety of investment
advisory products. Service offerings include investment advisory services,
financial planning services such as retirement planning and planning for college
funding, asset allocation advice, margin loans and prototype 401(k) plans and
services.

         The table below sets forth the percentage contribution of various
retail investment products and services to EVEREN's 1997 retail revenues:

                                                           PERCENTAGE OF
   PRODUCT/SERVICE                                      RETAIL REVENUES (1)
   -------------------                                  -------------------
   Equities                                                     39%
   Asset management                                             14
   Margin interest                                              13
   Mutual funds                                                 14
   Other                                                        11
   Taxable fixed income                                          6
   Municipals                                                    3
                                                              -----

   Total                                                       100%
                                                              =====

(1)    Retail revenues include commissions, principal sales credits, 12b-1 and
       managed account fees credited to the production of an individual
       investment consultant, as well as asset management and margin interest
       income earned on related client assets.

                                       8
<PAGE>

         In May 1996 as part of its strategy to grow client assets and increase
asset management activity, EVEREN introduced two new forms of cash management
accounts, the EVEREN Automatic Access Account(R) ("AAA") and the EVEREN
AdvantageSM account ("Advantage"). AAA and Advantage are designed to allow
clients to consolidate their financial assets in a full service, integrated
account. AAA accounts feature numerous services, including a daily sweep of any
cash in the client's account to a money market mutual fund, unlimited free
checking, debit cards, margin account access and automatic bill payment.
Advantage account holders also will receive customized statements showing gain
and loss information, complimentary IRA and EVEREN Online Service, a service
that will provide the client with direct access to his or her account
information via computer modem.

         Investment Advisory Services

         The Company's investment advisory services include performance
monitoring, selection of third party investment managers and, to a limited
extent, discretionary asset management. The investment advisory services offered
by the Company are tailored for a variety of clients, including individuals,
pension and profit-sharing plans, trusts and estates, charitable organizations,
corporations and other business and governmental entities. These services are
provided by approximately 210 investment consultants located in 75 of the
Company's branch offices. Investment advisory services are typically rendered on
a fixed or "wrap" fee basis, such that all services, including execution
services, are provided by EVEREN for a fixed fee, payable quarterly, usually a
percentage of assets under management.

         Investment Consultants

         Productivity and Tenure. One of the strengths of the Company's retail
business is the experience and productivity of its investment consultants.
Management believes that average production and average client assets per
investment consultant are important measures of productivity.

<TABLE>
<CAPTION>

PER INVESTMENT CONSULTANT                 1997        1996       1995        1994        1993
-------------------------                 ----        ----       ----        ----        ----
<S>                                    <C>         <C>        <C>         <C>        <C>
Average production for period (1)      $329,000    $306,000   $275,000    $258,000   $295,000
Average client assets at period end
  (in millions) (2)                       $36.8       $32.8      $27.8       $23.2      $26.5
</TABLE>

(1)      Average production is calculated by dividing the aggregate commissions,
         principal sales credits and 12b-1 and managed account fees credited to
         the production of all investment consultants by the average number of
         investment consultants during the period.

(2)      Average client assets equals total assets held in retail client
         accounts divided by number of investment consultants. Excludes certain
         annuity and mutual funds and other assets not actually held in the
         client's account but on which commissions or similar payments are
         received.

         Based upon a confidential industry survey conducted by a third party,
management believes that the average production generated by the Company's
investment consultants exceeded the industry average of $294,738 for regional
firms in 1997 and was slightly below the industry average of $354,617 for all
firms. In 1995, 1996 and 1997, the Company had 27, 38, and 41 investment
consultants, respectively, whose production exceeded $1,000,000. On average,
EVEREN's investment consultants (excluding the PFSI investment consultants) have

                                       9
<PAGE>

more than eight years of tenure with the Company and 16 years of experience in
the securities brokerage industry.

         Recruiting. In order to achieve its desired market share penetrations,
EVEREN is building its investment consultant base by recruiting experienced
investment consultants in targeted markets, as well as selectively training new
investment consultants. The Company added a net of 113 new investment
consultants in 1997, compared to an increase of net 69 investment consultants
for 1996. The Company faces significant competition from other firms seeking to
recruit qualified investment consultants, and there can be no assurance that the
Company's recruiting and retention efforts will be successful.

         Training. The Company intends to strengthen its base of investment
consultants by means of its ongoing training programs. Through EVEREN
University, which provides coordinated training and educational programs, a core
curriculum has been developed to help experienced investment consultants gather
more client assets and serve clients more effectively. Trainee investment
consultants participate in a program that focuses on a consultative rather than
transactions-oriented approach, asset gathering, technology and overall
financial planning for clients. See "--EVEREN University and EVEREN Foundation."

         SIPC Insurance

         The Company maintains insurance provided by the Securities Investors
Protection Corporation ("SIPC") for up to $500,000 per customer account, as well
as excess SIPC coverage for up to an additional $9.5 million ($10.0 million
total protection) per client account. Coverage up to an additional $49.5 million
($50.0 million total protection) is available for clients electing specialized
account services.

Capital Markets Activities

         The Company engages in a full range of capital markets activities,
including product origination, trading and research of equity, taxable fixed
income and municipal securities. The Company's capital markets activities are
primarily client-driven, in contrast to those of many other securities firms
which emphasize proprietary trading, and currently account for approximately
15.4% of the Company's net revenues. Capital markets activities are conducted
through approximately 400 professionals in 14 offices located in major cities
across the United States.

         Equities

         The Company seeks to focus its equity capital markets activities
increasingly on institutional clients because of their greater share volumes and
resulting revenues. The Company has coordinated its equity securities research,
investment banking, syndicate and trading activities by industry group and
focused those activities on middle market and growth companies in a group of
core industries. These industries currently include financial services
(primarily thrifts, insurance companies and finance companies), real estate,
technology (primarily computer hardware and software), consumer goods (primarily
retail, catalogues and restaurants), industrials (primarily specialty chemicals,
capital goods and selected manufacturing), telecommunications (primarily
equipment and wireless and landline services) and health care. The Company added
coverage of the energy industry with the acquisition of PFSI.

                                       10
<PAGE>

         Research. The Company provides equity research coverage on a group of
middle-market and growth companies in the Company's core industries. The
Company's research staff prepares periodic reports on approximately 225 publicly
traded companies and uses a team approach that is designed to allow depth of
coverage. In addition, the Company purchases research coverage from two
well-regarded investment banks. This out-sourcing of research provides the broad
services needed by retail investment consultants and clients and allows the
Company's in-house analysts to focus where they can add value. The Company also
maintains a research liaison desk to provide responsive support service to its
investment consultants and retail clients.

         Investment Banking. The Company offers a broad range of investment
banking services primarily relating to equity offerings and private placements
to middle market and growth companies, principally in the Company's core
industries. The Company has approximately 40 investment banking professionals in
3 locations. The Company also offers other investment banking services,
including mergers and acquisitions advisory and debt origination.

         Institutional Sales. The Company distributes equity securities through
an institutional equity sales force that primarily serves mid-size and large
institutional clients. The Company has approximately 30 institutional equity
sales professionals located in 4 offices. In 1997, the institutional equity
sales force generated $27.4 million of revenues.

         Trading. The Company makes a market in approximately 350
over-the-counter stocks, including most of those covered by the Company's
research department. EVEREN employs approximately 20 trading professionals who
execute transactions in both over-the-counter and listed securities primarily
for retail and institutional clients. Traders are paid based on a formula that
encourages them to work with the Company's investment consultants and
institutional sales professionals to generate sales revenues as a priority over
trading profits. The Company seeks to limit its exposure to trading losses by
focusing its trading activity on facilitating its retail and institutional
businesses rather than on trading for its own account. The Company imposes low
position limits for its traders.

         Taxable Fixed Income

         The Company provides a broad range of government, government agency and
corporate fixed income securities to its retail and generally smaller
institutional clients. A relatively small amount of the taxable fixed income
securities offered by the Company are originated internally, most are obtained
in the secondary market. The taxable fixed income department employs
approximately 75 professionals, including fixed income research personnel who
primarily provide investment ideas and credit oversight. To facilitate its
taxable fixed income activities, the Company enters into standard repurchase and
reverse repurchase agreements with qualified institutional clients.

         Municipals

         The Company provides underwriting and financial advisory services to,
and distributes securities of, tax-exempt municipalities principally in the
Midwest. The Company's municipal securities business includes approximately 15
public finance investment bankers and analysts that provide underwriting and
financial advisory services.

                                       11
<PAGE>

Gateway Mortgage Acceptance Corporation

         Gateway Mortgage Acceptance Corporation ("Gateway") is a wholly-owned
limited purpose subsidiary whose business activities are limited to issuing
series of collateralized mortgage obligations, directly or through one or more
trusts beneficially owned by it, to retail investors and purchasing, owning and
selling other mortgage-related assets associated with collateralized mortgage
obligations. In the fiscal year ended December 31, 1997, Gateway, as a
pass-through entity, accounted for approximately $11.2 million of interest
income and approximately $10.9 million of interest expense of the Company.
Gateway has no employees. Gateway retains the right to call, beginning four
years after issuance, the collateralized mortgage obligations it issues at par
and may realize gains on the disposition of the underlying collateral. See Notes
2, 7 and 8 of Notes to Consolidated Financial Statements.

Mentor Joint Venture

         In 1996, the Company entered into a joint venture (the "Joint Venture")
pursuant to which it acquired an initial 20% ownership interest in Mentor, the
asset management subsidiary of Wheat First, Butcher Singer, Inc. ("Wheat"), a
Mid-Atlantic based securities brokerage firm, for no direct cash consideration.
The Joint Venture Agreement ("JVA") provides the Company with an opportunity not
later than March 31, 1999 to increase its ownership stake in Mentor up to a
maximum 50% equity interest (or such lesser equity interest equal to Wheat's
equity interest if another firm is added to the Joint Venture).

         By entering into the Joint Venture, the Company is seeking to grow
client assets under management by offering a greater range of asset management
products and, through its ownership interest in Mentor, to capture a portion of
earnings relating to client assets under management that would otherwise be
earned by third-party vendors.

         Mentor is a regional asset management firm headquartered in Richmond,
Virginia that offers seven distinct investment styles (cash, active fixed
income, balanced, tactical asset allocation, large capitalization quality
growth, global/international equity growth and small/mid-capitalization equity
growth) through retail mutual funds, institutional mutual funds and separately
managed portfolios. As of December 31, 1997, Mentor had approximately $12
billion in assets under management compared to $1.0 billion in early 1993.

         As of December 31, 1997, the Company had transferred approximately $3.2
billion of money market mutual fund assets held in client accounts to
Mentor-sponsored funds. The JVA prohibits each of the Company and Wheat from
engaging, directly or indirectly, in the asset management business other than
through Mentor or through activities generally engaged in by broker-dealer
firms.

EVEREN Clearing

         The Company, through EVEREN Clearing, a broker-dealer registered with
the Securities and Exchange Commission (the "Commission") and a member firm of
the New York Stock Exchange ("NYSE") and other principal exchanges, provides
securities execution and clearing services on a fully-disclosed basis and
commodities clearing services for EVEREN Securities and other non-affiliated
broker-dealers.

                                       12
<PAGE>

         EVEREN Clearing was incorporated in Delaware in 1984 to service the
clearing needs of the broker-dealers then affiliated with Kemper. EVEREN
Clearing expanded its clearing services to outside broker-dealers in order to
leverage its clearing structure, thereby reducing EVEREN Securities' clearing
costs. As of December 31, 1997, EVEREN Clearing provided clearing services for
approximately 30 non-affiliated broker-dealers.

EVEREN University and EVEREN Foundation

         In 1996, the Company established EVEREN University to provide
coordinated training, education and development programs for Company employees,
clients and others. Separate courses and programs continue to be developed for
experienced investment consultants, trainees, branch office managers and other
employees that are designed to enhance their fundamental and professional skills
and improve their familiarity with the services and products the Company offers.

         In conjunction with EVEREN University, the Company established the
EVEREN Foundation (the "Foundation"), a not-for-profit corporation through which
the Company's employee matching gift program, its annual retail "charity day"
and other charitable programs are coordinated and funded. The Foundation's focus
is education.

Employees

         At December 31, 1997, the Company employed approximately 3,400 persons.
Of that number, approximately 3,000 were employed by EVEREN Securities and
approximately 400 were employed at EVEREN Clearing.

Competition

         All aspects of the Company's business are highly competitive. The
Company competes directly with national, regional and local full service
broker-dealers and, to a lesser extent, with discount brokers, dealers,
investment banking firms, investment advisors and certain commercial banks and
indirectly for client assets with insurance companies and others. The financial
services industry has become considerably more concentrated as numerous
securities firms have either ceased operations or have been acquired by or
merged into other firms. Such mergers and acquisitions have increased
competition from these firms, many of whom have significantly greater equity
capital, financial and other resources than the Company. With respect to retail
brokerage activities, many of the regional firms with whom the Company competes
have operated in their regions significantly longer than has the Company and
have established long-standing client relationships. In addition, the Company
expects competition from domestic and international commercial banks to increase
as a result of recent and anticipated legislative and regulatory initiatives in
the United States to remove or relieve certain restrictions on commercial banks
relating to the sale of securities.

         In addition, the Company faces competition for investment consultants.
Although the Company takes steps to maintain strong relationships with its
investment consultants, because of the significant emphasis on and importance of
its retail operations, the Company faces competition in attracting and retaining
high-producing retail brokers. While many competitors require their

                                       13
<PAGE>

registered representatives to enter into restrictive non-competition agreements
which seek to prohibit the representatives from being employed by any
competitor, the Company has not implemented such a requirement because it
believes that the general use of such agreements is not conducive to attracting
valuable employees.

         Management believes that the principal competitive factors influencing
the Company's business are the quality of its investment consultants and other
professional staff, the Company's reputation in and penetration of the local
markets in which it operates, its existing client relationships, its mix of
market capabilities and the incentives associated with employee ownership.

Regulation

     The securities industry in the United States is subject to extensive
regulation under both federal and state laws. EVEREN Securities and EVEREN
Clearing are registered as broker-dealers, and EVEREN Securities is registered
as an investment adviser, with the Commission. They are subject to regulation by
the Commission and by self-regulatory organizations, principally the NASD and
Municipal Securities Rulemaking Board ("MSRB") and national securities exchanges
such as the NYSE. Securities firms are also subject to regulation by state
securities administrators in those states in which they conduct business. EVEREN
Securities is a registered broker-dealer in all 50 states, the District of
Columbia and the Commonwealth of Puerto Rico. Failure to comply with the laws,
rules or regulations of the Commission, such self-regulatory organizations and
state securities commissions may result in censure, fine, the issuance of
cease-and-desist orders or the suspension or expulsion by such entities of a
broker-dealer, an investment adviser, officers or employees. The Company
believes that it is currently in material compliance with the regulations to
which it is subject.

     EVEREN Securities and EVEREN Clearing are registered with the Commodity
Futures Trading Commission ("CFTC") as futures commission merchants and are
subject to regulation as such by the CFTC and various domestic boards of trade
and other commodity exchanges. EVEREN Securities' commodity futures and options
business is also regulated by the National Futures Association ("NFA"), a
not-for-profit membership corporation which has been designated as a registered
futures association by the CFTC.

     Because financial services businesses are subject to extensive regulation
on the federal and state level, and because of the possibility of changes
resulting from numerous legislative and regulatory proposals that are advanced
each year and from judicial decisions, it is possible that changes will be
necessary to the way in which the Company and its affiliates conduct their
activities. While it is difficult to predict the impact of any new laws,
regulations or judicial decisions, the Company anticipates that regulation of
the securities and commodities industries will increase at all levels and that
compliance therewith will become more difficult. Monetary penalties and
restrictions on business activities by regulators resulting from compliance
deficiencies are also expected to become more severe.

                                       14
<PAGE>

Capital Requirements

        As registered broker-dealers, EVEREN Securities and EVEREN Clearing are
subject to the Commission's net capital rule, Rule 15c3-1 (the "Net Capital
Rule"), promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The NYSE monitors the application of the Net Capital Rule.
EVEREN Securities and EVEREN Clearing each compute net capital under the
alternative method which requires minimum net capital equal to the greater of $1
million for EVEREN Securities and $1.5 million for EVEREN Clearing or 2% of
aggregate items arising from customer transactions. A broker-dealer may be
required to reduce its business if its net capital is less than 4% of aggregate
debit balances and may also be prohibited from expanding its business or paying
cash dividends if resulting net capital would be less than 5% of aggregate debit
balances. In addition, the Net Capital Rule does not allow withdrawal of
subordinated capital if net capital would be less than 5% of such debit
balances.

        The Net Capital Rule also limits the ability of broker-dealers to
transfer large amounts of capital to parent companies and other affiliates.
Under the Net Capital Rule, equity capital cannot be withdrawn from a broker-
dealer without the prior approval of the Commission when net capital after the
withdrawal would be less than 25% of its securities position haircuts (which are
deductions from capital of certain specified percentages of the market value of
securities to reflect the possibility of a market decline prior to disposition).
In addition, the Net Capital Rule requires a broker-dealer to notify the
Commission and the appropriate self-regulatory organization two business days
before a withdrawal of excess net capital if the withdrawal would exceed 30% of
the broker-dealer's excess net capital, and two business days after a withdrawal
that exceeds 20% of excess net capital, provided that no such notice need be
given if the withdrawal is less than $500,000. Finally, the Net Capital Rule
authorizes the Commission to order a freeze on the transfer of capital if a
broker-dealer plans a withdrawal of more than 30% of its excess net capital and
the Commission believes that such a withdrawal would be detrimental to the
financial integrity of such broker-dealer or would jeopardize the broker-
dealer's ability to pay its customers.

        EVEREN Securities receives flow-through capital benefits from EVEREN
Clearing, to the extent available, in accordance with the Net Capital Rule. At
December 31, 1997, EVEREN Securities had net capital, as defined, of $152
million, which exceeded its minimum net capital requirement by $151 million.
EVEREN Clearing had net capital of $73.8 million at December 31, 1997, which
exceeded its minimum net capital requirement by $54.6 million.

        Compliance with the Net Capital Rule could limit those operations of the
Company that require the intensive use of capital, such as underwriting and
trading activities and the financing of customer account balances, and also
could restrict its ability to pay dividends, repay debt and redeem or purchase
shares of its outstanding common stock.

        The Commission, the NYSE, the CFTC and various other securities and
commodities exchanges and other regulatory bodies in the United States have
rules with respect to net capital requirements which affect the Company. A
change in such rules, or the imposition of new rules, affecting the scope,
coverage, calculation or amount of such net capital requirements, or a
significant operating loss or any unusually large charge against net capital,
could adversely affect the ability of the Company to expand or maintain present
levels of business or pay dividends or interest.

                                       15
<PAGE>

ITEM 2. PROPERTIES

EVEREN Securities leases 241,000 square feet of office space (and an additional
36,000 square feet of warehouse space) in Chicago, Illinois; 136,000 square feet
in two locations in Houston, Texas, a significant portion of which is subleased;
26,000 square feet in Cleveland, Ohio; 118,000 square feet in two locations in
Milwaukee, Wisconsin; 38,000 square feet in two locations in New York City;
30,000 square feet in San Francisco, California; 21,000 square feet in Denver,
Colorado; and approximately 650,000 square feet in other locations nationwide.

ITEM 3. LEGAL PROCEEDINGS

         Many aspects of the Company's business involve substantial risks of
liability. In recent years there has been an increasing incidence of litigation
involving the securities brokerage industry, including class action suits that
generally seek substantial damages and other suits seeking punitive damages.
Like other securities brokerage firms, the Company has been named as a defendant
in class action and other suits and has in the past been subject to substantial
settlements and judgments.

         Following are descriptions of certain of the lawsuits in which the
Company is currently a named defendant. Although there can be no assurances, the
Company does not believe that the ultimate outcome of either of these lawsuits,
individually or in the aggregate, will have a material adverse effect on its
financial condition or results of operations.

         In Re NASDAQ Market-Maker Antitrust Litigation. In December 1994 a
consolidated amended class action complaint was filed in the United States
District Court for the Southern District of New York against thirty-three
broker-dealer market makers in The NASDAQ National Market System ("NASDAQ")
traded securities, including EVEREN Securities, alleging the defendants had
conspired to fix the "spread" between bid and asked prices for NASDAQ traded
securities in violation of Section 1 of the Sherman Act. In November 1996, the
Court certified a class of investors on behalf of whom the plaintiffs purport to
bring this action including customers of the defendants who purchased or sold
securities on NASDAQ during a period from May 1989 through May 1994. On December
23, 1997, all but one remaining defendant reached an agreemnt in principle to
settle this lawsuit. In consideration for the dismissal of this action, the
Company paid $135,949 into an escrow account in January 1998 and agreed that on
or before September 30, 1998, it would pay into an escrow account the additional
sum of $4,811,876 or deposit into the escrow account U.S. Treasury securities
which shall mature on or before July 30, 1999, having a value at maturity of
$4,811,876. The settlement is subject to court approval, and a hearing on the
entry of final judgment has been scheduled for September 1998.

         Estate of Braunstein, et al.v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., et al. EVEREN Securities is named as a defendant, together with ten other
broker-dealers, in a purported class action lawsuit filed in the Supreme Court
of the State of New York, County of New York, in May 1994. Plaintiffs purport to
state claims individually and on behalf of a class of all individuals or
entities who have had accounts with one or more of the defendants in which they
have had free credit balances from which the defendants have derived economic
benefit for which they have not accounted to the plaintiffs. Plaintiffs allege
that defendants unlawfully retained interest earned on free credit balances in
broker-dealer accounts. Plaintiffs seek compensatory damages, the imposition of
a constructive trust, an injunction to require the payment of interest on

                                       16
<PAGE>

free credit balances, costs and attorneys' fees. In June 1995, the court
dismissed plaintiffs' complaint for failure to state a claim. Plaintiffs then
filed an amended complaint containing similar claims. Defendants' motion to
dismiss the amended complaint was denied, but on April 22, 1997, the Appellate
Division reversed the lower court and dismissed the action on the grounds of
preemption by federal law. Plaintiffs filed a notice of appeal as of right to
the New York Court of Appeals, and on September 22, 1997, that appeal was
dismissed. On October 16, 1997, plaintiffs filed a motion with the Court of
Appeals for leave to appeal, and on December 17, 1997 the Court of Appeals
denied the motion. On March 10, 1998 plaintiffs petitioned the United States
Supreme Court for certiorari. In addition, in September 1996, the court denied
without prejudice plaintiff's motion for class certification.

         In addition to the matters described above, the Company is currently a
defendant in various civil actions and arbitrations arising out of its
activities as a broker-dealer in securities. Some of such actions involve
allegations of misconduct by Company employees, and other actions involve claims
against the Company by current or former employees. Although the ultimate
outcome of these matters cannot be ascertained at this time, it is the opinion
of management, after consultation with counsel, that the resolution of such
suits will not have a material adverse effect on the consolidated financial
position of the Company, but may be material to the Company's operating results
for any particular period, depending upon the level of the Company's income for
such period.

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

         No matters were submitted to a vote of security holders during the
fourth quarter of the 1997 fiscal year.

PART II

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

a. Market Information

         The Company's Common Stock is traded on the New York Stock Exchange
under the symbol "EVR". The high and low sales prices for the Company's Common
Stock for each quarter of the Company's last two fiscal years during which the
Company's Common Stock was traded on the New York Stock Exchange are as follows:

          1997                                     HIGH           LOW
          ----                                     ----           ----
     4th Quarter                                  $47.688        $35.000
     3rd Quarter                                   40.625         29.375
     2nd Quarter                                   31.250         20.125
     1st Quarter                                   30.250         19.875

          1996
          ----
     4th Quarter*                                  23.375         17.875

*From October 8, 1996 to year-end 1996.

                                       17
<PAGE>

b. Holders

         As of March 2, 1998, there were 962 record holders of the Company's
Common Stock according to the records maintained by the Company's transfer
agent.

c. Dividends

         Dividends declared during the portion of the last two fiscal years that
the Company's Common Stock was listed on the New York Stock Exchange were as
follows:

  CALENDAR QUARTER                         FIRST    SECOND   THIRD     FOURTH
  ----------------                         -----    ------   -----     ------
        1997                               $.09      $.09    $.09       $.11
        1996                                  -         -       -       $.09

       The Company's ability to pay dividends is contingent upon the earnings of
its subsidiaries, as well as their ability to declare and pay dividends to the
Company. Certain subsidiaries may be limited in their ability to pay dividends
by capital and other rules of regulatory bodies, as well as certain covenants in
instruments governing certain indebtedness.

       Dividend distributions from securities brokerage firms are restricted by
federal and state securities laws, the rules and regulations thereunder and/or
the rules and regulations of exchanges of which the firms are members. As a
result, EVEREN Securities and EVEREN Clearing cannot lawfully pay dividends that
would either reduce their respective net capital amounts below the minimum
amounts required or cause certain net capital decreases without prior regulatory
approval.

                                       18
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

              The following table sets forth summary historical consolidated
financial data for the Company which was derived from the consolidated financial
statements of the Company. The summary consolidated financial data should be
read together with the consolidated financial statements of the Company and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this report.

CONSOLIDATED STATEMENT OF OPERATIONS DATA
  (DOLLARS IN MILLIONS):

<TABLE>
<CAPTION>
                                           1997              1996             1995            1994          1993
                                           ----              ----             ----            ----          ----
<S>                                         <C>            <C>               <C>            <C>           <C>
Revenue:
       Commissions                          $267.9          $225.8           $190.4         $180.5        $241.1
       Principal transactions                102.9           115.3            122.1          119.1         158.5
       Investment banking                     69.5            55.9             47.1           61.9         105.3
       Asset management                       70.9            57.3             53.3           51.5          49.8
       Other                                  33.3            42.2             49.1           43.2          44.9
       Interest                               85.2            74.1             81.2           73.8          74.1
                                            ------          ------           ------         ------        ------
       Total revenue                         629.7           570.6            543.2          530.0         673.7
       Interest expense                       36.6            34.0             52.5           44.8          46.9
                                            ------          ------           ------         ------        ------
       Net revenue                           593.1           536.6            490.7          485.2         626.8
                                            ------          ------           ------         ------        ------
Non-interest expenses
       Compensation and benefits             352.5           331.4            335.5          328.0         387.1
       Brokerage and clearance                17.2            14.5             11.4           11.5          15.1
       Communications                         42.6            38.3             41.8           41.3          49.2
       Occupancy and Equipment                40.8            39.2             54.5           46.4          48.7
       Promotional                            21.5            17.8             13.5           18.9          22.4
       Other                                  43.5            37.8             56.0           51.8         105.8
                                            ------          ------           ------         ------         -----
       Total non-interest expenses           518.1           479.0            512.7          497.9         628.3
       Gain on sale of subsidiary                -            50.2                -              -             -
                                            ------          ------           ------         ------        ------
Income (loss) before income taxes and
  extraordinary item and cumulative
  effect of change in accounting              75.0           107.8           (22.0)         (12.7)         (1.5)
Income tax provision (benefit)                28.4            42.4            (6.1)         (10.5)         (3.3)
                                            ------          ------           ------         ------        ------
Income (loss) before extraordinary item
  and cumulative effect of change in
  accounting                                  46.6            65.4           (15.9)          (2.2)           1.8
Extraordinary charge on early retirement
   of debt, net of income tax benefit of $1.5    -           (2.9)                -              -             -
Cumulative effect of change in accounting
   for income taxes-Jan 1, 1993                  -               -                -              -         (5.5)
                                            ------          ------           ------         ------        ------
Net income (loss)                           $ 46.6          $ 62.5          $(15.9)         $(2.2)        $(3.7)
                                            ======          ======           ======         ======        ======
Earnings per share:
       Basic                                $ 2.89          $ 5.36
                                            ======          ======
       Diluted                              $ 2.70          $ 5.14
                                            ======          ======

Ratio of earnings to fixed charges (a)         2.6             3.4                -              -           1.0
                                            ======          ======           ======         ======        ======
</TABLE>

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION DATA (AS OF DECEMBER 31):
  (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

<TABLE>
<S>                                         <C>           <C>              <C>             <C>          <C>
Total assets                                $1,906.1      $1,824.3         $2,550.6        $1,554.7     $1,632.4
Long-term obligations                          122.0         137.7            160.7           289.4        285.7
Cash dividends per common share                  .38           .09                -               -            -
</TABLE>

(a)      For purposes of computing the ratio of earnings to fixed charges,
         earnings consist of income before income taxes plus fixed charges.
         Fixed charges consist of interest expense and the approximate portion
         of rental expense representative of the approximate interest factor.
         For the years ended December 31, 1995 and 1994, earnings were
         insufficient to cover fixed charges by approximately $22.0 million and
         $12.7 million, respectively.

                                       19
<PAGE>

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

         The following discussion should be read in conjunction with the
"Selected Financial Data" in Item 6 and the Company's consolidated financial
statements and notes thereto contained in Item 8 of this report. In addition to
historical information, this report contains forward-looking statements. Such
forward looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements may include, but are not
limited to, projections of revenues, income or loss, capital expenditures, plans
relating to the sale of assets of the Company, as well as assumptions relating
to the foregoing.

         Forward looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those contemplated by the
forward looking statements. Statements in this report, including the notes to
the consolidated financial statements, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business", describe factors
that could contribute to or cause such differences. Additional factors that
could cause actual results to differ materially from those expressed in such
forward looking statements include those discussed below.

BUSINESS ENVIRONMENT

         The Company's principal business activity, retail broker-dealer
operations, as well as its investment banking, institutional sales, investment
advisory, clearing and other services, are highly competitive and subject to
various risks. The securities market is affected by general economic and market
conditions, including fluctuations in interest rates, the volume of securities
trading, price levels of securities and the flow of investor funds into and out
of mutual funds, and by factors that apply to particular industries, such as
technological advances and changes in the regulatory environment. Substantial
fluctuations can occur and have occurred in the Company's operating results due
to these factors and other factors. In periods of reduced market activity,
profitability has been and is likely to be adversely affected. Accordingly, net
earnings for any period should not be considered representative of any other
period.

         The favorable market and economic conditions which characterized 1996
continued throughout much of 1997, contributing to higher industry-wide
securities revenues and net income. Conditions in the U.S. trading markets were
favorable for much of fiscal 1997, as moderate economic growth, low levels of
unemployment, and continued growth in corporate profits generally prevailed.
Despite these conditions, the level of inflation has remained relatively low.
U.S. financial markets also experienced periods of increased volatility during
fiscal 1997. The market for U.S. government securities was particularly strong
during the latter part of the year, as market instability in certain Asian
markets increased investor demand for less risky investments. The performance of
U.S. equity markets also was very positive in fiscal 1997, primarily resulting
from strong corporate earnings, high levels of cash inflows into mutual funds,
and a high volume of equity issuances. U.S. equity markets also experienced
periods of increased volatility, particularly during the second and fourth
fiscal quarters. During both of these periods, equity markets experienced sharp
selloffs that were subsequently followed by strong recoveries.

                                       20
<PAGE>

COMPANY DEVELOPMENTS

         On January 9, 1998, EVEREN completed the acquisition of Principal
Securities Holding Corporation and its wholly-owned subsidiary, Principal
Financial Securities, Inc. ("PFSI"), from Principal Mutual Life Insurance
Company for $75 million in cash. PFSI is a registered securities broker-dealer
and will operate as a separate subsidiary of EVEREN until PFSI's back office and
other operating activities are combined with those of EVEREN Securities.

         Consistent with the generally strong economic and market conditions
seen throughout the securities industry in 1997, the Company reported strong
growth in both its retail brokerage and investment banking activities. The
favorable industry conditions combined with the Company's strategy to grow its
core business has resulted in considerable growth in both the number of
investment consultants and their productivity, as well as increases in the
number of underwritings and investment banking transactions that the Company has
participated in. The Company's successes in its first full year as a public
company have contributed to continued growth in the Company's recruiting efforts
and generally positive employee morale.

         In 1996, the Company undertook several key initiatives to better
position itself as a full service, super-regional securities brokerage firm.
These activities are summarized in the following paragraphs:

         Consistent with its strategy to focus on core businesses, the Company
completed the sale of BETA Systems, Inc. ("BETA"), a wholly-owned data
processing and quote service subsidiary, on April 30, 1996, for $63.5 million.
The sale, which resulted in an after-tax gain of approximately $30.2 million, is
reflected in the Company's 1996 results of operations.

         On June 17, 1996 the Company exchanged all of its outstanding
Exchangeable Preferred Stock for an aggregate $32.2 million principal amount of
13.5% Junior Subordinated Debentures due 2007 ("Debentures"). On July 30, 1996
the Company issued a notice calling all of the outstanding Debentures for
redemption on September 16, 1996 at a price of 112% of principal or $36.0
million, plus accrued interest. This early redemption was funded principally
through $36.0 million of bank borrowings and resulted in an extraordinary charge
of approximately $2.9 million after-tax for the year ended December 31, 1996.

         On July 25, 1996 the Company entered into a joint venture agreement
(the "JVA"), pursuant to which it acquired an initial 20% ownership interest in
Mentor Investment Group, Inc. ("Mentor"), the asset management subsidiary of
Wheat First Butcher Singer, Inc., for no direct cash consideration. Under the
terms of the JVA, the Company's ownership interest may increase to as much as
50%. This joint venture is being accounted for as an equity investment and the
Company's proportionate share of the earnings of Mentor since November 1, 1996
(commencement of operations) have been included in the Company's operating
results.

         On August 5, 1996 the Company paid a special purpose cash dividend of
$1.18 per share on its common shares outstanding as of July 23, 1996. This
dividend allowed the EVEREN Capital Corporation 401(k) and Employee Stock
Ownership Plan ("KSOP") to repay the balance of its loan to the Company,
incurred in connection with its separation from Kemper, and allowed the release
of substantially all of the remaining unallocated KSOP shares to employee
participant accounts.

                                       21
<PAGE>

         On October 8, 1996 the Company completed its initial public offering,
whereby 4.6 million shares of its $.01 par value common stock ("Common Stock")
were sold at a price of $18.50 per share. The initial public offering resulted
in net proceeds of approximately $78 million to the Company. Such proceeds were
used to reduce bank loans payable. The Common Stock is listed on the New York
Stock Exchange under the symbol "EVR".

         In keeping with its strategic initiative to concentrate on its core
businesses, the Company exited certain portions of its municipal institutional
sales and trading and the unit investment trust origination businesses in the
fourth quarter of 1996.

         Effective January 1, 1996, the Company implemented a
quasi-reorganization and revalued its assets and liabilities to fair value as of
that date. This revaluation resulted in a reduction in net assets of $3.7
million. The quasi-reorganization also resulted in the transfer of the
accumulated deficit as of January 1, 1996 of $306.5 million to additional
paid-in capital. Such revaluation has not had and in the future will not have
any significant impact on the operating results of the Company. The balance in
retained earnings at December 31, 1997 and 1996 represents the accumulated net
earnings available to common stockholders arising subsequent to the date of the
quasi-reorganization. The quasi-reorganization was effected in order to reflect
the emergence of the Company as a new organization, signaling the end of its
transition from a wholly-owned subsidiary to a fully independent company and
enable the Company to present more accurately the new organization's cumulative
performance.

YEAR 2000

         The "Year 2000" problem is the result of computer programs being
written using two digits (rather than four) to define the applicable year.
Computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
system failure or miscalculations. The Company, utilizing a team of technology
professionals, has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and has
developed an implementation plan to address the issue. The Company is assessing
the amount of programming required to upgrade or replace each of the affected
programs with the goal of completing all relevant internal software remediation
and testing by the end of 1998 with continuing Year 2000 compliance efforts
through 1999. In addition, the Company is actively working with all of its major
external counterparties and suppliers to assess their compliance efforts and the
Company's exposure to them. The Company presently believes that, with
modifications to existing software and the conversion to new software, the "Year
2000" problem will not pose significant operational problems for the Company's
computer systems as so modified and converted. However, if such modifications
and conversions are not completed timely, both internally and at the Company's
major external service providers, the "Year 2000" problem may have a material
impact on the operations of the Company. Based upon current information, the
Company believes that its Year 2000 expenditures for 1998 and through the
project's completion are not expected to be significant as the majority of the
Company's systems are outsourced to third party vendors. Costs incurred relating
to this project are being expensed by the Company during the period in which
they are incurred.

                                       22
<PAGE>

EQUITY PARTICIPATION OF EMPLOYEES

         As of December 31, 1997, the Company's current employees and directors,
through the KSOP and otherwise, own approximately 70% of the outstanding Common
Stock. Management believes that significant employee ownership fosters a culture
that encourages strong performance, and provides employees the opportunity to
participate in the future performance of the Company.

         In 1996, the Company instituted three employee benefit plans to provide
current and future employees the opportunity to acquire Common Stock outside of
the KSOP. In connection with these plans, the Company recognizes additional
compensation expense equal to the difference between the fair value of the
Common Stock issued and the amount of cash compensation otherwise payable or
cash paid under each respective plan.

COMPONENTS OF REVENUE AND EXPENSES

         REVENUE. Commissions include revenue generated by executing listed and
over-the-counter transactions as agent, as well as commissions earned on the
sales of mutual funds, insurance, annuities and certain other products.
Principal transactions consist of gains and losses from the trading of
securities by the Company as principal, including principal sales credits.
Investment banking revenue includes merger and acquisition fees, other advisory
fees and underwriting revenue, which is comprised of underwriting selling
concessions, management fees and underwriting fees. Asset management revenue
primarily includes managed account fees and 12b-1 distribution fees. Other
revenue includes transaction and account fees, correspondent clearing and
execution income, and miscellaneous income. Interest income primarily represents
interest earned on customer margin accounts and interest income on securities
owned and investments in mortgage-backed certificates. Net revenues equal total
revenues less interest expense. Interest expense includes interest paid on bank
borrowings, collateralized securities transactions with brokers and dealers, and
collateralized mortgage obligations.

         EXPENSES. Compensation and benefits expense includes sales, trading and
incentive compensation, which are primarily variable based on revenue
production, and salaries, payroll taxes and employee benefits, which are
relatively fixed in nature. Brokerage and clearance expense includes the cost of
securities clearance, floor brokerage and exchange fees. Communications expense
includes charges for telecommunications, news and market data services, customer
statements, and depreciation on data processing and telecommunications
equipment. Occupancy and equipment expense includes rent and operating expenses
for the Company's facilities, expenditures for repairs and maintenance, and
depreciation of furniture, fixtures and leasehold improvements. Promotional
expense includes travel, entertainment and advertising. Other expense includes
professional services, litigation expenses, office expenses, dues and
assessments, and other miscellaneous expenses.

                                       23
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth certain financial data as a percentage of net
revenues:

Consolidated Statement of Operations Data:
<TABLE>
<CAPTION>

                                                          Year Ended December 31,
                                                1997                1996                 1995
                                               ------             -------               ------
<S>                                              <C>                <C>                  <C>
Revenue:
     Commissions                                 45.2%              42.1%                38.8%
     Principal transactions                      17.3               21.5                 24.9
     Investment banking                          11.7               10.4                  9.6
     Asset management                            12.0               10.7                 10.9
     Other                                        5.6                7.8                 10.0
     Interest                                    14.4               13.8                 16.5
                                               ------             ------               ------
     Total revenue                              106.2              106.3                110.7
     Interest expense                             6.2                6.3                 10.7
                                               ------             ------               ------
     Net revenue                                100.0              100.0                100.0
                                               ------             ------               ------
Non-interest expenses:
     Compensation and benefits                   59.4               61.8                 68.4
     Brokerage and clearance                      2.9                2.7                  2.3
     Communications                               7.2                7.1                  8.5
     Occupancy and equipment                      6.9                7.3                 11.1
     Promotional                                  3.6                3.3                  2.8
     Other                                        7.4                7.0                 11.4
                                               ------             ------               ------
     Total non-interest expenses                 87.4               89.2                104.5
     Gain on sale of subsidiary                     -                9.4                    -
                                               ------             ------               ------
Income (loss) before income taxes
     and extraordinary charge                    12.6               20.2                 (4.5)
Income tax provision (benefit)                    4.8                8.0                 (1.2)
                                               ------             ------               ------
Net income (loss) before
     extraordinary charge                         7.8               12.2                 (3.3)
Extraordinary charge on early retirement
       of debt, net of income taxes                 -              (0.5)                    -
                                               ------             ------               ------
Net income (loss)                                 7.8%              11.7%(1)             (3.3)%(2)
                                               ======             ======               ======
</TABLE>
-------------
(1)    Includes a $30.2 million after-tax gain on the sale of BETA (5.6% of
       net revenues).
(2)    Includes $22.0 million after-tax of non-recurring charges incurred in
       connection with the Company's September 13, 1995 separation (the
       "Buy-out") from Kemper (4.5% of net revenues)

1997 COMPARED TO 1996

         The Company experienced stronger overall operating results for the year
ended December 31, 1997 when compared to 1996. In particular, the strong retail
and equity underwriting markets in the third and fourth quarters of 1997
contributed to the Company's 11% growth in net revenues over the year ended
December 31, 1996. The Company also continues to focus on its core business,
full service securities brokerage. This focus resulted in the sale of the
Company's data-processing and quote service subsidiary, Beta Systems, Inc.
("BETA"), in April 1996, and the departure from both the unit investment trust
origination business and portions of the municipal institutional sales and
trading business in the fourth quarter of 1996. The sale of BETA resulted in a
pre-tax gain of approximately $50.2 million and an after-tax gain of
approximately

                                       24
<PAGE>

$30.2 million. Net income from the Company's ongoing operations improved in 1997
by $11.4 million or 32% when compared to 1996. Management attributes these
results to several factors. First, favorable conditions continued to prevail in
the industry for most of the year ended December 31, 1997, reflecting continued
investor optimism concerning inflation, interest rate stability and a strong
U.S. economy. Second, the Company continues to enjoy the benefits of significant
employee ownership, which, in management's opinion, has enhanced employee
morale, focus and productivity, and has allowed management to concentrate on
achieving its strategic initiatives. Finally, a continued focus on cost
containment has contributed to the strong operating results.

         Total revenue increased $59.1 million or 10% to $629.7 million for the
year ended December 31, 1997 from $570.6 million for the year ended December 31,
1996. Net revenue increased $56.5 million or 11% to $593.1 for the year ended
December 31, 1997 from $536.6 for the year ended December 31, 1996. As
previously noted, the Company sold or exited certain non-strategic businesses in
1996. Excluding revenue from these businesses, total revenue for the year ended
December 31, 1997 increased by $85.6 million or 16% from $544.1 million in 1996,
and net revenue for the year ended December 31, 1997 increased by $81.1 million
or 16% over 1996.

         Commission revenue increased $42.1 million or 19% to $267.9 million for
the year ended December 31, 1997 from $225.8 million for the year ended December
31, 1996. These increases are primarily due to increased business in both the
retail and institutional areas, consistent with the continued growth in listed
share volume on most major domestic equity exchanges in 1997. The increases are
also a result of an increase in the number of retail investment consultants from
1,220 in 1996 to 1,333 in 1997.

         Principal transactions revenue decreased $12.4 million or 11% to $102.9
million for the year ended December 31, 1997 from $115.3 million for the year
ended December 31, 1996. The decrease for the year ended December 31, 1997 is
attributable, in part, to a shift in transaction volume away from both fixed
income products and from over-the-counter stocks to listed equities, and the
departure from a portion of the Company's institutional municipal trading
business. The third and fourth quarters of 1997 reflected increases over the
same periods of 1996, due to the strong equity markets.

         Investment banking revenue increased $13.6 million or 24% to $69.5
million for the year ended December 31, 1997 from $55.9 million for the year
ended December 31, 1996. Excluding investment banking revenue of $9.5 million
generated from the aforementioned exited businesses in 1996, investment banking
revenues increased $23.1 million or 50% for the year ended December 31, 1997.
This increase is the result of the Company's strategy of developing corporate
finance transactions in specific targeted industry sectors aided by the strong
equity markets throughout most of 1997. These factors have contributed to the
Company's greater involvement both in average offering size and number of
offerings made in the equity underwriting market for the year ended December 31,
1997.

                                       25
<PAGE>

         Asset management revenue increased $13.6 million or 24% to $70.9
million for the year ended December 31, 1997 from $57.3 million for the year
ended December 31, 1996, due primarily to increased managed account fees and
increased 12b-1 distribution fees. These increases are reflective of increases
in the number and asset values of managed accounts and increased investments in
mutual funds in the current year.

         Other income decreased $8.9 million or 21% to $33.3 million for the
year ended December 31, 1997 from $42.2 million for the year ended December 31,
1996. This decrease is due primarily to the sale of BETA in the second quarter
of 1996. Excluding revenues attributable to BETA, other income increased $1.1
million or 3% for the year ended December 31, 1997 when compared to 1996. This
increase is due to earnings from the Company's ownership interest in its Mentor
joint venture which approximated $2.6 million for 1997.

         Interest and dividend income increased $11.1 million or 15% to $85.2
million for the year ended December 31, 1997 from $74.1 million for the year
ended December 31, 1996. Net interest increased $8.5 million or 21% to $48.6
million for the year ended December 31, 1997 from $40.1 million for the year
ended December 31, 1996. The Company experienced significant growth in its
customer margin accounts in the current year which contributed to its increased
interest revenues.

         Total non-interest expenses increased $39.1 million or 8% to $518.1
million for the year ended December 31, 1997 from $479.0 million for the year
ended December 31, 1996.

         Compensation and benefits expense increased $21.1 million or 6% to
$352.5 million for the year ended December 31, 1997 from $331.4 million for the
year ended December 31, 1996. The increase is attributed to the 11% increase in
commissions, principal transactions and investment banking revenues in the
current year. Compensation as a percentage of net revenues decreased in the
current year versus 1996 due to the continued focus by management on controlling
overall compensation expense. In addition, 1996 expense includes certain
compensation costs related to the release of unearned KSOP shares.

         Brokerage and clearance expense increased $2.7 million or 19% to $17.2
million for the year ended December 31, 1997 from $14.5 million for the year
ended December 31, 1996. The increase is due primarily to certain variable cost
components of this expense category which have increased as transactional
revenues have increased.

         Communications expense increased $4.3 million or 11% to $42.6 million
for the year ended December 31, 1997 from $38.3 million for the year ended
December 31, 1996. This increase is due primarily to an increased number of
employees along with technology initiatives and enhancements undertaken in 1997
to improve the Company's overall productivity and competitiveness.

         Occupancy and equipment expense increased $1.6 million or 4% to $40.8
million for the year ended December 31, 1997 from $39.2 million for the year
ended December 31, 1996. The

                                       26
<PAGE>

modest increase in this expense is primarily due to the Company's focus on
utilization of existing office space in its growth efforts.

         Promotional expense increased $3.7 million or 21% to $21.5 million for
the year ended December 31, 1997 from $17.8 million for the year ended December
31, 1996. This increase is primarily due to increased advertising related to
name recognition and the Company's expansion in breadth of products and
services, as well as internal marketing of Mentor mutual fund products and other
promotions.

         Other expenses increased $5.7 million or 15% to $43.5 million for the
year ended December 31, 1997 from $37.8 million for the year ended December 31,
1996. This increase is related primarily to an increase in professional fees as
well as additional costs of licensing, insurance and various other office
expenses resulting from the increased number of employees in 1997 when compared
to 1996.

         The Company's income tax expense for the year ended December 31, 1997
was $28.4 million, which represented an effective tax rate on income before
taxes of 37.9% compared to $42.4 million or a 39.3% effective tax rate for the
year ended December 31, 1996.

         Net income decreased $15.9 million to $46.6 million for the year ended
December 31, 1997 from $62.5 million for the year ended December 31, 1996. Net
income for the year ended December 31, 1996 includes an after-tax extraordinary
charge of $2.9 million related to the early retirement of debt. Excluding the
after-tax gain on sale of BETA of $30.2 million and the $2.9 million after-tax
charge noted above, net income for the year ended December 31, 1997 improved
$11.4 million or 32% over the year ended December 31, 1996.

1996 COMPARED TO 1995

         The Company experienced strong operating results for the year ended
December 31, 1996 compared to 1995. Revenues increased in most of the Company's
businesses, expenses as percentages of net revenues declined, and net income
(without giving effect to the gain realized from the sale of BETA) improved
significantly. Management attributes these results to several factors. First,
favorable conditions prevailed in the equity markets during most of 1996,
reflecting continued investor optimism concerning inflation and interest rate
stability. Second, this period reflects the continued benefits of ownership
resolution, which, in management's opinion, has enhanced employee morale, focus
and productivity, and has allowed management to concentrate on its key strategic
initiatives. Finally, the continued emphasis on cost containment has contributed
to the strong operating results.

         Total revenue increased $27.4 million or 5% to $570.6 million for the
year ended December 31, 1996 from $543.2 million for the year ended December 31,
1995. Net revenues increased $45.9 million or 9% to $536.6 million for the year
ended December 31, 1996 from $490.7 million for the year ended December 31,
1995. As previously noted, the Company exited certain non-strategic businesses
in 1996. Excluding the revenues from these businesses, net revenues for 1996
increased by approximately $58 million or 13% over 1995.

                                       27
<PAGE>

         Commission revenue increased $35.4 million or 19% to $225.8 million for
the year ended December 31, 1996 from $190.4 million for the year ended December
31, 1995 due to increased business in both the retail and institutional areas,
consistent with the overall growth in listed share volume on all major domestic
equity exchanges and the heavy inflow of retail investment into mutual funds in
1996.

         Principal transactions revenue decreased $6.8 million or 6% to $115.3
million for the year ended December 31, 1996 from $122.1 million for the year
ended December 31, 1995 due to an overall shift in customer focus from fixed
income securities to listed equity business in 1996. The increase in listed
equity business resulted in lower numbers of principal transactions, and an
increased number of commissioned transactions.

         Investment banking revenue increased $8.8 million or 19% to $55.9
million for the year ended December 31, 1996 from $47.1 million for the year
ended December 31, 1995. The increase in investment banking revenue reflects the
increased underwriting activity seen throughout the industry and the Company's
participation in a larger number of transactions. In addition, management
believes that resolution of the Company's past ownership uncertainties has
increased the Company's ability to participate in this type of business.

         Asset management revenue increased $4.0 million or 7% to $57.3 million
for the year ended December 31, 1996 from $53.3 million for the year ended
December 31, 1995 due primarily to increased managed account fees and increased
12b-1 distribution fees in 1996, which is consistent with the growth in mutual
fund inflows and growth in assets under control in 1996.

         Other income decreased $6.9 million or 14% to $42.2 million for the
year ended December 31, 1996 from $49.1 million for the year ended December 31,
1995. This resulted primarily from reduced service fee revenue in the current
year due to the sale of BETA in the second quarter of 1996.

         Interest and dividend income decreased $7.1 million or 9% to $74.1
million for the year ended December 31, 1996 from $81.2 million for the year
ended December 31, 1995 due to the maintenance of lower average inventory
balances in fixed income securities, and a lower average rate of interest on
margin accounts. The decline in interest and dividend income was more than
offset by a decrease in interest expense of $18.6 million or 35% to $33.9
million for the year ended December 31, 1996 from $52.5 million for the year
ended December 31, 1995. This decrease in interest expense was the result of
reduced costs of financing lower levels of securities inventories and customer
margin accounts, repayment of long-term debt, and reduced bank borrowings.

         Total non-interest expenses decreased $33.7 million or 7% to $479
million for the year ended December 31, 1996 from $512.7 million for the year
ended December 31, 1995. This decrease was primarily the result of non-recurring
charges totaling $33.3 million pre-tax incurred in connection with or as a
result of the Buy-out in the third quarter of 1995 and continued cost
containment efforts. The $33.3 million pre-tax ($22.0 million after-tax) of
non-recurring charges are made up of the following: (i) $6.0 million of expenses
related to changing and publicizing the

                                       28
<PAGE>

Company's name, (ii) $10.6 million of expenses associated with the Company's
decisions to sublease a significant portion of its 115,000 sq. ft. of office
space in Houston, Texas and to move its Denver, Colorado operations from a
153,000 sq. ft. owned building to a new leased facility; (iii) $14.2 million for
an initial contribution and a matching contribution to the KSOP related to the
offering to KSOP participants of shares of Common Stock held in the KSOP, but
not allocated to the account of any specific KSOP Participant (the "Founders'
Offering"); and (iv) $2.5 million in compensation expense as a result of the
vesting of previously restricted stock issued to senior management as part of
the Buy-out. Excluding these non-recurring charges, total non-interest expenses
decreased slightly to $479 million in 1996 from $479.4 million in 1995. This
decrease is the net result of increased variable production-related expenses,
resulting from the increased transactional revenues, offset by cost reductions
in other expense categories.

         Compensation and benefits expense decreased $4.1 million or 1% to
$331.4 million for the year ended December 31, 1996 from $335.5 million for the
year ended December 31, 1995. Included in 1995 compensation and benefits expense
are non-recurring charges of $16.7 million identified previously. Excluding
these items, compensation and benefits expense increased $12.6 million or 4% for
the year ended December 31, 1996 compared to the same period in 1995 primarily
as a result of increased production-based compensation related to the increased
transactional revenues generated in 1996. Compensation and benefits as a
percentage of net revenues declined to 61.8% in 1996 from 68.4% (65% excluding
the non-recurring charges) in 1995. This decrease reflects the fixed nature of a
significant portion of this expense as well as the decrease in production-based
payout to retail investment consultants that was implemented in the third
quarter of 1995.

         Brokerage and clearance expense increased $3.1 million or 27% to $14.5
million for the year ended December 31, 1996 from $11.4 million for the year
ended December 31, 1995. This increase was related to the increased transaction
volume in the current period and was consistent with the increase in
transactional revenue in 1996 over 1995. The increase is also due in part to the
sale of BETA and the new service agreements, whereby BETA operating costs
previously included in the various consolidated operating expense categories are
now limited to amounts due under these agreements and aggregated as trade
processing costs included in brokerage and clearance expense.

         Communications expense decreased $3.5 million or 8% to $38.3 million
for the year ended December 31, 1996 from $41.8 million for the year ended
December 31, 1995, primarily due to decreased electronic data processing costs
in 1996 resulting from the sale of BETA.

         All other operating expenses excluding the 1995 non-recurring charges
of $16.6 million (pre-tax) identified previously, decreased $12.6 million or 12%
to $94.8 million for the year ended December 31, 1996 from $107.4 million for
the year ended December 31, 1995, primarily due to the continued focus on cost
containment within the Company. All other operating expenses as a percentage of
net revenues declined to 18% for the year ended December 31, 1996 from 22% for
the year ended December 31, 1995 (excluding the non-recurring charges).
Specifically, when comparing the years ended December 31, 1996 and 1995,
occupancy and equipment expense (excluding $10.6 million of non-recurring
charges) decreased $4.7 million or 11%; promotional

                                       29
<PAGE>

expense increased $4.3 million or 32%; and other expenses decreased $8.5 million
or 18%, after excluding the $6.0 million of non-recurring charges and a $3.7
million charge related to the failure of an EVEREN Clearing correspondent firm
in 1995. The increase in promotional expense was due primarily to a more
aggressive advertising campaign initiated in 1996 to promote the new
employee-owned Company.

         The Company's income tax expense for the year ended December 31, 1996
was $42.4 million, which represented an effective tax rate on income before
taxes of 39%, compared to a $6.1 million tax benefit or a 28% effective tax
benefit rate for the year ended December 31, 1995. The lower effective benefit
rate in 1995 was due primarily to certain non-deductible compensation expenses
related to appreciation on the shares of Common Stock released to the KSOP (and
subsequently allocated to participants) and higher state and local income taxes.

         Income before extraordinary item increased $81.3 million to $65.4
million for the year ended December 31, 1996 from a net loss of $15.9 million
for 1995. The extraordinary charge of $2.9 million after-tax, recorded in the
third quarter of 1996, related to the early retirement of the Company's junior
subordinated debentures.

         Net income increased $78.4 million to $62.5 million for the year ended
December 31, 1996 from a net loss of $15.9 million for the year ended December
31, 1995.

                                       30
<PAGE>

QUARTERLY RESULTS

         The information set forth below is derived from unaudited quarterly
financial statements of the Company. Such financial statements have been
prepared by the Company on a basis consistent with the consolidated financial
statements included elsewhere in this report and include all adjustments,
consisting principally of normal recurring accruals, that the Company considers
necessary for a fair presentation thereof. These operating results are not
necessarily indicative of the Company's future performance.

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED
                                12/31/97      9/30/97      6/30/97      3/31/97     12/31/96      9/30/96       6/30/96      3/31/96
                                --------      -------      -------      -------     --------      -------       -------      -------
                                                                       (dollars in thousands)
<S>                              <C>          <C>          <C>           <C>          <C>          <C>          <C>          <C>
Revenue:
     Commissions                 $71,137      $73,099      $61,901       $61,811      $57,349      $50,741      $60,277      $57,431
     Principal transactions       26,789       28,174       24,656        23,273       23,558       26,389       34,469       30,875
     Investment banking           28,768       15,272       15,514         9,990       17,230       11,677       16,540       10,442
     Asset management             20,026       18,493       16,267        16,098       14,806       14,776       13,231       14,480
     Other                         8,672        7,405        8,371         8,856        9,775        7,234       13,486       11,722
     Interest                     22,761       26,201       18,195        18,023       18,328       18,270       19,278       18,191
                                --------     --------     --------      --------     --------     --------     --------     --------
     Total revenue               178,153      168,644      144,904       138,051      141,046      129,087      157,281      143,141
     Interest expense             10,072       13,113        6,728         6,740        6,850        8,613        9,203        9,254
                                --------     --------    ---------     ---------    ---------    ---------    ---------    ---------
     Net revenue                 168,081      155,531      138,176       131,311      134,196      120,474      148,078      133,887
Non-interest expenses:
     Compensation and benefits   100,635       93,024       80,267        78,545       80,170       75,601       88,893       86,725
     Brokerage and clearance       4,438        4,487        4,043         4,206        3,938        3,773        3,899        2,949
     Communications               11,644       10,996       10,350         9,609        9,495        8,883        9,567       10,321
     Occupancy and equipment      10,479       10,336       10,006         9,935        9,200        9,676       10,052       10,224
     Promotional                   6,384        5,091        5,461         4,589        5,166        4,326        4,375        3,982
     Other                        12,977       11,613       10,789         8,206       11,195        6,640       10,881        9,049
                                --------     --------     --------      --------     --------    ---------      -------    ---------
     Total non-interest expenses 146,557      135,547      120,916       115,090      119,164      108,899      127,667      123,250
     Gain on sale of subsidiary        -            -            -             -            -            -       50,181(2)         -
                                --------     --------     --------      --------     --------    ---------      --------   ---------
Income before income taxes
     and extraordinary charge     21,524       19,984       17,260        16,221       15,032       11,575       70,592       10,637
Income tax provision               8,195        7,672        6,445         6,119        5,269        5,165       28,173        3,831
                                --------    ---------     --------      --------       ------       ------       ------       ------
Income before
     extraordinary charge         13,329       12,312       10,815        10,102        9,763        6,410       42,419        6,806
Extraordinary charge, net of
     income taxes of $1,561            -            -            -             -            -       (2,900)(1)          -          -
                                --------    ---------     --------      --------       ------       ------       ------       ------
Net income                      $ 13,329    $  12,312     $ 10,815      $ 10,102     $  9,763     $  3,510(1)   $42,419(2)   $ 6,806
                                 =======     ========      =======       =======       =======     =======       ======       ======

</TABLE>


(1)      Includes a $2.9 million after-tax charge related to the early
         retirement of the Company's Debentures.
(2)      Includes a $50.2 million pre-tax ($30.2 million after-tax) gain on the
         sale of BETA.

                                       31
<PAGE>

The following table sets forth certain financial data as a percentage of net
revenues.

<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED
                                  12/31/97    9/30/97      6/30/97     3/31/97    12/31/96       9/30/96     6/30/96       3/31/96
                                  --------    -------     --------     -------    --------       -------     -------      --------
<S>                                  <C>        <C>           <C>        <C>          <C>          <C>          <C>          <C>
Revenue:
     Commissions                    42.3%      47.0%         44.8%      47.1%        42.7%        42.1%        40.7%        42.9%
     Principal transactions         15.9       18.1         17.8        17.7         17.6         21.9         23.3         23.1
     Investment banking             17.1        9.8         11.2         7.6         12.8          9.7         11.2          7.8
     Asset management               11.9       11.9         11.8        12.3         11.0         12.3          8.9         10.8
     Other                           5.3        4.8          6.1         6.7          7.3          6.0          9.1          8.8
     Interest                       13.5       16.8         13.2        13.7         13.7         15.2         13.0         13.6
                                  ------     ------       ------      ------       ------       ------       ------       ------
     Total revenue                 106.0      108.4        104.9       105.1        105.1        107.2        106.2        107.0
     Interest expense                6.0        8.4          4.9         5.1          5.1          7.2          6.2          7.0
                                  ------     ------       ------      ------       ------       ------       ------       ------
     Net revenue                   100.0      100.0        100.0       100.0        100.0        100.0        100.0        100.0
                                  ------     ------       ------      ------       ------       ------       ------       ------

Non-interest expenses:
     Compensation and benefits      59.9       59.8         58.1        59.8         59.7         62.8         60.0         64.8
     Brokerage and clearance         2.6        2.9          2.9         3.2          2.9          3.1          2.6          2.2
     Communications                  6.9        7.1          7.5         7.3          7.1          7.4          6.5          7.7
     Occupancy and equipment         6.2        6.6          7.2         7.6          6.9          8.0          6.8          7.6
     Promotional                     3.8        3.3          4.0         3.5          3.9          3.6          3.0          3.0
     Other                           7.8        7.5          7.8         6.2          8.3          5.5          7.3          6.8
                                  ------     ------       ------      ------       ------       ------       ------       ------
     Total non-interest expenses    87.2       87.2         87.5        87.6         88.8         90.4         86.2         92.1
     Gain on sale of subsidiary        -          -            -           -            -            -         33.9(2)         -
                                  ------     ------       ------      ------       ------       ------       ------       ------
Income before income taxes
     and extraordinary charge       12.8       12.8         12.5        12.4         11.2          9.6         47.7          7.9
Income tax provision                 4.9        4.9          4.7         4.7          3.9          4.3         19.0          2.9
                                  ------     ------       ------      ------       ------       ------       ------       ------
Income before extraordinary
     charge                          7.9        7.9          7.8         7.7          7.3          5.3         28.7          5.0
Extraordinary charge, net of
     income taxes                      -          -             -            -           -        (2.4)(1)        -            -
                                  ------     ------       ------      ------       ------       ------       ------       ------
Net income                           7.9%       7.9%          7.8%       7.7%         7.3%         2.9% (1)   28.7%(2)       5.0%
                                  =======    =======      =======     ======       ======       ======       ======       ======
</TABLE>
(1)      Includes a $2.9 million or 2.4% after-tax charge related to the early
         retirement of the Company's junior subordinated debentures.

(2)      Includes a $50.2 million pre-tax or 33.9% ($30.2 million after-tax or
         20.4%) gain on the sale of BETA.

         The generally upward trend in the Company's net revenues for the eight
quarterly periods ended December 31, 1997 is consistent with the generally
strong economic and market conditions seen throughout the securities industry.
The Company reported strong growth in both its retail brokerage and investment
banking activities. The favorable industry conditions combined with the
Company's strategy to grow its core business has resulted in considerable growth
in both the number of investment consultants and their productivity, as well as
increases in the number of underwritings and investment banking transactions the
Company has participated in. Revenues in the third quarter of 1996 were
adversely effected by the market volatility and decreased transactional volume
seen throughout the industry.

         Net revenues during this eight-quarter period follow the same positive
trend, with the Company realizing the benefit of declining non-customer/dealer
related interest expense as a result of the repayment of the KSOP loans. The
Company has also continued to focus on growing its customer margin accounts
which contributes to this positive trend.

                                       32
<PAGE>

         While in absolute dollar amounts, non-interest expenses have trended up
during the eight periods, such absolute dollar increases are primarily
attributable to compensation and benefits expense and brokerage and clearance
expense, which are significantly correlated to revenue growth. As a percentage
of net revenues, non-interest expenses have trended downward during such
periods, which management believes to be a result of the Company's focus on
profitability growth and cost containment.

         Net income (both in absolute dollar amounts and as a percentage of net
revenues) also reflects a positive trend during this eight-quarter period.

LIQUIDITY AND CAPITAL RESOURCES

         Holding Company

         EVEREN Capital Corporation ("EVEREN Capital") is the parent holding
company for EVEREN Securities Holdings, Inc. ("EVEREN Holdings"), the holding
company for the Company's operating subsidiaries. As the parent, EVEREN Capital
expects to receive dividends, interest on any loans and payments for federal
income tax from its subsidiaries. Dividends and other distributions, as well as
certain interest payments, to EVEREN Capital from its registered broker-dealer
subsidiaries, which are EVEREN Capital's primary sources of liquidity, are
restricted as to amounts which may be paid by applicable laws or regulations.
The "net capital" rules are the primary regulatory restrictions. EVEREN
Capital's rights (and the rights of its stockholders and creditors) to
participate in the assets of any subsidiary are also subject to prior claims of
the subsidiary's creditors, including customers of the broker-dealer
subsidiaries (except to the extent the Company itself may be a creditor with
recognized claims). See Note 11 of Notes to Consolidated Financial Statements
contained in Item 8 of this report. The Company has also generated funds from
bank loans and the issuance of Common Stock to employees.

         Since becoming a publicly-traded company, the Company, with approval
from its Board of Directors, began to pay quarterly dividends of $.09 per share
on the outstanding shares of Common Stock. In November 1997, the Board of
Directors approved an increase in the quarterly dividend rate to $.11 per share
on the Company's Common Stock.

         On July 11, 1997 the Company entered into a $50 million committed
revolving credit facility with two banks. The term of the agreement is for two
years, subject to a one year extension by mutual agreement of the parties.
Commitment fees under this facility are equal to a rate per annum of .25% on the
average daily unused balance. On January 9, 1998, the Company borrowed $50
million under this facility in connection with its acquisition of PFSI.

         The Company believes that its current level of equity capital, funds
generated from operations, and existing credit facilities will be adequate to
fund its capital needs for the foreseeable future.

Operating Subsidiaries

         The assets of EVEREN Securities, Inc. and EVEREN Clearing Corp., the
Company's primary operating subsidiaries (the "Subsidiaries"), are highly
liquid. The majority of their assets consist of securities inventories and
collateralized receivables, both of which fluctuate depending on the levels of
customer business. Collateralized receivables consist primarily of securities

                                       33
<PAGE>

purchased under agreements to resell ("resale agreements") and securities
borrowed, both of which are secured by U.S. government and agency securities and
highly marketable corporate debt and equity securities. In addition, the
Subsidiaries have significant receivables from customers, and brokers and
dealers which turn over rapidly. The Subsidiaries' total assets and the
individual components of total assets vary significantly from period to period
because of changes relating to customer needs and economic and market
conditions. A relatively small percentage of total assets is fixed or held for a
period of longer than one year. The Company's total assets at December 31, 1997
and 1996, were approximately $1.9 billion and $1.8 billion, respectively.

         The majority of the Subsidiaries' assets are financed through daily
operations by securities sold under agreements to repurchase, securities sold
not yet purchased, bank loans, payables to customers, brokers and dealers, and
securities loaned. Short-term funding is generally obtained at rates based on
the federal funds, LIBOR or money market rates. Other borrowing costs are
negotiated depending upon prevailing market conditions. The Company monitors
overall liquidity by tracking the extent to which unencumbered marketable assets
exceed short-term unsecured borrowings. The Company maintains borrowing
relationships with a broad range of banks, financial institutions,
counterparties and others. At December 31, 1997, the Subsidiaries had
approximately $535 million in uncommitted credit lines with several banks.

         On January 23, 1998, the Company, through its wholly-owned subsidiary
EVEREN Clearing Corp., entered into a committed line of credit agreement for an
aggregate $150 million with several banks. The borrowings are secured by either
customer or firm securities, and interest is based on overnight bank lending
rates. The Company pays a commitment fee on the unused portion of the line of
credit. The agreement expires on December 30, 1998 and can be renewed by mutual
agreement of the parties through January 23, 2003.

         Repurchase agreements are used primarily for customer accommodation
purposes and to finance the Company's inventory positions in U.S. government and
agency securities. These positions provide products and liquidity for customers
and are not maintained for the Company's investment or market speculation. The
level of activity fluctuates significantly depending on customer needs; however,
these fluctuations have no material effect on cash flows, liquidity or capital
resources. The Company monitors the collateral position and counterparty risk on
these transactions daily. See "Risk Management."

         The Subsidiaries are capital intensive. In addition to normal operating
requirements, capital is required to cover financing and regulatory charges on
securities inventories, investment banking commitments and investments in fixed
assets. The Company's overall capital needs are continually reviewed to ensure
that its capital base can appropriately support the anticipated needs of the
Subsidiaries. Management believes that existing capital, funds from operations
and current credit facilities will be sufficient to finance the operating
subsidiaries' ongoing businesses. The majority of the Subsidiaries' assets are
funded with liabilities that reprice on a matched basis, generally producing a
positive spread. As a result, the Company has modest exposure to fluctuations in
interest rates (other than the effect of interest rate volatility on market
conditions and prices of fixed income securities, and the impact on the
Company's revenues).

CASH FLOWS

         The Company's statements of consolidated cash flows classify cash flows
into three broad categories: net cash flows from operating activities, investing
activities and financing activities.

                                       34
<PAGE>

The Company's net cash flows are principally associated with operating and
financing activities, which support the Company's trading, customer and banking
activities.

Years Ended December 31, 1997, 1996 and 1995

         Cash and cash equivalents at December 31, 1997, 1996, and 1995 totaled
$36.2 million, $46.6 million, and $14.6 million, respectively, reflecting a
decrease of $10.3 million for 1997 and increases of $32.0 million and $4.1
million, for 1996 and 1995, respectively.

         In 1997, cash was used in operating activities primarily due to the
growth in customer margin debits which is offset by cash provided by financing
activities primarily through bank loans. For the years ended December 31, 1996
and 1995, cash provided from operating activities was used primarily in
financing activities to reduce bank loans payable.

         Net cash used by operating activities totaled $159.5 million in 1997.
Net cash provided by operating activities totaled $74.9 million and $34.3
million in 1996 and 1995, respectively. In 1997, changes in net receivables from
customers and brokers and dealers of $302.9 million used cash. These uses were
partially offset by changes in securities borrowed and loaned of $47.2 million,
and changes in securities purchased under agreements to resell and repurchase of
$26.6 million, and securities owned and securities sold, not yet purchased of
$13.3 million, which generated cash. In 1996, changes in securities borrowed and
securities loaned of $145.1 million and securities purchased under agreements to
resell and repurchase of $12.7 million generated cash. These sources were
partially offset by a $60.9 million use of funds related to the net change in
receivables from and payables to customers, broker-dealers and others. In 1995,
there were changes in securities owned and securities sold, not yet purchased of
$58.2 million and changes in other assets and other liabilities of $44.2 million
which generated cash. These sources were partially offset by a $22.3 million
increase in securities purchased under agreements to resell in excess of the
increase in securities sold under agreements to repurchase and a $12.7 million
use of funds related to the net change in receivables from and payables to
customers, broker-dealers, affiliates and others.

         In 1997, net cash provided by investing activities of $1.2 million were
the result of cash generated through collections of principal on investments in
mortgage-backed securities of $16.4 million, offset by $15.2 million of fixed
asset expenditures, the majority of which relate to investments in technology.
In 1996, net cash provided by investing activities of $57.5 million resulted
primarily from the net proceeds of $59.3 million generated by the sale of BETA.
Collections of principal on investments in mortgage-backed securities of $16.5
million were offset by a net increase of $8.8 million of fixed assets and the
purchase of investments in mortgage-backed securities of $9.5 million. In 1995
cash provided from investing activities of $59.9 million resulted primarily from
the $62.4 million of net cash flows from the sale, purchase and principal
collections on investments in mortgage-backed securities which was offset by
$2.5 million of fixed asset purchases.

         In 1997, net cash provided by financing activities totaled $147.9
million, primarily due to an increase in bank loans payable of $164.0 million.
Proceeds from the issuance of Common Stock under the Company's stock incentive
programs also generated cash of $9.1 million. These combined to provide cash of
$173.1 million which was used by $16.3 million of repayments of collateralized
mortgage obligations, $6.5 million of dividends paid on the Company's Common
Stock, and $2.4 million of treasury share purchases. In 1996, net cash flows
used by financing activities amounted to $100.4 million, the net result of the
net proceeds of approximately $77.8

                                       35
<PAGE>

million generated by the Company's initial public offering and the repayment of
bank loans of $157.8 million, retirement of subordinated debt of $36 million and
payment of dividends of $16.4 million. In 1995 the Company's financing
activities included $4.7 million in proceeds from the common stock offering
related to the over-subscribed Founders' Offering, collections of $7.1 million
under the Kemper indemnification, $61.0 million of repayments in excess of
proceeds from the issuance of collateralized mortgage obligations, payment of
debt issuance costs of $1.0 million related to the KSOP loans and the net
repayment of $40.0 million of bank loans.

DERIVATIVE FINANCIAL INSTRUMENTS

         Derivatives are financial instruments, the payments on which are linked
to the prices, or relationships between prices, of securities or commodities,
interest rates, currency exchange rates or other financial measures
(collectively referred to as "cash market instruments"). Derivatives enable the
Company and its clients to manage their exposure to interest rates and currency
exchange rates, and security and other price risks. Derivatives include
structured notes, swaps, futures or forward contracts and options. Certain types
of derivatives, including forwards and certain options, are traded in the OTC
markets. Other types of derivatives, including futures contracts and listed
options, are traded on regulated exchanges.

         Based on relative notional amounts, management believes that the
Company's derivative activities are not as extensive as those of many of its
competitors. The Company does not engage in the speculative trading of
derivatives. Instead, the Company has focused its derivative activities on
trading in forward and futures contracts in U.S. government and agency issued or
guaranteed securities as hedges against the Company's securities inventory
positions. The Company also executes transactions in exchange-traded futures
contracts and listed options on behalf of its customers.

         The Company enters into certain futures and options contracts on a
limited basis in the ordinary course of its business to hedge or modify
exposures to interest rate fluctuations related to interest-sensitive securities
in its inventory. Given the limited use of such derivatives, the Company has not
incurred and does not expect to incur any material losses relating to its
derivative investments that would not be substantially offset with corresponding
gains on the securities positions hedged. Both the securities hedged and the
derivative instruments are carried on the consolidated statement of financial
condition at their market values. Gains and losses, both realized and
unrealized, from both the hedged securities and the derivative instruments are
included in current operating results.

RISK MANAGEMENT

         Risk is an inherent part of the Company's business and activities. The
extent to which the Company properly and effectively identifies, assesses,
monitors and manages the various types of risks involved in its business is
critical to its profitability. The Company monitors its risk on a daily basis
through a number of control procedures designed to identify and evaluate the
various risks to which the Company is exposed.

         Risk management at the Company is an integrated process with
independent oversight which requires constant communication, judgment and
knowledge of specialized products and markets. The Company's senior management
takes an active role in the risk management process and has developed policies
and procedures that require specific administrative and business functions to
assist in the identification, assessment and control of various risks.

                                       36
<PAGE>

ITEM 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

         Market risk refers to the risk that a change in the level of one or
more market prices, rates, indices, volatilities, correlations or other market
factors, such as liquidity, will result in losses for a specified position or
portfolio.

         The Company often acts as a principal in customer-related transactions
in financial instruments which expose the Company to market risks. The Company
makes dealer markets in certain equity securities, investment-grade corporate
debt, high-yield securities, U.S. government and agency securities, mortgages
and mortgage-backed securities, and municipal fixed-income securities. As such,
the Company maintains securities inventories to facilitate customer
transactions. The Company covers its exposure to market risk by limiting its net
long or short positions, both overall and by individual product area, by
limiting the number of days inventory is held, by selling or buying similar
instruments and by utilizing various derivative financial instruments such as
futures and forward and option contracts. The Company's management believes the
Company's philosophy, risk management and hedging practices result in carefully
managed market exposure and reduced earnings volatility.

         At December 31, 1997 and 1996, the Company's securities owned and
securities sold, not yet purchased consisted of the following (in thousands):

OWNED                                         12/31/97          12/31/96
-----                                         --------          --------
Obligations of the U.S. government
  or its agencies                             $  97,401        $  83,083
State and municipal obligations                  24,753           10,354
Corporate debt obligations                       51,668           58,115
Corporate stocks and warrants                    13,463            8,459
Other                                             1,545              929
                                              ---------        ---------
                                              $ 188,830        $ 160,940
                                              =========        =========

SOLD, NOT YET PURCHASED
-----------------------
Obligations of the U.S. government
  or its agencies                             $ 114,045        $  68,713
State and municipal obligations                     308              657
Corporate debt obligations                        8,926            8,461
Corporate stocks and warrants                     6,264           11,372
Other                                             1,325              506
                                              ---------        ---------
                                              $ 130,868        $  89,709
                                              =========        =========

         The Company manages risk exposure utilizing mechanisms involving
various levels of management. The Company's risk management committee assists
senior management in managing risk associated with trading and inventory
accounts. The primary function of this committee is to establish and monitor
position limits for these accounts on an ongoing basis. Current and proposed
underwriting and other commitments are subject to due diligence reviews by
senior management as well as professionals in the appropriate business and
support units involved.

                                       37
<PAGE>

         The Company's trading activities result in the creation of inventory
positions. Position and exposure reports are prepared daily by operations staff.
Such reports are distributed to and reviewed independently on a daily basis by
the Company's risk management committee as well as members of senior management.
In addition, the corporate accounting group prepares a daily consolidated
summarized position report indicating both long and short exposure. These
reports, which are distributed to various levels of management throughout the
Company, enable senior management to better control inventory levels and monitor
results of the trading areas. The Company also reviews and monitors, at various
levels of management, inventory aging, pricing, concentration and securities
ratings.

         In addition to position and exposure reports, the Company produces a
daily revenue report which summarizes the trading, interest, commissions, fees,
underwriting and other revenue items for each of the trading departments. Daily
revenue is reviewed for various risk factors and is independently verified by
members of the risk management committee. The daily revenue report is summarized
by the corporate accounting group and distributed to various levels of
management throughout the Company, together with position and exposure reports.
These reports enable senior management to monitor and better control the overall
activity of the trading areas.

CREDIT RISK

         The Company's exposure to credit risk arises from the possibility that
a counterparty to a transaction might fail to perform under its contractual
commitment, resulting in the Company incurring losses. Credit risk related to
various financing activities is reduced by the industry practice of obtaining
and maintaining possession and control of collateral. The Company monitors its
exposure to counterparty risk on a daily basis through the use of credit
exposure information and the monitoring of collateral values. The Company's
credit department is responsible for reviewing counterparties to establish
appropriate exposure limits for a variety of transactions. In addition, the
Company actively manages the credit exposure relating to its trading activities
by monitoring the creditworthiness of counterparties and their related trading
limits on an ongoing basis, requesting additional collateral when deemed
necessary and limiting the amount and duration of exposure to individual
counterparties.

LEGAL RISK

         Legal risk includes the risk of non-compliance with applicable legal
and regulatory requirements and the risk that a counterparty's performance
obligations will be unenforceable. The Company is generally subject to extensive
regulation in the different jurisdictions in which it conducts business. The
Company has established legal standards and procedures that are designed to
ensure compliance with all applicable statutory and regulatory requirements. The
Company, principally through the Legal, Compliance and Finance Departments, has
also established procedures that are designed to ensure that senior management's
policies relating to conduct, ethics and business practices are followed. In
connection with its business, the Company has various procedures addressing
issues, such as regulatory capital requirements, new products, credit granting,
collection activities, and record-keeping. The Company has also established
certain procedures to mitigate the risk that a counterparty's performance
obligations will be unenforceable, including consideration of counterparty legal
authority and capacity, adequacy of legal documentation, the permissibility of a
transaction under applicable law and whether applicable bankruptcy or insolvency
laws limit or alter contractual remedies.

                                       38
<PAGE>

         The Company seeks to control the risks associated with its investment
banking activities through a process that results in a thorough review by
various committees of the risks associated with all significant transactions
prior to acceptance of any engagement. The Company currently has various
commitment and other review committees. Each such committee is chaired by a
member of senior management and has at least one additional senior management
member. Other committee members include employees who provide expertise in the
evaluation and analysis of proposed transactions brought before the particular
committee.

         The Company's risk management effort also includes an emphasis on
compliance. Retail branch managers and other supervisors are required to engage
in specific review and other tasks, and complete various reports, as part of
their supervisory responsibilities. The Company's compliance department
professionals monitor the Company's retail and capital markets activities,
conduct periodic and other examinations, respond to any customer complaints that
arise and interface with the various regulatory agencies that have jurisdiction
over the Company and its business.

RECENT ACCOUNTING PRONOUNCEMENTS

         During 1997, the Financial Accounting Standards Board released two
Statements of Financial Accounting Standards ("SFAS"), which are effective for
the year ending December 31, 1998. SFAS No. 130, "Reporting Comprehensive
Income," establishes standards for the reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements and requires that all items that are
recognized under accounting standards as components of comprehensive income be
reported in one of two statements of financial performance. It does not address
issues of recognition or measurement for comprehensive income and its
components. SFAS No. 131, "Disclosure About Segments of an Enterprise and
Related Information," requires companies to disclose operating segment data
based on how management makes decisions about allocating resources to segments
and measuring their performance. The Company has not yet completed its analysis
of those operating segments, if any, on which it will report. The Company will
adopt both of these standards in 1998. As both are reporting and disclosure
related, neither will impact the Company's financial condition or results of
operations.

                                       39
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

             The following consolidated financial statements of
             the Company are included herein:

             Independent Auditors' Report

             Consolidated Statements of Financial Condition -
                      December 31, 1997 and 1996

             Consolidated Statements of Operations -
                      For the three years ended December 31, 1997, 1996 and 1995

             Consolidated Statements of Changes in Stockholders'
                      Equity For the three years ended December
                      31, 1997, 1996 and 1995

             Consolidated Statements of Cash Flows -
                      For the three years ended December 31, 1997, 1996 and 1995

             Notes to Consolidated Financial Statements

                                       40
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
EVEREN Capital Corporation:


We have audited the accompanying consolidated statements of financial condition
of EVEREN Capital Corporation and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of EVEREN Capital Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.



Deloitte & Touche LLP

Chicago, Illinois
February 27, 1998

                                       41
<PAGE>

                           EVEREN CAPITAL CORPORATION
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           DECEMBER 31, 1997 AND 1996
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                  ASSETS                                              1997               1996
                                                                   ----------         ----------
<S>                                                                <C>                <C>
Cash and cash equivalents                                          $   36,248         $   46,592
Cash and securities segregated under
    federal and other regulations                                      15,363             15,778
Receivables from:
    Customers                                                         935,795            764,405
    Brokers and dealers                                               119,883             50,807
    Others                                                             56,187             52,804
Securities borrowed                                                    42,695             50,687
Securities owned, at market                                           188,830            160,940
Securities purchased under agreements to resell                       309,457            479,313
Investment in mortgage-backed certificates
    available-for-sale, at fair value                                 129,904            144,962
Fixed assets, at cost, net                                             37,769             36,136
Other assets                                                           33,939             21,921
                                                                   ----------         ----------
                                                                   $1,906,070         $1,824,345
                                                                   ==========         ==========
                  LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Bank loans payable                                                 $  304,000         $  140,000
Payables to:
     Customers                                                        192,817            259,607
     Brokers and dealers                                               29,021             24,632
Securities loaned                                                     228,477            189,303
Collateralized mortgage obligations                                   121,970            137,699
Securities sold, not yet purchased, at market                         130,868             89,709
Securities sold under agreements to repurchase                        322,972            466,266
Deferred income taxes                                                   5,871             13,491
Accounts payable, accrued expenses and other liabilities              235,133            214,603
                                                                   ----------         ----------
                                                                    1,571,129          1,535,310
Stockholders' Equity:
Common stock, $.01 par value per share; 40,000,000
     shares authorized, 17,120,026 and 16,611,889 outstanding at
     December 31, 1997 and 1996, respectively                             175                170
Additional paid-in capital                                            269,608            255,040
Unrealized loss on available-for-sale securities, net of
     income taxes                                                     (3,989)            (4,381)
Unearned cost of restricted stock                                     (8,269)            (1,576)
Treasury stock, at cost, 455,775 and 354,473 shares at
     December 31, 1997 and 1996, respectively                         (7,663)            (5,230)
Retained earnings (since January 1, 1996)                              85,079             45,012
                                                                   ----------         ----------
                                                                      334,941            289,035
                                                                   ----------         ----------
                                                                   $1,906,070         $1,824,345
                                                                   ==========         ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       42
<PAGE>

                           EVEREN CAPITAL CORPORATION
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                        (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                             1997              1996              1995
                                                          ----------        ----------        ----------
<S>                                                       <C>               <C>                 <C>
Revenue:
      Commissions                                         $  267,948        $  225,798          $190,303
      Principal transactions                                 102,892           115,291           122,127
      Investment banking                                      69,544            55,889            47,093
      Asset management                                        70,884            57,293            53,332
      Other                                                   33,304            42,217            49,137
      Interest                                                85,180            74,067            81,177
                                                          ----------        ----------        ----------
        Total revenue                                        629,752           570,555           543,169
        Interest expense                                      36,653            33,920            52,527
                                                          ----------        ----------        ----------
Net revenue                                                  593,099           536,635           490,642
                                                          ----------        ----------        ----------
Non-interest expenses:
      Compensation and benefits                              352,471           331,389           335,473
      Brokerage and clearance                                 17,174            14,559            11,422
      Communications                                          42,599            38,266            41,759
      Occupancy and equipment                                 40,756            39,152            54,484
      Promotional                                             21,525            17,849            13,507
      Other                                                   43,585            37,765            55,976
                                                          ----------        ----------        ----------
         Total non-interest expenses                         518,110           478,980           512,621
Gain on sale of subsidiary                                         -            50,181                 -
                                                          ----------        ----------        ----------
Income (loss) before income taxes                             74,989           107,836          (21,979)
Income tax provision (benefit)                                28,431            42,438           (6,125)
                                                          ----------        ----------        ----------
Income (loss) before extraordinary item                       46,558            65,398          (15,854)
Extraordinary charge on early retirement
         of debt, net of income taxes of $1,561                    -           (2,900)                 -
                                                          ----------        ----------        ----------
Net income (loss)                                         $   46,558        $   62,498         $(15,854)
                                                          ==========        ==========        =========

Dividends on exchangeable preferred stock                 $        -        $    2,130
                                                          ==========        ==========

Net earnings applicable to common stock                   $   46,558        $   60,368
                                                          ==========        ==========

Weighted average common shares outstanding:
      Basic                                               16,115,489        11,254,680
                                                          ==========        ==========
      Diluted                                             17,223,281        11,749,256
                                                          ==========        ==========
Net earnings per share of common stock:
      Basic                                               $     2.89        $     5.36
                                                          ==========        ==========
      Diluted                                             $     2.70        $     5.14
                                                          ==========        ==========
</TABLE>


See accompanying notes to consolidated financial statements.

                                       43
<PAGE>

                           EVEREN CAPITAL CORPORATION
                                AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>                                   COMMON STOCK
                                    -------------------------    ADDITIONAL  UNAMORTIZED      UNREALIZED GAIN
                                                                  PAID-IN     RESTRICTED      ON AVAILABLE FOR
                                    VOTING        NON-VOTING      CAPITAL        STOCK         SALE SECURITIES
                                    ------        ----------      -------    ------------     -----------------
<S>                                 <C>              <C>         <C>             <C>              <C>
Balances at January 1, 1995         $    10          $    -      $457,903        $     -          $     -
Change in equity related to
  spinoff adjustments, net               98               1         6,587         (2,500)
Deferred tax liability related to
  Section 338 election                                            (31,919)
Common stock  offering                    7                         4,731
Amount received from former
  parent under
  indemnification agreement                                        13,374
Release of KSOP shares
Dividends on exchangeable
  preferred stock                                                  (1,207)
Accretion of preferred stock to
  redemption value                                                    (73)
Change in unrealized gain for
  the period                                                                                       11,497
Vesting of restricted stock                                                        2,500
Purchase of treasury stock

Net loss
                                    -------      -----------    ---------    ------------        --------
Balances at December 31, 1995           115               1       449,396              -           11,497
                                    -------      -----------    ---------    ------------        --------
</TABLE>

<TABLE>
<CAPTION>

                                        UNEARNED                                   RETAINED          TOTAL
                                          KSOP           TREASURY   ACCUMULATED    EARNINGS       STOCKHOLDERS'
                                         SHARES           STOCK       DEFICIT    (SINCE 1/1/96)      EQUITY
                                       ---------        ---------  ------------- --------------  --------------
<S>                                    <C>              <C>          <C>              <C>          <C>
Balances at January 1, 1995            $     -          $     -      $(290,685)     $    -         $ 167,228
Change in equity related to
  spinoff adjustments, net             (55,000)                                                      (50,814)
Deferred tax liability related to
  Section 338 election                                                                               (31,919)
Common stock  offering                                                                                 4,738
Amount received from former
  parent under
  indemnification agreement                                                                           13,374
Release of KSOP shares                  32,125                                                        32,125
Dividends on exchangeable
  preferred stock                                                                                     (1,207)
Accretion of preferred stock to
  redemption value                                                                                       (73)
Change in unrealized gain for
  the period                                                                                          11,497
Vesting of restricted stock                                                                            2,500
Purchase of treasury stock                                  (22)                                         (22)
                                                                                                       2,500
Net loss                                                               (15,854)                      (15,854)
                                      --------         --------     ----------    --------          --------
Balances at December 31, 1995          (22,875)             (22)      (306,539)          -            131,573
                                      --------         --------      ---------    --------          --------
</TABLE>




See accompanying notes to consolidated financial statements.

                                       44
<PAGE>

                           EVEREN CAPITAL CORPORATION
                                AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, CONTINUED
                   YEAR ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                           COMMON STOCK          ADDITIONAL   UNAMORTIZED       UNREALIZED GAIN
                                      ----------------------      PAID-IN     RESTRICTED      (LOSS) ON AVAILABLE
                                      VOTING      NON-VOTING      CAPITAL       STOCK         FOR SALE SECURITIES
                                      ------      ----------      -------     -----------    --------------------
<S>                                   <C>         <C>            <C>          <C>             <C>
Balances at January 1, 1996            $115           $  1       $ 449,396       $     -           $ 11,497
Quasi-reorganization adjustments
  as of January 1, 1996:
Restatement of assets and
  liabilities to estimated fair value                               (3,675)
Transfer of accumulated deficit
  and unrealized gain at January 1,
  1996 to additional paid-in capital                              (295,042)                         (11,497)
Amount received from former parent
  under indemnification agreement                                    6,626
Release of KSOP shares                                               8,029
Issuance of additional non-voting
 common stock                                            1           1,515        (1,073)
Issuance of additional common stock       7                          8,164          (503)
Conversion of non-voting common
  stock to common stock                   2             (2)
Proceeds from initial public offering    46                         77,787
Dividends paid in cash and stock
Dividend reinvestment                                                    7
Change in unrealized loss for the period                                                             (4,381)
Accretion of preferred stock                                           (14)
Tax benefit from Kemper stock options                                2,247
Purchase of treasury stock
Net income
                                       ----           ----       ---------       -------           --------
Balances at December 31, 1996           170              -         255,040        (1,576)            (4,381)
                                       ----           ----       ---------       -------           --------
Issuance of additional common stock       5                         14,568        (6,693)
Purchase of treasury stock
Dividends paid
Change in unrealized loss
  for the period                                                                                       392
Net income
                                       ----           ----       ---------       -------           --------
Balances at December 31, 1997          $175           $  -       $ 269,608       $(8,269)          $ (3,989)
                                       ====           ====       =========       =======           ========
</TABLE>
<TABLE>
<CAPTION>
                                         UNEARNED                               RETAINED         TOTAL
                                          KSOP     TREASURY   ACCUMULATED       EARNINGS      STOCKHOLDERS'
                                         SHARES     STOCK       DEFICIT      (SINCE 1/1/96)      EQUITY
                                         ------   ---------   ------------   --------------  -------------
<S>                                    <C>        <C>         <C>               <C>          <C>
Balances at January 1, 1996            $(22,875)  $  (22)     $(306,539)      $      -         $131,573
Quasi-reorganization adjustments
  as of January 1, 1996:
Restatement of assets and
  liabilities to estimated fair value                                                            (3,675)
Transfer of accumulated deficit
  and unrealized gain at January 1,
  1996 to additional paid-in capital                            306,539                               -
Amount received from former parent
  under indemnification agreement                                                                 6,626
Release of KSOP shares                   22,875                                                  30,904
Issuance of additional non-voting
 common stock                                                                                       443
Issuance of additional common stock                                                               7,668
Conversion of non-voting common
  stock to common stock                                                                               -
Proceeds from initial public offering                                                            77,833
Dividends paid in cash and stock                                                (17,486)        (17,486)
Dividend reinvestment                                                                                 7
Change in unrealized loss for the period                                                         (4,381)
Accretion of preferred stock                                                                        (14)
Tax benefit from Kemper stock options                                                             2,247
Purchase of treasury stock                        (5,208)                                        (5,208)
Net income                                                                       62,498          62,498
                                       --------   ------      ---------       ---------        --------
Balances at December 31, 1996                 -   (5,230)             -          45,012         289,035
                                       --------   ------      ---------       ---------        --------
Issuance of additional common stock                                                               7,880
Purchase of treasury stock                        (2,433)                                        (2,433)
Dividends paid                                                                   (6,491)         (6,491)
                                       --------   ------      ---------       ---------        --------
Change in unrealized loss
  for the period                                                                                    392
Net income                                                                       46,558          46,558
                                       --------  -------      ---------       ---------        --------
Balances at December 31, 1997          $     -   $(7,663)     $      -        $  85,079        $334,941
                                       ========  =======      =========       =========        ========
</TABLE>
See accompanying notes to consolidated financial statements.

                                       45
<PAGE>

                           EVEREN CAPITAL CORPORATION
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                           1997          1996           1995
                                                                        ----------   -----------    -----------
<S>                                                                    <C>           <C>              <C>
Cash flows from operating activities:
     Net income (loss)                                                  $   46,558   $    62,498    $   (15,854)
     Adjustments to reconcile net income (loss) to net cash flows
           provided by (used in) operating activities:
         Extraordinary charge on early retirement of debt                        -         4,461              -
         Gain on sale of subsidiary                                              -       (50,181)             -
         Release of KSOP shares                                                  -         8,029              -
         Depreciation and amortization                                      15,998        12,278         16,771
         Deferred income taxes                                              (7,832)       (8,724)       (20,926)
     Change in assets and liabilities:
         Cash and securities segregated under federal
           and other regulations                                               415          (222)          (490)
         Receivables from/payables to:
              Customers                                                   (238,180)      (79,896)        30,253
              Brokers and dealers                                          (64,687)       30,567        (25,990)
              Affiliates                                                         -             -         21,798
              Others                                                        (3,383)      (11,589)       (13,326)
         Securities borrowed                                                 7,992        16,927        (46,845)
         Securities owned                                                  (27,890)      (19,684)        36,860
         Securities purchased under agreements to resell                   169,856       829,182     (1,079,897)
         Other assets                                                      (12,079)        1,740         21,605
         Securities loaned                                                  39,174       128,200          8,830
         Securities sold, not yet purchased                                 41,159        (1,923)        21,298
         Securities sold under agreements to repurchase                   (143,294)     (816,522)     1,057,611
         Accounts payable, accrued expenses,
            and other liabilities                                           16,732       (30,291)        22,590
                                                                        ----------   -----------    -----------
Net cash flows provided by (used in) operating activities                 (159,461)       74,850         34,288
                                                                        ==========   ===========    ===========

Cash flows from investing activities:
     Net proceeds from sale of subsidiary                                        -        59,346              -
     Proceeds from sale of investments in mortgage-backed
       certificates                                                              -             -         81,808
     Collections of principal on investments in mortgage-
       backed certificates                                                  16,393        16,523         15,743
     Purchase of investments in mortgage-backed certificates                     -        (9,505)       (35,123)
     Proceeds from the sale of fixed assets                                      -         2,120              -
     Acquisition of fixed assets                                           (15,178)      (10,942)        (2,508)
                                                                        ----------   -----------    -----------
Net cash flows provided by investing activities                              1,215        57,542         59,920
                                                                        ==========   ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       46
<PAGE>

                           EVEREN CAPITAL CORPORATION
                                AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                               1997         1996         1995
                                                            ---------    ---------    ---------
<S>                                                         <C>          <C>          <C>
Cash flows from financing activities:
       Net proceeds from initial public offering                 --         77,833         --
       Release of shares related to KSOP loan                    --         22,875         --
       Dividends paid                                          (6,491)     (16,433)        --
       Retirement of subordinated debt                           --        (36,012)        --
     Proceeds from common stock issuance                        9,084        8,171        4,738
     Amount collected under indemnification agreement            --         12,876        7,124
     Proceeds from the issuance of collateralized
       mortgage obligations                                      --          9,422       34,080
     Repayment of collateralized mortgage obligations         (16,258)     (16,109)     (95,035)
     Debt issuance costs paid                                    --           --           (977)
     (Increase) decrease in bank loans payable, net           164,000     (157,800)     (40,053)
     Purchase of treasury stock                                (2,433)      (5,208)         (22)
                                                            ---------    ---------    ---------
Net cash flows provided by (used in) financing activities     147,902     (100,385)     (90,145)
                                                            ---------    ---------    ---------

Increase (decrease) in cash and cash equivalents              (10,344)      32,007        4,063
Cash and cash equivalents at beginning of year                 46,592       14,585       10,522
                                                            ---------    ---------    ---------

Cash and cash equivalents at end of year                    $  36,248    $  46,592    $  14,585
                                                            =========    =========    =========

Supplemental disclosure of cash flow information:
Interest paid to unaffiliated entities                      $  35,596    $  37,013    $  48,780
                                                            =========    =========    =========
Income taxes paid                                           $  23,650    $  50,100    $    --
                                                            =========    =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       47
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------
(1)      GENERAL INFORMATION

         EVEREN Capital Corporation ("EVEREN") was incorporated in Delaware in
         May 1995, for the purpose of acquiring all of the outstanding common
         stock of Kemper Securities Holdings, Inc. ("KSHI") and its subsidiaries
         including its primary subsidiary, Kemper Securities, Inc. ("KSI"); a
         clearing subsidiary, Kemper Clearing Corp. ("KCC"); and a data
         processing subsidiary, BETA Systems, Inc. On September 13, 1995, KSHI,
         KSI and KCC changed their names to EVEREN Securities Holdings, Inc.
         ("EVEREN Holdings"), EVEREN Securities, Inc. ("EVEREN Securities") and
         EVEREN Clearing Corp. ("EVEREN Clearing"), respectively. Collectively,
         EVEREN and its subsidiaries are referred to in these Notes as the
         "Company".

         The Company is a financial services holding company, and is engaged
         primarily in the retail and institutional brokerage business, including
         investment banking and underwriting services. EVEREN Securities and
         EVEREN Clearing are both registered as brokers and dealers in
         securities under the Securities Exchange Act of 1934 and as futures
         commission merchants under the Commodities Exchange Act. EVEREN
         Securities clears all transactions with and for customers on a fully
         disclosed basis through EVEREN Clearing. Another subsidiary, Gateway
         Mortgage Acceptance Corporation ("Gateway"), was formed to issue and
         sell one or more series of collateralized mortgage obligations ("CMOs")
         directly or through one or more beneficially owned trusts (each, a
         "Trust").

         On September 13, 1995, the Company completed its separation (the
         "Buy-out") from its former parent, Kemper Corporation ("Kemper"), and
         became an independent, employee-owned company with publicly traded
         preferred stock. The preferred stock was issued to Kemper, which in
         turn distributed the shares to holders of Kemper common stock and to
         holders of certain Kemper common stock options and phantom stock units
         as a taxable distribution (the "Kemper Distribution"). Simultaneously,
         10,437,781 shares of common stock, par value $.01 per share, of EVEREN,
         representing approximately 96% of such shares outstanding, were sold by
         Kemper to the EVEREN Capital Corporation 401(k) and Employee Stock
         Ownership Trust which is part of the EVEREN Capital Corporation 401(k)
         and Employee Stock Ownership Plan (collectively, the "KSOP") for an
         aggregate price of $71.4 million or $6.8405 per common share (the "KSOP
         Purchase").

         Following the Buy-out, the KSOP offered to KSOP participants up to $25
         million of common stock of the Company (3,654,685 shares at $6.8405 per
         share) as an investment option for a portion of their current account
         balances in the KSOP (the "Founders' Offering"). The offering price per
         share in the Founders' Offering was equal to the per share price paid
         by the KSOP in the KSOP Purchase. As part of the separation from
         Kemper, Kemper indemnified the Company for the first $20 million of
         employer contributions to the KSOP. The $20 million indemnification was
         fully collected at December 31, 1996 and is included in additional
         paid-in capital.

                                       48
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------

         During 1996, the Company completed the sale of BETA Systems, Inc., a
         wholly-owned data processing and quote services subsidiary, for $63.5
         million, resulting in an after-tax gain of approximately $30.2 million.

         On October 8, 1996 the Company completed its initial public offering,
         whereby 4.6 million shares of common stock were sold at a price of
         $18.50 per share, resulting in net proceeds of approximately $78
         million to the Company.

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation
         The consolidated financial statements include the accounts of EVEREN
         and its subsidiaries. All significant intercompany balances and
         transactions have been eliminated in consolidation.

         Use of Estimates
         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amount of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and the reported amounts of revenues
         and expenses during the reporting period. Actual results could differ
         from those estimates.

         Securities and Commodities Transactions
         Customer receivables and payables are recorded on a settlement date
         basis. The related commission revenue and expenses from securities and
         commodities transactions are recorded on trade date. Principal
         securities and commodities transactions are also recorded on trade
         date. Securities owned and securities sold, not yet purchased are
         recorded at market value, with unrealized gains and losses included in
         income.

         Securities Purchased Under Agreements to Resell and Securities Sold
         Under Agreements to Repurchase
         Securities purchased under agreements to resell and securities sold
         under agreements to repurchase are collateralized transactions and are
         carried at the contract amounts at which the securities will be resold
         or reacquired, including accrued interest. It is the policy of the
         Company to take possession of the securities purchased under agreements
         to resell at the time such agreements are entered into. In the event
         that the market value of such securities falls below the contract
         amount of the related agreement to resell, the Company requests
         additional collateral.

         Securities Borrowed and Securities Loaned
         Securities borrowed and securities loaned are recorded at the amount of
         cash collateral advanced or received. Securities borrowed transactions
         require the Company to deposit cash, letters of credit, or other
         collateral with the lender. With respect to securities

                                       49
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------
         loaned, the Company receives collateral in the form of cash or other
         collateral in an amount generally in excess of the market value of
         securities loaned. The Company monitors the market value of securities
         borrowed and loaned on a daily basis, with additional collateral
         obtained or refunded as necessary.

         Fixed Assets
         Fixed assets are recorded at historical cost, net of accumulated
         depreciation and amortization. Depreciation on fixed assets is
         generally recorded on a straight-line basis over the estimated useful
         lives of the assets, which range from four to seven years for furniture
         and equipment and up to thirty years for building and improvements.
         Leasehold improvements are amortized on a straight-line basis over the
         lesser of the lease term or the economic life of the asset.

         Investments in Mortgage-backed Certificates/Collateralized Mortgage
         Obligations
         The CMOs issued by Gateway are collateralized by certain
         mortgage-related instruments ("Certificates") and the investment of the
         proceeds relating to principal payments and interest on such
         Certificates. The CMOs are accounted for as borrowings. The
         Certificates are classified as "available-for-sale" and are accounted
         for at market value with unrealized gains or losses included in the
         equity section of the consolidated statements of financial condition.
         Market value is determined using current market valuations from an
         independent pricing service.

         Investments
         The Company accounts for investments over which it exerts significant
         influence but does not control under the equity method, whereby the
         Company's proportionate share of earnings or losses are included in its
         results of operations. The investments are included in other assets on
         the consolidated statements of financial condition.

         Impairment of Long-Lived Assets
         The Company periodically reviews long-lived assets for possible
         impairment. When circumstances indicate that the carrying amount of
         such assets may not be recoverable, the carrying amount is reduced to
         the estimated recoverable value.

         Stock-Based Compensation
         The Company accounts for stock-based compensation issued to employees
         in accordance with Accounting Principles Board Opinion No. 25,
         "Accounting for Stock Issued to Employees," ("APB Opinion No. 25")
         which recognizes compensation cost based upon the intrinsic value at
         the date of grant of the equity instrument awarded. The Financial
         Accounting Standards Board issued Statement of Financial Accounting
         Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
         which encourages, but does not require, companies to recognize
         compensation expense for grants of stock, stock options and other
         equity instruments based on the fair value of those instruments. The
         Company has elected, as permitted by SFAS No. 123, to adopt the
         disclosure requirement

                                       50
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------
         of SFAS No. 123 and continue to account for stock-based compensation
         under APB Opinion No. 25.

         Income Taxes
         Income taxes are provided for using the liability method, under which
         deferred tax assets and liabilities are recorded based on differences
         between the financial accounting and tax bases of assets and
         liabilities. Deferred tax assets and liabilities are measured based on
         the currently enacted tax rate expected to apply to taxable income in
         the period in which the deferred tax asset or liability is expected to
         be settled or realized.

         The Company and Kemper agreed to make an election under Section
         338(h)(10) of the Internal Revenue Code (the "Section 338 Election")
         with respect to the sale by Kemper and purchase by EVEREN of the common
         stock of EVEREN Holdings on September 13, 1995 (the "EVEREN Holdings
         Purchase"). The impact of the Section 338 Election on the Company is
         that the assets of EVEREN Holdings and subsidiaries received a new, and
         overall lower, basis for federal income tax purposes.

         Recent Accounting Pronouncements
         As of January 1, 1997, SFAS No. 125 "Accounting for Transfers and
         Servicing of Financial Assets and Extinguishments of Liabilities,"
         became effective for transfers of financial assets made after December
         31, 1996, except for transfers of certain financial assets for which
         the effective date has been delayed for one year. SFAS No. 125 provides
         financial reporting standards for the derecognition and recognition of
         financial assets, including the distinction between transfers of
         financial assets which should be recorded as sales and those which
         should be recorded as secured borrowings. The Company does not expect
         the impact of the adoption of the deferred provision to be material and
         the adoption of the other provisions of SFAS No. 125 was not material
         to the Company's financial condition or results of operations.

         In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." This
         standard requires dual presentation of basic and diluted earnings per
         share. Basic earnings per share is computed based on the weighted
         average number of common shares outstanding. Diluted earnings per share
         is computed based on the weighted average number of common and dilutive
         potential common shares outstanding.

         During 1997, the Financial Accounting Standards Board released two
         SFASs, which are effective for the year ending December 31, 1998. SFAS
         No. 130, "Reporting Comprehensive Income," establishes standards for
         the reporting and display of comprehensive income and its components
         (revenues, expenses, gains and losses) in a full set of general-purpose
         financial statements and requires that all items that are recognized
         under accounting standards as components of comprehensive income be
         reported in one of two statements of financial performance. It does not
         address issues of recognition or measurement for comprehensive income
         and its components. SFAS No. 131, "Disclosure

                                       51
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------

         About Segments of an Enterprise and Related Information," requires
         companies to disclose operating segment data based on how management
         makes decisions about allocating resources to segments and measuring
         their performance. The Company will adopt both of these standards in
         1998. As both are reporting and disclosure related, neither will impact
         the Company's financial condition or results of operations.

         Supplemental Disclosure of Non-Cash Investing and Financing Activities
         The Company, with approval from its Board of Directors, implemented a
         quasi-reorganization to reflect the emergence of EVEREN as an ongoing,
         independent organization and to enable the Company to present more
         accurately the new organization's cumulative performance. The
         quasi-reorganization was effective January 1, 1996, and all assets and
         liabilities were adjusted to fair value as of that date. This resulted
         in a reduction of net assets of $3.7 million. The quasi-reorganization
         also resulted in the transfer of the accumulated deficit as of January
         1, 1996 of $306.5 million to additional paid-in capital. The balance in
         retained earnings at December 31, 1997 and 1996 represents the
         accumulated net earnings available to common stockholders arising
         subsequent to the date of the quasi-reorganization.

         In 1995, in connection with the Buy-out, $44.3 million of subordinated
         debt and $37.6 million in affiliated payables were converted to equity;
         $48.2 million in receivables from affiliates was forgiven as a result
         of termination of a tax sharing arrangement theretofore in place; and
         preferred shares valued at $27.1 million were issued to Kemper. In
         connection with the purchase of the common stock of the Company, $55.0
         million of bank loans was incurred (the "KSOP loans") and $55.0 million
         in unearned KSOP shares were recorded. In connection with the agreement
         of Kemper and the Company to make the Section 338 Election, a deferred
         tax liability of $31.9 million was established and reduced additional
         paid-in capital.

         Reclassifications
         Certain prior year amounts have been reclassified to conform with the
         1997 financial statement presentation.

(3)      CASH AND SECURITIES SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS

         The Company is required under the Commodity Exchange Act (the "Act") to
         account for and segregate all customer assets, as defined by the Act,
         in connection with transactions in regulated commodities. As of
         December 31, 1997 and 1996, cash of approximately $440,000 and $764,000
         and securities (primarily obligations of the U.S. Government) with a
         market value of approximately $14.9 million and $15.0 million,
         respectively, are segregated pursuant to the Act.

                                       52
<PAGE>

         At December 31, 1997 and 1996, the Company was in compliance with the
         segregation requirements of the Act and had total segregated funds in
         excess of the aggregate required amount by approximately $4.1 million
         and $6.0 million, respectively.

(4)      RECEIVABLES FROM AND PAYABLES TO CUSTOMERS

         The Company extends credit to its customers to finance their purchases
         of securities on margin. The Company receives income from interest
         charged on such extensions of credit. Customer receivables include
         amounts due on margin balances. Customer payables include customers'
         free credit balances. The Company also extends credit to customers of
         introducing brokers, which are managed on a similar basis as the
         Company's own customers.

         Securities owned by customers and held by the Company as collateral or
         as margin and the market value of commodity option positions owned by
         customers are not included in the consolidated statements of financial
         condition. From time to time, the Company deposits customers'
         securities as margin with clearing organizations. At December 31, 1997
         and 1996, such securities deposited as margin had an aggregate market
         value of $8.7 million and $8.1 million, respectively.

(5)      SECURITIES-AT MARKET VALUE

         Securities owned and securities sold, not yet purchased consisted of
         the following (in thousands):

                                                         DECEMBER 31,
OWNED                                                  1997       1996
-----                                                --------   --------
Obligations of the U.S. Government or its agencies   $ 97,401   $ 83,083
State and municipal obligations                        24,753     10,354
Corporate obligations                                  51,668     58,115
Corporate stocks and warrants                          13,463      8,459
Other                                                   1,545        929
                                                     --------   --------
                                                     $188,830   $160,940
                                                     ========   ========
SOLD, NOT YET PURCHASED
-----------------------
Obligations of the U.S. Government or its agencies   $114,045   $ 68,713
State and municipal obligations                           308        657
Corporate obligations                                   8,926      8,461
Corporate stocks and warrants                           6,264     11,372
Other                                                   1,325        506
                                                     --------   --------
                                                     $130,868   $ 89,709
                                                     ========   ========

                                       53
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------

(6)      SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD
         UNDER AGREEMENTS TO REPURCHASE

         Securities purchased under agreements to resell and securities sold
         under agreements to repurchase consisted of the following at December
         31, 1997 and 1996 (in thousands):

         SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL       1997      1996
         -----------------------------------------------    ---------   --------
         U.S. Government and U.S. Government
         agency obligations with a market value
         of $310.2 million ($482.0 million at 1996)          $309,457   $479,313
                                                             ========   ========

         SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
         U.S. Government and U.S. Government
         agency obligations with a market value
         of $323.6 million ($469.6 million at 1996)          $322,972   $466,266
                                                             ========   ========

         The Company enters into collateralized transactions to resell and
         repurchase securities. These transactions are carried at the contract
         amounts at which the securities will be resold or reacquired plus
         accrued interest. At December 31, 1997, all agreements will mature
         within ninety days. Securities purchased under agreements to resell
         averaged $372.5 million and $568.7 million during 1997 and 1996,
         respectively, and the maximum amounts outstanding at any month-end
         during 1997 and 1996 were $545.9 million and $1,400 million,
         respectively. Securities sold under agreements to repurchase averaged
         $342.9 million and $552.9 million during 1997 and 1996, respectively,
         and the maximum amounts outstanding at any month-end during 1997 and
         1996 were $530.6 million and $1,387 million, respectively. At December
         31, 1997, these agreements to repurchase had a weighted-average annual
         interest rate of 6.16 percent (6.02 percent at December 31, 1996).

(7)      INVESTMENTS IN MORTGAGE-BACKED CERTIFICATES

         As required by the related indenture provisions of the CMOs, the
         Certificates are held as collateral by a trustee of the Trust. The
         trustee collects principal and interest payments from the Certificates,
         reinvests the payments in eligible investments, and makes principal and
         interest payments on the CMOs. A summary of the Certificates,
         available-for-sale is as follows (in thousands):
                                                   DECEMBER 31,
                                               1997             1996
                                             --------         --------
         Amortized cost                      $134,485         $150,147

         Gross unrealized gains                   338              237
         Gross unrealized losses               (4,919)          (5,422)
                                             --------         --------

         Fair value                          $129,904         $144,962
                                             ========         ========

                                       54
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------
(8)      COLLATERALIZED MORTGAGE OBLIGATIONS

         Receipt of principal and interest from the Certificates, including
         prepayments, and income earned on the reinvestment of such amounts is
         applied to the extent required by the indenture to make monthly
         payments of principal on the CMOs. All payments of principal on the
         CMOs are allocated to the classes of CMOs in accordance with the terms
         of the standard indenture provisions. Interest rates on the CMOs are
         fixed and range from 7.05% to 8.15% per year. The stated maturities
         range from June 1, 2019 through May 31, 2026 and represent the dates on
         which the CMOs of each class are expected to be fully paid. The actual
         maturities of the CMOs will depend on the rate of principal payments,
         including prepayments, on the Certificates. The CMOs may be subject to
         redemption at the option of Gateway, in the circumstances and at the
         redemption price set forth in the related prospectus.

(9)      FIXED ASSETS

         At December 31, 1997 and 1996, fixed assets consist of the following
         (in thousands):

                                                      DECEMBER 31,
                                                    1997         1996
                                                 ---------    ---------
Building and improvements                        $   1,411    $   1,411
Furniture and equipment                            104,792       92,268
Leasehold improvements                              23,958       21,304
                                                 ---------    ---------
Total cost                                         130,161      114,983
Less accumulated depreciation and amortization     (92,392)     (78,847)
                                                 ---------    ---------
Net fixed assets                                 $  37,769    $  36,136
                                                 =========    =========

(10)     BANK LOANS PAYABLE

         Included in bank loans payable at December 31, 1997 and 1996, are $304
         million and $140 million, respectively, in loans drawn from
         approximately $535 million and $600 million in uncommitted lines of
         credit, respectively, extended by several banks to the Company. The
         level of these borrowings fluctuates daily, and at times significantly,
         depending on market activity and customer margin activity levels. Under
         such lines of credit, the Company has unsecured borrowings totaling $40
         million at December 31, 1997 and 1996. The remaining borrowings are
         secured by customers' margin securities. The rates on these borrowings
         are based on the federal funds rate (5.8% and 6.9% at December 31, 1997
         and 1996, respectively).

         The Company has a $50 million committed revolving credit facility with
         two banks, all of which is unused at December 31, 1997. The agreement
         ends on July 10, 1999, subject to a one year extension by mutual
         agreement of the parties. Commitment fees under this facility are paid
         quarterly at a rate per annum of .25% on the average daily unused
         balance. Fees paid for the year ended December 31, 1997 were
         approximately $60,000. On January 9, 1998 the Company borrowed $50
         million under this facility in connection with its acquisition of
         Principal Financial Securities, Inc., more fully discussed in Note 21.

                                       55
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------
(11)     NET CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS

         In accordance with the rules and regulations of the Securities and
         Exchange Commission for registered brokers and dealers, the capital
         rules of the New York Stock Exchange and Regulation 1.17 of the
         Commodity Futures Trading Commission, EVEREN Securities and EVEREN
         Clearing must maintain minimum net capital. Both EVEREN Securities and
         EVEREN Clearing operate under the alternative method of computing
         minimum net capital, as defined. Such net capital requirements could
         restrict the ability of each subsidiary to pay dividends to its parent.
         At December 31, 1997 and 1996, EVEREN Securities had net capital of
         approximately $152.0 million and $124.0 million, respectively, which
         was approximately $151.0 million and $123.0 million, respectively, in
         excess of its required minimum net capital. At December 31, 1997 and
         1996, EVEREN Clearing had net capital of approximately $73.8 million
         and $68.2 million, respectively, which was approximately $54.6 million
         and $52.0 million, respectively, in excess of its required minimum net
         capital.

(12)     DEFINED CONTRIBUTION PLAN

         EVEREN maintains the KSOP to provide employees with an opportunity to
         accumulate funds for retirement and acquire ownership interests in the
         voting common stock of EVEREN. Participants are eligible to make
         pre-tax contributions to the KSOP and share in employer contributions,
         which are funded by cash payments and plan forfeitures. Total
         contribution expense for the years ended December 31, 1997, 1996 and
         1995 was approximately $684,000, $3.0 million and $19.4 million,
         respectively.

(13)     POSTRETIREMENT BENEFITS

         The Company currently sponsors a plan that provides postretirement
         medical and dental benefits for substantially all employees. Employees
         generally become eligible for postretirement benefits when they meet
         minimum retirement age and service requirements. The cost of providing
         these benefits is shared with retirees. The Company has reserved the
         right to change or eliminate the benefit plan. The Company accrues the
         expected cost of providing these postretirement benefits during the
         years that the employee renders the necessary service.

         Actuarial assumptions used to determine net periodic postretirement
         benefit cost include an annual discount rate of 7% for 1997, 7.75% for
         1996, and 7% for 1995. Actuarial assumptions used to determine the
         accumulated postretirement benefit obligation at December 31, 1997 and
         1996 include an annual discount rate of 7% and 7.75%, respectively.

         Net periodic postretirement benefit cost for the years ended December
         31 includes the following components (in thousands):

                                       56
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------

                                                1997      1996      1995
                                              --------  --------  -------
Service cost of benefits earned               $   970   $   654   $   618
Interest cost on accumulated postretirement
   benefit obligation                           1,453     1,386     1,305
Amortization of unrecognized gain                --        --        (149)
                                              -------   -------   -------
Net periodic postretirement benefit cost      $ 2,423   $ 2,040   $ 1,774
                                              =======   =======   =======

         The following table presents the plan's funded status reconciled with
         amounts recognized in the Company's consolidated statement of financial
         condition at December 31 (in thousands):

                                                          1997          1996
                                                        --------      -------
Accumulated post-retirement benefit obligation:
  Retirees                                              $ 11,052     $ 10,268
  Fully eligible active participants                       4,825        4,303
  Other active participants                                4,884        3,316
                                                        --------      -------
Accumulated post-retirement benefit obligation            20,761       17,887
Plan assets at fair value                                      -            -
                                                        --------      -------
Accumulated post-retirement benefit obligation in
   excess of plan assets                                  20,761       17,887
Unrecognized actuarial loss                              (1,691)        (472)
                                                        --------      -------
Accrued post-retirement benefit cost                    $ 19,070      $17,415
                                                        ========      =======

         For measurement purposes, a 7% annual rate of increase in the per
         capita health care cost trend rate was assumed for 1998; the rate was
         assumed to decrease gradually to 6% by the year 1999 and remain at that
         level thereafter. The health care cost trend rate assumption has a
         significant effect on the amounts reported. Increasing the assumed
         health care cost trend rates by one percentage point would increase the
         accumulated post-retirement benefit obligation as of December 31, 1997
         by approximately $3.7 million and the aggregate of the service and
         interest cost components of net periodic postretirement benefit cost
         for the year ended December 31, 1997 by approximately $570,000.

(14)     EXCHANGEABLE PREFERRED STOCK AND JUNIOR SUBORDINATED DEBENTURES

         As discussed in Note 1, on September 13, 1995, EVEREN issued 1,202,805
         shares of Series A Exchangeable Preferred Stock ("Exchangeable
         Preferred Stock") with a liquidation preference of $25 per share and a
         dividend rate of 13.5% per year. During 1996, the Company exchanged
         13.5% Junior Subordinated Debentures due 2007 for all outstanding
         shares of the Exchangeable Preferred Stock. Such Debentures were
         subsequently redeemed in 1996 resulting in an after-tax extraordinary
         charge of $2.9 million.

         For the years ended December 31, 1996 and 1995, dividends on the
         Exchangeable Preferred Stock were approximately $2.1 million and $1.2
         million, respectively.

                                       57
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------
(15)     STOCK OPTIONS

         The Company maintains equity-based incentive plans under which various
         types of stock options are granted to officers, directors, and key
         employees of the Company.

         The stock options granted under the equity-based incentive plans have
         exercise prices which approximated the market prices on the dates of
         grant, and expire within ten years from the date of grant. The options
         granted generally vest over a three- or five-year period.

         A summary of the Company's stock options for the years ended December
         31, 1997, 1996 and 1995 is as follows:

                                               OPTIONS         WEIGHTED-AVERAGE
                                             OUTSTANDING        EXERCISE PRICE
                                             -----------       ----------------
   Options Outstanding, January 1, 1995                -              $     -
        Granted                                  994,075                 6.84
        Exercised                                      -                    -
        Forfeited                                      -                    -
                                               ---------              -------
   Options Outstanding, December 31, 1995        994,075                 6.84
                                               ---------              -------
        Granted                                  189,750                10.77
        Exercised                                      -                    -
        Forfeited                              (110,200)                 6.84
                                               ---------              -------
   Options Outstanding, December 31, 1996      1,073,625                 7.53
                                               ---------              -------
        Granted                                  804,255                23.19
        Exercised                                      -                    -
        Forfeited                               (75,662)                10.40
                                               ---------              -------
   Options Outstanding, December 31, 1997      1,802,218              $ 14.62
                                               =========              =======

         In 1997, had the Company elected to recognize compensation expense for
         its stock option plans pursuant to SFAS No. 123 (based on the fair
         value of options at the grant dates) net income would have been reduced
         by $1.6 million and basic and diluted earnings per common share would
         have been reduced by $0.10 and $0.09, respectively. For options granted
         in 1996 and 1995, the compensation cost as determined under SFAS No.
         123 was not material to the Company's consolidated net income or
         earnings per share calculations.

                                       58
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------


(16)     INCOME TAXES

         The income tax provision (benefit) for the years ended December 31 was
         as follows (in thousands):
                                    1997             1996            1995
                                  -------          -------         --------
         U.S. Federal
              Current             $29,728         $ 43,621         $ 13,193
              Deferred             (6,532)          (8,724)         (20,926)
                                  -------          -------         --------
                 Total             23,196           34,897           (7,733)
                                  -------          -------         --------
         State and Local
              Current               6,535            7,541            1,922
              Deferred             (1,300)               -             (314)
                                  -------          -------         --------
                 Total              5,235            7,541            1,608
                                  -------          -------         --------
                                  $28,431          $42,438         $ (6,125)
                                  =======          =======         ========

         As a result of the Section 338 Election, EVEREN Holdings incurred a tax
         basis reduction of approximately $97.3 million in its various assets.
         This reduction in tax basis represents future taxable income to EVEREN
         Holdings as the individual assets are converted to cash. Consequently,
         EVEREN Holdings and its subsidiaries established a $31.9 million
         deferred tax liability as of September 13, 1995.

         A reconciliation of the statutory federal income tax to the effective
         tax rate is as follows (in thousands):
<TABLE>
<CAPTION>

                                                                1997        1996       1995
                                                              -------     -------    --------
<S>                                                           <C>         <C>         <C>
Statutory federal income tax (benefit)                        $26,246     $36,180     $(7,694)
Increase (reduction) in income taxes resulting from:
         Tax-exempt interest, net                                (286)       (559)       (903)
         Deductible KSOP dividends                             (1,414)       (337)          -
         Extraordinary charge on early retirement of debt           -       1,561           -
         Meals and entertainment                                  650         483         457
         State and local income taxes, net of federal
           income tax benefit                                   3,403       4,459       1,045
         Other, net                                             (168)         651         970
                                                              -------     --------     -------
                                                              $28,431     $42,438     $(6,125)
                                                              =======     =======     =======
</TABLE>

                                       59
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------

         The tax effect of temporary differences that give rise to significant
         portions of the deferred tax assets and liabilities at December 31, is
         presented below (in thousands):
<TABLE>
<CAPTION>

                                                             1997           1996
                                                          ----------    -----------
<S>                                                       <C>           <C>
   Deferred tax assets:
       Accrued expenses                                   $    9,538    $     6,584
       Deferred compensation                                   3,063          1,412
       Deferred rent                                           3,420          3,727
       Fixed assets, principally due
          to differences in depreciation                           -            428
                                                          ----------     ----------
  Total deferred tax assets                                   16,021         12,151
                                                            --------     ----------
  Deferred tax liabilities:
       Section 338 Election basis difference                  19,607         23,083
       Exchange memberships                                    1,393          1,393
       Fixed assets principally due to differences in
          depreciation                                           473              -
       Other                                                     419          1,166
                                                         -----------     ----------
  Total deferred tax liabilities                              21,892         25,642
                                                           ---------      ---------
  Net deferred tax liabilities                           $     5,871     $   13,491
                                                          ==========      =========
</TABLE>

         In connection with the Buy-out, EVEREN and Kemper have entered into an
         agreement (the "Tax Sharing Agreement"), which provides that Kemper
         will be responsible for and receive the benefits of (i) all settlements
         with the Internal Revenue Service (the "IRS") for the 1990 and prior
         year tax periods, (ii) the impact of all tax items for the 1990 and
         prior year tax periods theretofore identified by the IRS that reverse
         during the period January 1, 1991 through September 13, 1995 and (iii)
         all tax issues for the period from January 1, 1991 to September 13,
         1995 identified by Kemper and EVEREN in the Tax Sharing Agreement. The
         Tax Sharing Agreement provides that EVEREN will be responsible for and
         receive the benefits of all tax liabilities and refunds attributable to
         the business of the Company after September 13, 1995. Tax returns for
         the years 1991 through 1993 are currently under examination by the IRS.

         Though valid as between EVEREN and Kemper, the Tax Sharing Agreement is
         not binding on the IRS and does not affect the several liability of
         EVEREN, Kemper and their respective subsidiaries to the IRS for all
         federal taxes of the consolidated group relating to periods prior to
         September 13, 1995.

                                       60
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------
(17)     EARNINGS PER SHARE

         The following table reconciles the numerators and the denominators of
         the Company's basic and diluted per-share calculations for the year
         ended December 31, 1997 (in thousands, except share data):

                                                                    PER SHARE
                                      INCOME         SHARES           AMOUNT
                                      -------      ----------       ---------
 Net income                           $46,558
 Basic earnings per share             $46,558      16,115,489         $2.89
                                                                      =====
 Effect of Dilutive Securities:
    Restricted stock and options            -       1,107,792
                                      -------      ----------

 Diluted earnings per share           $46,558      17,223,281         $2.70
                                      =======      ==========         =====

         Earnings per share information is not presented for 1995 due to the
         changes in the Company's continuing capital structure as discussed in
         Notes 1, 14, and 15. Accordingly, basic and diluted earnings per share
         for 1996, calculated on a proforma basis, assuming the Company's
         initial public offering and full allocation of KSOP shares to
         participant accounts had occurred as of January 1, 1996, would have
         been $3.87 and $3.76, respectively. Historical basic earnings per share
         for 1996, computed in accordance with SFAS No. 128 was $5.36 based on
         11,254,680 weighted average common shares outstanding. Historical
         diluted earnings per share for 1996 was $5.14 based on 11,749,256
         weighted average common shares outstanding, which includes dilutive
         restricted stock and options of 494,576.

         On January 20, 1998, the Company granted 548,770 options and 288,998
         shares of restricted stock pursuant to its Restricted Stock Incentive
         Plans. The effect of these issuances on earnings per share will be
         reflected in the Company's first quarter 1998 results.

(18)     COMMITMENTS AND CONTINGENCIES

         The Company leases certain office space under various noncancelable
         operating leases with remaining terms greater than one year. Future
         minimum payments under noncancelable operating leases as of December
         31, 1997 were approximately (in thousands):

                 YEAR ENDING DECEMBER 31,
                 ------------------------
                         1998                                    $ 27,600
                         1999                                      25,400
                         2000                                      21,400
                         2001                                      18,900
                         2002                                      15,100
                      Thereafter                                   42,000
                                                                 --------
             Total minimum lease payments                        $150,400
                                                                 ========

                                       61
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------
         Certain of the leases are subject to changes in the operating costs of
         the particular facilities. Total rental expense for all operating
         leases, including expenses related to the abandonment of leased
         property, was approximately $31.6 million, $33.3 million and $46.8
         million for the years ended December 31, 1997, 1996 and 1995,
         respectively.

         The Company uses unsecured letter of credit agreements issued by banks
         to provide the required margin for customers' and introducing brokers'
         transactions with the Options Clearing Corporation. Such letters of
         credit are generally for periods of six months. The Company pays
         commitment fees on these letters of credit at an annual rate of
         approximately .375%. At December 31, 1997 the Company is obligated
         under an unsecured letter of credit totaling $60 million.

         In the normal course of business, the Company enters into underwriting
         commitments. Transactions relating to such underwriting commitments,
         which were open at December 31, 1997 and subsequently settled, had no
         material effect on the consolidated statement of financial condition.

         At December 31, 1997, the Company has investments in limited
         partnerships carried at cost with aggregate capital commitments of $10
         million over a three-to five-year period.

(19)     LITIGATION

         The Company has been named as a defendant in various legal actions in
         connection with its securities and commodities business. Some of these
         lawsuits involve claims for substantial amounts. Although the ultimate
         outcome of these suits cannot be ascertained at this time, it is the
         opinion of management, after consultation with counsel, that the
         resolution of such suits will not have a material adverse effect on the
         financial position of the Company but may be material to the Company's
         operating results for any particular period, depending upon the level
         of the Company's income for such period.

(20)     FINANCIAL INSTRUMENTS

         Off-Balance Sheet Credit Risk and Concentration of Credit Risk
         Certain market and credit risks are inherent in the Company's business,
         primarily in facilitating customers' trading and financing transactions
         in financial instruments, which include derivatives. In the normal
         course of business, the Company's customer activities include
         execution, settlement, and financing of various customer securities and
         commodities transactions, which may expose the Company to off-balance
         sheet risk in the event the customer is unable to fulfill its
         contractual obligations.

         The Company's customer securities activities are transacted on either a
         cash or margin basis. In margin transactions, the Company extends
         credit to the customer which is collateralized by cash and/or
         securities in the customer's account. In connection with these
         activities, the Company executes and clears customer transactions
         involving securities sold but not yet purchased ("short sales") and the
         writing of option contracts.

                                       62
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------
         The Company also executes customer transactions in the purchase and
         sale of commodity futures contracts (including options on futures),
         substantially all of which are transacted on a margin basis subject to
         various exchange regulations. The Company seeks to control the risks
         associated with its customer activities by requiring customers to
         maintain margin collateral in compliance with various regulatory,
         exchange, and internal guidelines. The Company monitors required margin
         levels daily and, pursuant to such guidelines, requires the customers
         to deposit additional collateral or reduce positions when necessary.
         Such transactions may expose the Company to significant off-balance
         sheet risk in the event the margin is not sufficient to fully cover
         losses which customers may incur. In the event the customer fails to
         satisfy its obligations, the Company may be required to purchase or
         sell the collateral at prevailing market prices in order to fulfill the
         customer's obligations.

         In accordance with industry practice, the Company records customer
         securities transactions on a settlement date basis, which is generally
         three business days after trade date. The Company is therefore exposed
         to risk of loss on these transactions in the event of the customer's or
         broker's inability to meet the terms of their contracts in which case
         the Company may have to purchase or sell financial instruments at
         prevailing market prices. The Company believes that the settlement of
         these transactions will not have a material effect on the Company's
         consolidated statement of financial condition or results of operations.

         The Company's customer financing and securities settlement activities
         require the Company to pledge customer securities as collateral in
         support of various secured financing sources such as bank loans,
         securities loaned and agreements to repurchase. Additionally, the
         Company pledges customer securities as collateral to satisfy margin
         deposits of various exchanges. In the event the counterparty is unable
         to meet its contractual obligation to return customer securities
         pledged as collateral, the Company may be exposed to the risk of
         acquiring the securities at prevailing market prices in order to
         satisfy its customer obligations. The Company controls this risk by
         monitoring the market value of securities pledged on a daily basis and
         by requiring adjustments of collateral levels in the event of excess
         market exposures. Additionally, the Company establishes credit limits
         for such activities and monitors compliance on a daily basis. The
         Company also enters into collateralized financing agreements in which
         it extends short-term credit, primarily to major financial
         institutions. The Company generally controls access to the collateral
         pledged by the counterparties, which consists largely of securities
         issued by the U.S Government or its agencies.

         The Company is engaged in various securities trading and brokerage
         activities servicing a diverse group of corporations, governments, and
         institutional and individual investors primarily located in the United
         States. A substantial portion of the Company's transactions are
         collateralized and are executed with and on behalf of other major
         brokers and dealers. The Company's exposure to credit risk associated
         with the nonperformance of these counterparties in fulfilling their
         contractual obligation pursuant to securities and commodities
         transactions can be directly impacted by volatile trading markets which
         may

                                       63
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------
         impair the counterparties' ability to satisfy their obligations to the
         Company. The Company monitors credit risk on both an individual and
         group counterparty basis.

         Derivatives
         The Company also uses derivative financial instruments to hedge market
         risk, primarily arising from fluctuations in interest rates, in its
         securities inventory. To accomplish this, the Company uses
         exchange-traded futures and option contracts that contain varying
         degrees of off-balance-sheet risk, whereby changes in the market values
         of the underlying securities or other financial instruments may be in
         excess of the amounts reflected in the consolidated statement of
         financial condition. Under this strategy, the Company does not expect
         any material losses relating to such derivative instruments that would
         not be offset with corresponding gains on the securities hedged. These
         derivative instruments, which consist solely of exchange-traded futures
         and option contracts, are carried in the consolidated statements of
         financial condition at December 31, 1997 and 1996 at their quoted
         market values of $56,000 and $330,000, respectively, in aggregate, and
         have aggregate notional values of approximately $7.0 million and $11.6
         million, respectively. The average market value of these derivative
         instruments during 1997 approximated $215,000.

         Fair Value
         The Company's financial instruments are carried at fair value or at
         amounts which approximate fair value. Customer receivables, primarily
         consisting of floating-rate loans collateralized by margin securities,
         are charged interest at rates similar to other such loans made within
         the industry. Reverse repurchase/repurchase agreements, securities
         borrowed/loaned, and notes payable to banks are carried at contract
         amount plus accrued interest or at the amount of cash collateral
         advanced or received, which approximates fair value due to their highly
         liquid nature and short maturity. The Company's remaining financial
         instruments are generally short-term in nature and are typically
         liquidated at their carrying values.

(21)     SUBSEQUENT EVENTS

         On January 9, 1998, EVEREN completed the acquisition of Principal
         Securities Holding Corporation and its wholly-owned subsidiary,
         Principal Financial Securities, Inc. ("PFSI"), from Principal Mutual
         Life Insurance Company for $75 million in cash. PFSI is a registered
         securities broker-dealer and will operate as a separate subsidiary of
         EVEREN until PFSI's back office and other operating activities are
         combined with those of EVEREN Securities.

         On January 23, 1998, the Company, through its wholly-owned subsidiary,
         EVEREN Clearing, entered into an additional committed line of credit
         agreement for an aggregate $150 million with several banks. The
         borrowings are secured by either customer or firm securities, and
         interest is based on overnight bank lending rates. The Company pays a
         commitment fee on the unused portion of the line of credit. The
         agreement expires on

                                       64
<PAGE>

EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------
         December 30, 1998 and can be renewed by mutual agreement of the parties
         for periods up to 364 days per renewal through January 23, 2003.

         On February 27, 1998, the Company received notice that on February 10,
         1998, an arbitration award of $6 million had been rendered by a New
         York Stock Exchange, Inc. arbitration panel in favor of the Company in
         connection with the raiding of four of the Company's retail branch
         offices in 1994 by a competitor firm.

(22)     QUARTERLY INFORMATION (unaudited) (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                 QUARTER
---------------------------------------------------------------------------------------------------
 1997                                FIRST            SECOND            THIRD            FOURTH
---------------------------------------------------------------------------------------------------
<S>                                 <C>               <C>               <C>              <C>
 Total revenues                     $138,051          $144,904          $168,644         $178,153
 Income before income taxes           16,221            17,260            19,984           21,524
 Net income                           10,102            10,815            12,312           13,329
 Earnings per share:
   Basic                                 .63               .67               .76              .83
   Diluted                               .60               .63               .71              .76
</TABLE>
<TABLE>
                                                                 QUARTER
---------------------------------------------------------------------------------------------------
1996                                 FIRST            SECOND            THIRD            FOURTH
---------------------------------------------------------------------------------------------------
<S>                                 <C>               <C>               <C>              <C>
Total revenues                      $143,141          $157,281          $129,087         $141,046
Income before income taxes            10,637            70,592            11,575           15,032
Net income                             6,806            42,419             3,510            9,763
Earnings per share:
         Basic                           .70              4.37               .30              .62
         Diluted                         .68              4.26               .29              .59
</TABLE>


                                     ****


                                      65
<PAGE>

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

         None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         (a)      Identification of Directors
                  The information in the Company's Proxy Statement dated March
                  31, 1998 for the Annual Meeting of Stockholders to be held on
                  May 11, 1998 ("1998 Proxy") under the headings "ELECTION OF
                  DIRECTORS" and "BOARD OF DIRECTORS COMMITTEES" is incorporated
                  herein by reference.

         (b)      Identification of Executive Officers

                  The officers of the Company are elected by and serve at the
                  pleasure of the Board of Directors. The executive officers of
                  the Company and their respective positions, ages and
                  backgrounds are as follows:

NAME                     POSITION                                         AGE
---------------------    --------                                         ---
James R. Boris           Chairman of the Board and
                         Chief Executive Officer                           53

Stephen G. McConahey     President and Chief Operating Officer             54

Stanley R. Fallis        Senior Executive Vice President and
                         Director of  Administration  and
                         Operations                                        57

David M. Greene          Senior Executive Vice President
                         and Director of Client Services                   52

Arthur J. McGivern       Senior Executive Vice President
                         and Director of Corporate Development             50

Janet L. Reali           Senior Executive Vice President,
                         General Counsel and Secretary                     46

Thomas R. Reedy          Senior Executive Vice President and
                         Director of Capital Markets                       38

John G. Sullivan         Senior  Executive  Vice  President
                         and  Director of  Marketing  and
                         Investment Services                               52

Daniel D. Williams       Senior Executive Vice President,
                         Treasurer and Chief Financial Officer             46

Thomas M. Mansheim       Executive Vice President, Controller and
                         Chief Accounting Officer                          40

                                       66
<PAGE>

         James R. Boris has been Chairman of the Board and Chief Executive
Officer of the Company since its inception in May 1995. Mr. Boris is Chairman of
the Board and Chief Executive Officer of EVEREN Securities, and has held such
positions since January 1990. From January 1994 until September 1995, he was
also an Executive Vice President of Kemper. From January 1990 until September
1995, he served on the board of directors of Kemper Financial Companies, Inc.
and the boards of its major subsidiaries.

         Stephen G. McConahey has been President and Chief Operating Officer of
the Company since its inception in May 1995, and has been a director since July
1995. Mr. McConahey is President and Chief Operating Officer of EVEREN
Securities and has held such positions since January 1994. He was Senior Vice
President for Corporate and International Development of Kemper from 1990
through December 1993. He was also Executive Vice President (Corporate and
International Development) of Kemper Financial Services, Inc. from 1988 through
December 1993 and Senior Vice President of Kemper Financial Companies, Inc. from
1990 through 1993. Mr. McConahey is also a member of the Board of Trustees of
AMLI Residential Properties Trust, a publicly-traded real estate investment
trust that invests in multi-family properties, and is an independent general
partner of Boettcher Venture Capital Partners, L.P.

         Stanley R. Fallis was elected Senior Executive Vice President of the
Company in May 1995 and also acts as the Company's Director of Administration
and Operations. In April 1995, he was elected Senior Executive Vice President
and Chief Administrative Officer of EVEREN Securities. From March 1994 until
April 1995, he was Senior Vice President and Director of Strategic Planning of
Kemper. He was Senior Executive Vice President, Treasurer and Chief Financial
Officer of EVEREN Securities from September 1991 until March 1994, after having
been Executive Vice President, Treasurer and Chief Financial Officer from April
1990 until September 1991.

          David M. Greene was elected Senior Executive Vice President of the
Company in May 1995 and also acts as the Company's Director of Client Services.
Since January 1994, he has been Senior Executive Vice President and Director of
Client Services of EVEREN Securities. From October 1992 until January 1994, he
was EVEREN Securities' national sales director. From August 1991 to October 1992
he was Regional Director of EVEREN Securities' branch offices in Wisconsin,
Iowa, Florida and Minnesota. Prior thereto, he was branch manager of the
Madison, Wisconsin branch office of an EVEREN Securities predecessor firm, Blunt
Ellis & Loewi Incorporated ("BEL").

          Arthur J. McGivern was elected Senior Executive Vice President and
Director of Corporate Development of the Company in February 1996, at which time
he was also elected as a director and as Senior Executive Vice President and
Director of Corporate Development of EVEREN Securities. From January 1994 to
January 1996, he was Senior Vice President and Corporate Counsel of Kemper.
Prior to the Company's separation from Kemper in September 1995, Mr. McGivern
was a director and officer of a number of the Company's subsidiaries, including
the following positions at EVEREN Securities: Executive Vice President from
March 1991 to September 1992; Senior Executive Vice President from September
1992 to September 1995; General Counsel from March 1991 to September 1995;
Corporate Secretary from March 1991 to December 1993; and a director from March
1991 to September 1995.

                                       67
<PAGE>

          Janet L. Reali was elected Senior Executive Vice President, General
Counsel and Secretary of the Company in February 1996 after having been
Executive Vice President and Secretary since May 1995. In December 1995 she was
elected Senior Executive Vice President, General Counsel and Secretary of EVEREN
Securities after having been Executive Vice President, Corporate Counsel and
Corporate Secretary since December 1993. She was Senior Vice President and
Associate General Counsel of EVEREN Securities from July 1991 to December 1993.
Before joining EVEREN Securities, she was a partner in the Chicago law firm of
Keck, Mahin & Cate.

          Thomas R. Reedy was elected Senior Executive Vice President of the
Company in May 1995 and acts as the Company's Director of Capital Markets. He
has been Senior Executive Vice President of EVEREN Securities since December
1993, Executive Vice President from September 1993 to December 1993 and Senior
Vice President from January 1991 to September 1993. During these periods, he has
held the additional titles of Director of Capital Markets since January 1995,
Director of Product Origination from June 1994 to January 1995, Director of
Investment Banking from September 1993 to June 1994 and Director of Public
Finance from January 1991 to September 1993. He originally joined EVEREN
Securities in 1988 as a Senior Vice President of BEL.

          John G. Sullivan was elected Senior Executive Vice President of the
Company in February 1996 and also acts as the Company's Director of Marketing
and Investment Services. He has been a director and Senior Executive Vice
President and Director of Marketing and Investment Services of EVEREN Securities
since October 1995. Prior to joining the Company, he worked at Smith Barney Inc.
as Executive Vice President for strategic marketing from July 1995 to October
1995, as Executive Vice President and director of recruiting and development
from June 1994 to June 1995 and as Executive Vice President and director of that
firm's northwest retail division from 1990 to 1994.

         Daniel D. Williams was elected Senior Executive Vice President,
Treasurer and Chief Financial Officer of the Company in May 1995. Since April
1995 he has been Senior Executive Vice President and Chief Financial Officer of
EVEREN Securities. From January 1994 to April 1995 he was Executive Vice
President and Director of Finance and Administration and from January 1991 to
January 1994 he was Senior Vice President and Director of Accounting of EVEREN
Securities.

          Thomas M. Mansheim was elected Vice President, Controller and Chief
Accounting Officer of the Company in May 1995 and Senior Vice President,
Controller and Chief Accounting Officer as of July 1995. He is Executive Vice
President of EVEREN Securities after having been Senior Vice President from
January 1991 until March 1997. Since January 1994 he has been Director of
Accounting of EVEREN Securities.

(c) Identification of certain significant employees - none.

(d) Family relationships  -  none.

(e) Business experience  -  See Items 10(a) and 10(b) above.

(f) Involvement in certain legal proceedings - none.

(g) Promoters and control persons - none.

                                       68
<PAGE>

Compliance with Section 16(a) of the Exchange Act

     The information in the 1998 Proxy under the caption "SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

     The information in the 1998 Proxy under the following captions
(including any subcaptions) is incorporated herein by reference:

   COMPENSATION OF DIRECTORS
   COMPENSATION OF EXECUTIVE OFFICERS
   EMPLOYMENT AGREEMENTS
   BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
   PERFORMANCE GRAPH
   COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information in the 1998 Proxy under the caption "PRINCIPAL
     STOCKHOLDERS" is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     (a)  Transactions with management and others  -  none.
     (b)  Certain business relationships  -  none.
     (c)  Indebtedness  of management - The  information  in the 1998 Proxy
          under the caption  "INTEREST OF  MANAGEMENT IN CERTAIN
          TRANSACTIONS" is incorporated  herein by reference.
     (d)  Transactions with promoters - not applicable.

PART IV

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

  (a)(1)  Financial Statements

          A listing of all financial statements filed as part of this Annual
          Report on Form 10-K is included in Item 8.

  (a)(2)  Financial Statement Schedules

          The following financial statement schedules are filed as part of this
          annual report on Form 10-K:

          SCHEDULE                                               PAGE NO.
          --------                                               --------
          Report of Independent Auditors                           E-1
          Schedule II Valuation and Qualifying Accounts            E-2

  (a)(3)  Exhibits

          The exhibits listed on the accompanying Index to Exhibits at pages
          E-3 through E-6 below are filed as part of this Annual Report on
          Form 10-K.

                                       69
<PAGE>

   (b)       Reports on Form 8-K

             The Company filed a report on Form 8-K dated November 18, 1997.
             Under Item 5 (Other Events) the Company reported the settlement of
             a lawsuit against EVEREN Securities (and other defendants) titled
             Cuyahoga County, Ohio Litigation (Jones, et al v. McDonald & Co.,
             et al.).

                                       70
<PAGE>

                               POWER OF ATTORNEY

         Each person whose signature appears below hereby appoints Stanley R.
Fallis, Senior Executive Vice President, and Janet L. Reali, Senior Executive
Vice President, General Counsel and Secretary, his true and lawful
attorney-in-fact with authority together or individually to execute in the name
of each such signatory, and with authority to file with the Securities and
Exchange Commission, any and all amendments to this Annual Report on Form 10-K,
together with any exhibits thereto and other documents therewith, necessary or
advisable to enable EVEREN Capital Corporation to comply with the Securities
Exchange Act of 1934, as amended, and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, which amendments may
make such other changes in the Annual Report on Form 10-K as the aforesaid
attorney-in-fact executing the same deems appropriate.

                                  SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, EVEREN Capital Corporation has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.

                                     EVEREN CAPITAL CORPORATION

Date:  March 31, 1998                By:    /S/JAMES R. BORIS
                                            --------------------------
                                            James R. Boris
                                            Chairman of the Board, Chief
                                            Executive Officer and Director

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of EVEREN
Capital Corporation and in the capacities indicated on the 31st day of March
1998.

                                     By: /S/ JAMES R. BORIS
                                         ---------------------------------
                                         James R. Boris
                                         Chairman of the Board, Chief
                                         Executive Officer and Director


                                     By: /S/ STEPHEN G. MCCONAHEY
                                         ---------------------------------
                                         Stephen G. McConahey
                                         President, Chief Operating
                                         Officer and Director

                                     By: /S/ DANIEL D. WILLIAMS
                                         ---------------------------------
                                         Daniel D. Williams
                                         Senior Executive Vice President
                                         Treasurer and Chief Financial Officer
                                         (Principal financial officer)

                                      S-1
<PAGE>

                                  By:    /S/ THOMAS M. MANSHEIM
                                     -------------------------------------
                                         Thomas M. Mansheim
                                         Executive Vice President,
                                         Controller and Chief Accounting Officer

                                  By:    /S/ WILLIAM T. ESREY
                                     -------------------------------------
                                         William T. Esrey
                                         Director

                                  By:    /S/ JACK KEMP
                                     -------------------------------------
                                         Jack Kemp
                                         Director

                                  By:    /S/ HOMER J. LIVINGSTON JR.
                                     -------------------------------------
                                         Homer J. Livingston, Jr.
                                         Director

                                  By:    /S/ WILLIAM C. SPRINGER
                                     -------------------------------------
                                         William C. Springer
                                         Director

                                      S-2
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
EVEREN Capital Corporation

We have audited the consolidated financial statements of EVEREN Capital
Corporation and subsidiaries as of December 31, 1997 and 1996, and for each of
the three years in the period ended December 31, 1997, and have issued our
report thereon dated February 27, 1998; such consolidated financial statements
and report are included in the Annual Report on Form 10-K for the year ended
December 31, 1997. Our audits also included the consolidated financial statement
schedule, Valuation and Qualifying Accounts, for each of the three years in the
period ended December 31, 1997 of EVEREN Capital Corporation and subsidiaries,
listed in Item 14 of this report. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on such consolidated financial statement schedule based on
our audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.




Deloitte & Touche LLP


Chicago, Illinois
February 27, 1998

                                      E-1
<PAGE>

                                                                     Schedule II

                   EVEREN CAPITAL CORPORATION AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

             DESCRIPTION                1997     1996      1995
                                        ----     ----      ----
<S>                                   <C>       <C>       <C>
Asset valuation reserves:
    Balance at beginning of period    $ 9,182   $10,028   $11,797
    Additions-provisions for losses     2,495       913     1,411
    Deductions (1)                      4,481     1,759     3,180
                                      -------   -------   -------

    Balance at end of period          $ 7,196   $ 9,182   $10,028
                                      ========  =======   ========
</TABLE>
-------------
(1)  These deductions represent the net effect on the valuation reserves of
     write-downs and recoveries.


                                      E-2
<PAGE>

                                  EXHIBIT INDEX

EXHIBIT
  NO.    DESCRIPTION                                                   PAGE NO.
-------  -----------                                                   --------

 3.1     Amended and Restated Certificate of Incorporation of EVEREN
         Capital Corporation ("EVEREN"). (Incorporated by reference to
         Exhibit 3.1 to Amendment No. 1 to EVEREN's Registration
         Statement on Form S-1 (File No. 333-09163) filed with the
         Securities and Exchange Commission ("Commission") on
         September 6, 1996 (the "EVEREN S-1")).

 3.2     Restated By-laws of EVEREN. (Incorporated by reference to
         Exhibit 3.2 of the EVEREN S-1.)

10.1     Assumption Agreement, dated as of September 13, 1995, between
         Kemper Corporation and EVEREN Securities, Inc. (Incorporated
         by reference to Exhibit 10.6 to EVEREN's Current Report on
         Form 8-K dated September 13, 1995 and filed with the
         Commission on September 27, 1995 ("Form 8-K")).

10.2     Employment Agreement, dated as of September 13, 1995, between
         EVEREN and James R. Boris, as amended effective March 28,
         1996. (Incorporated by reference to Exhibit 10.7 to EVEREN's
         Annual Report on Form 10-K for the fiscal year ended December
         31, 1995 ("1995 10-K")).

10.3     Employment Agreement, dated as of September 13, 1995, between
         EVEREN and Stephen G. McConahey, as amended effective March
         28, 1996. (Incorporated by reference to Exhibit 10.8 to the
         1995 10-K).

10.4     The EVEREN Capital Corporation 401(k) and Employee Stock
         Ownership Trust. (Incorporated by reference to Exhibit 10.9
         to the Form 8-K).

10.5     The EVEREN Capital Corporation 401(k) and Employee Stock
         Ownership Plan. (Incorporated by reference to Exhibit 10.10
         to the Form 8-K).

10.5(a)  First Amendment of EVEREN Capital Corporation 401(k) and
         Employee Stock Ownership Plan (As Amended and Restated
         Effective as of September 1, 1995).

10.5(b)  Second Amendment of EVEREN Capital Corporation 401(k) and
         Employee Stock Ownership Plan (As Amended and Restated
         Effective as of September 1, 1995).

10.5(c)  Third Amendment of EVEREN Capital Corporation 401(k) and
         Employee Stock Ownership Plan (As Amended and Restated
         Effective as of September 1, 1995).

10.5(d)  Fourth Amendment of EVEREN Capital Corporation 401(k) and
         Employee Stock Ownership Plan (As Amended and Restated
         Effective as of September 1, 1995).

                                      E-3
<PAGE>

10.5(e)  Fifth Amendment of EVEREN Capital Corporation 401(k) and
         Employee Stock Ownership Plan (As Amended and Restated
         Effective as of September 1, 1995).

10.6     EVEREN Capital Corporation 1995 Stock Plan, dated as of
         September 13, 1995, as amended. (Incorporated by reference to
         Exhibits 10.6 and 10.27 to the EVEREN S-1).

10.7     Form of Indemnification Agreement, between EVEREN and the
         directors of EVEREN. (Incorporated by reference to Exhibit
         10.7 to the EVEREN S-1).

10.8     Tax Sharing Agreement, dated as of September 13, 1995,
         between EVEREN and Kemper. (Incorporated by reference to
         Exhibit 10.13 to the Form 8-K).

10.9     EVEREN Capital Corporation 1995 Non-employee Directors Plan,
         as amended. (Incorporated by reference to Exhibit 10.9 to the
         EVEREN S-1).

10.10    Stock Award Agreement, dated as of January 8, 1996, by and
         between EVEREN and William T. Esrey. (Incorporated by
         reference to Exhibit 10.24 to the 1995 10-K).

10.11    Stock Award Agreement, dated as of January 8, 1996, by and
         between EVEREN and Homer J. Livingston, Jr. (Incorporated by
         reference to Exhibit 10.25 to the 1995 10-K).

10.12    Stock Award Agreement, dated as of January 8, 1996, by and
         between EVEREN and William C. Springer. (Incorporated by
         reference to Exhibit 10.26 to the 1995 10-K).

10.13    Stock Transfer Restriction Agreement, dated as of January 8,
         1996, by and between EVEREN and William T. Esrey.
         (Incorporated by reference to Exhibit 10.28 to the 1995
         10-K).

10.14    Stock Transfer Restriction Agreement, dated as of January 8,
         1996, by and between EVEREN and Homer J. Livingston, Jr.
         (Incorporated by reference to Exhibit 10.29 to the 1995
         10-K).

10.15    Stock Transfer Restriction Agreement, dated as of January 8,
         1996, by and between EVEREN and William C. Springer.
         (Incorporated by reference to Exhibit 10.30 to the 1995
         10-K).

10.16    Employment Agreement, dated as of February 16, 1996, between
         EVEREN and Stanley R. Fallis. (Incorporated by reference to
         Exhibit 10.31 to the 1995 10-K).

10.17    Employment Agreement, dated as of February 22, 1996, between
         EVEREN and David M. Greene. (Incorporated by reference to
         Exhibit 10.33 to the 1995 10-K).

                                      E-4
<PAGE>

10.18    Employment Agreement, dated as of February 15, 1996, between
         EVEREN and Arthur J. McGivern. (Incorporated by reference to
         Exhibit 10.34 to the 1995 10-K).

10.19    Employment Agreement, dated as of February 15, 1996, between
         EVEREN and Janet L. Reali. (Incorporated by reference to
         Exhibit 10.35 to the 1995 10-K).

10.20    Employment Agreement, dated as of February 16, 1996, between
         EVEREN and Thomas R. Reedy. (Incorporated by reference to
         Exhibit 10.36 to the 1995 10-K).

10.21    Employment Agreement, dated as of February 20, 1996, between
         EVEREN and John G. Sullivan. (Incorporated by reference to
         Exhibit 10.37 to the 1995 10-K).

10.22    Employment Agreement, dated as of February 15, 1996, between
         EVEREN and Daniel D. Williams. (Incorporated by reference to
         Exhibit 10.38 to the 1995 10-K).

10.23    Joint Venture Agreement dated as of July 25, 1996 among
         EVEREN, Mentor and certain of their affiliates. (Incorporated
         by reference to Exhibit 10.1 to Form 10-Q dated June 30, 1996
         and filed with the Commission on July 31, 1996).

10.23(a) Amendment to Joint Venture Agreement dated July 15, 1997

10.23(b) Clarification Agreement Re: Joint Venture Agreement dated as
         of October 30, 1996.

10.24    Form of Rights Agreement, dated as of _________, 1996,
         between EVEREN and _______________. (Incorporated by
         reference to Exhibit 10.26 to the EVEREN S-1).

10.25    Second Amendment dated February 7, 1997 to Employment
         Agreement dated September 13, 1995 between James R. Boris and
         EVEREN (Incorporated by reference to Exhibit 10.25 to
         EVEREN's Annual Report on Form 10-K for the fiscal year ended
         December 31, 1996 ("1996 10-K"))

10.26    Second Amendment dated February 7, 1997 to Employment
         Agreement dated September 13, 1995 between Stephen G.
         McConahey and EVEREN (Incorporated by reference to Exhibit
         10.26 to the 1996 10-K)

10.27    Credit Agreement by and among EVEREN, the Lenders Party
         thereto, LaSalle National Bank, as documentation agent, and
         The Bank of New York, as administrative agent, dated July 11,
         1997. (Incorporated by reference to Exhibit 10.27 to Form
         10-Q dated June 30, 1997 and filed with the Commission on
         August 14, 1997).

                                      E-5
<PAGE>

10.28    Not Used.

10.29    Not Used.

10.30    EVEREN Capital Corporation Senior Management Incentive
         Compensation Plan. (Incorporated by reference to Exhibit A to
         EVEREN's Proxy Statement dated April 4, 1997 relating to
         EVEREN's Annual Meeting of Stockholder's held on May 6,
         1997).

10.31    Non-qualified Stock Option Agreement dated as of February 7,
         1997 between EVEREN and James R. Boris.

10.32    Non-qualified Stock Option Agreement dated as of February 7,
         1997 between EVEREN and Stephen G. McConahey.

10.33    1996 Restricted Stock Incentive Plan (as Amended and Restated
         effective as of May 6, 1997).

12.0     Statement regarding computation of ratios.

21.0     Subsidiaries of EVEREN.

24.0     Power of Attorney - a power of attorney is included above at
         the signatures page of this Annual Report on Form 10-K.

27.0     Financial Data Schedule

                                      E-6