<PAGE>   1


===============================================================================


                       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 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996).
         For the fiscal year ended December 31, 1996

                                     OR

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

         For the transition period from               to

                        Commission file number 333-0214

                            HORSESHOE GAMING, L.L.C.
             (Exact name of registrant as specified in its charter)

            Delaware                                        88-0343515
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                         Identification No.)

                            330 South Fourth Street
                            Las Vegas, Nevada 89101
                    (Address of principal executive offices)

      Registrant's telephone number, including area code:  (702) 383-8500

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

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

         Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                              YES   X    NO
                                  -----     -----

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

         The aggregate market value of the equity of Horseshoe Gaming, L.L.C.
held by non-affiliates of Horseshoe Gaming, L.L.C. is inapplicable as the
equity of Horseshoe Gaming, L.L.C. is privately held.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     None.

===============================================================================

<PAGE>   2


                            HORSESHOE GAMING, L.L.C.

                      INDEX TO ANNUAL REPORT ON FORM 10-K

                  For the fiscal year ended December 31, 1996

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<S>           <C>                                                                                        <C>
                                                       PART I
Item 1.       Business  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3
Item 2.       Properties  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     9
Item 3.       Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    10
Item 4.       Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . .    10


                                                      PART II

Item 5.       Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . .    11

Item 6.       Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    11
Item 7.       Management's Discussion and Analysis of Financial Condition and Results
              of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    13
Item 8.       Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . .    17

Item 9.       Changes In and Disagreements With Accountants on Accounting and
              Financial Disclosure  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    18

                                                      PART III

Item 10.      Directors and Executive Officers of the Registrant  . . . . . . . . . . . . . . . . . .    18

Item 11.      Executive Compensation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    20
Item 12.      Security Ownership of Certain Beneficial Owners and Management  . . . . . . . . . . . .    26
Item 13.      Certain Relationships and Related Transactions  . . . . . . . . . . . . . . . . . . . .    27


                                                      PART IV

Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K  . . . . . . . . . . .    28

</TABLE>




<PAGE>   3

                                     PART I

ITEM 1.          BUSINESS.

         As used in this Annual Report on Form 10-K ("Form 10-K"), unless the
context indicates otherwise, the terms "Company" and "Horseshoe Gaming" refer
to Horseshoe Gaming, L.L.C., a Delaware limited liability company, and its
subsidiaries, including predecessor companies.

GENERAL

         Entities controlled by Mr. Jack B. Binion developed and opened the
Horseshoe Bossier City, which is owned by Horseshoe Entertainment, L.P. ("HE")
and developed and opened the Horseshoe Casino Center, which is owned by
Robinson Property Group L.P. ("RPG").  HE commenced operations on July 9, 1994
and RPG commenced operations on February 13, 1995.  The ownership interests in
such entities were transferred to the Company by Mr. Binion and certain other
related and unrelated parties in exchange for ownership interests in the
Company.  Mr. Binion, the largest equityholder of Horseshoe Gaming, is also the
majority shareholder, Chairman of the Board of Directors and Chief Executive
Officer of Horseshoe Gaming, Inc., a Delaware corporation ("HGI").  See
"Directors and Executive Officers of the Registrant."  HGI became the Manager
of the Company as of October 1, 1995 as a result of the roll-up transaction
described below.  The sole purpose of HGI is to be the Manager of the Company.
Pursuant to the Company's Limited Liability Company Agreement, HGI has
exclusive control over the business of the Company (subject to specified
exceptions), including the power to acquire and sell property, execute
documents, make all business management decisions, and raise equity capital on
behalf of the Company.  The Company pays no compensation to HGI, but reimburses
HGI for all out-of-pocket expenses, including employment expenses.  As of March
15, 1997, HGI had 26 employees.

         Management selected the Bossier City/Shreveport, Louisiana and Tunica,
Mississippi markets for entry into emerging gaming jurisdictions because of the
respective strengths of these markets and the ability to secure what Management
feels are the best sites within those markets.

         The principal executive offices of the Company and of HGI are located
at 330 South Fourth Street, Las Vegas, Nevada  89101 and their telephone number
is (702) 383-8500.

THE ROLL-UP TRANSACTION AND THE FINANCING

         The Roll-Up Transaction was completed concurrently with the closing of
the Senior Notes and the Credit Facility Agreement discussed below, but it was
deemed effective as of October 1, 1995.  The following discussion describes the
Roll-Up Transaction.

         HE and RPG

         The Company became the ninety-nine percent (99%) limited partner in
RPG and New Gaming Capital Partnership ("NGCP"), which is the general partner
of HE.  The Company's wholly-owned subsidiary, Horseshoe GP, Inc. ("HGP")
became the one percent (1%) general partner of each of NGCP and RPG.  As of
December 31, 1996, NGCP owned 91.92% of HE and the Company had entered into an
option agreement to acquire an additional 1% interest in HE expiring on
December 31, 1997.

         Financing

         Concurrently with the Roll-Up Transaction, on October 10, 1995 the
Company entered into, and borrowed $93,185,000 pursuant to, a Senior Secured
Credit Facility Note Purchase Agreement (the "Credit Facility Agreement") which
expires on September 30, 1999.  On the same date, the Company entered into, and
borrowed $100,000,000 pursuant to, an Indenture (the "Indenture") governing its
12.75% Senior Secured Notes (the "Senior Notes"), which mature on September 30,
2000.  The Credit Facility is secured by first liens, and the Senior Notes are
secured by second liens, on certain assets of the Company and its subsidiaries.
The proceeds were used to retire existing indebtedness in the amount of
$125,505,000, to reimburse certain development expenses in the amount of





                                       3


<PAGE>   4

$6,858,000, to fund the acquisition or expansion of certain assets in the
amount of $17,395,000 and for debt issue costs and working capital in the
amount of $10,364,000.  The balance, in the amount of $31,063,000 was placed in
an escrow (the "Escrow Proceeds Escrow Account").  On April 10, 1996, the
Company issued an additional $50,000,000 of Senior Notes upon the exercise of
warrants to purchase such additional Senior Notes.  The net proceeds of the
additional Senior Notes, equal to $49,073,000, were also placed in the Excess
Proceeds Escrow Account.

         In June, 1996, the Company consummated an offer to exchange (the
"Exchange Offer") $1,000 principal amount of its Senior Notes, Series B, which
were registered under the Securities Act of 1933, as amended, pursuant to a
Registration Statement on Form S-4, for each $1,000 principal amount of its
outstanding Senior Notes, Series A.  Subsequent to the Exchange Offer and as of
March 15, 1997, $150.0 million principal amount of the Senior Notes was
outstanding.

THE HORSESHOE BOSSIER CITY

         Overview

         The Horseshoe Bossier City opened on July 9, 1994.  According to
statistics published by the Louisiana State Gaming Authorities, the Bossier
City/Shreveport market is the largest market in the State of Louisiana, as
measured by gaming revenues.

         Bossier City/Shreveport, Louisiana Gaming Market

         The primary appeal of the Bossier City/Shreveport gaming market is its
local population base and its proximity to major population centers in
Louisiana, Texas, Oklahoma and Arkansas. Approximately 350,000 people are
full-time residents of Bossier City/Shreveport. This population includes the
Barksdale Air Force Base which directly employs over 7,000 people. The broad
market for the Horseshoe Bossier City consists of approximately 16.5 million
people residing within 250 miles (approximately four hours driving distance).
The broad market consists of local clientele, day trippers and multi-day
visitors.

         Approximately 26% of the Horseshoe Bossier City's customers have been
residents of Bossier City/Shreveport. The Horseshoe's next largest markets are
the Dallas/Ft. Worth and Longview/Marshall areas of Texas, which have accounted
for approximately 13% and 10% of the casino's customers, respectively. In
addition, the casino attracts day-trippers flying in from a short air distance.

         Bossier City/Shreveport Area Economy/Tourism

         According to the Shreveport-Bossier Convention & Tourist Bureau, there
were approximately 1.8 million overnight visitor/days and approximately two to
three million day visitor/days in Bossier City/Shreveport in 1994, for a total
of approximately 3.8 to 4.8 million visitor/days for the year. Other amenities
and tourist attractions include Louisiana Downs Racetrack, the American Rose
Center (North America's largest rose garden), the Independence Bowl and the
Eighth Air Force Museum at Barksdale Air Force Base. With approximately 7,000
rooms at 52 area hotels and motels, Bossier City/Shreveport hosts 250
conventions per year with approximately 200,000 delegates. Over 30 annual
festivals, approximately 400 restaurants and 11 golf courses provide
entertainment for locals and visitors.

         Louisiana Gaming Environment

         In 1991, the State of Louisiana legalized casino gaming on the water
and in one land location in New Orleans.  The State has granted preliminary
approval for all of the 15 legislatively authorized licenses, six of which have
been designated for the northern region of the State in Bossier
City/Shreveport. While the Louisiana gaming regulations state that riverboat
casinos must cruise, the Bossier City/Shreveport casinos were granted a
legislative exemption in June 1993 that allows them to operate as dockside
facilities.



                                       4
<PAGE>   5

         Louisiana permits most types of casino games (other than bingo and
sports betting) and has neither betting nor loss limits. Moreover, house
credit may be extended to qualified patrons. The only significant limitation
imposed by such regulations restricts gaming space on riverboats to no more
than 30,000 square feet. The State of Louisiana imposes a fee on gaming revenue
at the rate of 18.5%. The city of Bossier City also imposes a 3.2% tax
on gaming revenue plus an annual fee of $700,000.

         In addition, Legislation was passed in 1996 authorizing the Bossier
Police Jury, the governing body of Bossier Parish, to impose a $.50 boarding
fee with respect to all of the patrons entering riverboat gaming facilities in
Bossier Parish.  The passage of such legislation resulted in litigation being
commenced between the Horseshoe Casino and the Isle of Capri Casino in
Bossier City and the Bossier City Police Jury, as both Horseshoe and the Isle
of Capri Casino asserted that the Bossier Police Jury had previously contacted
away their right to impose such additional $.50 boarding fee.  In January 1997,
Horseshoe Casino separately settled with the Bossier Police Jury, and such
lawsuit was dismissed as it relates to Horseshoe Casino (but not Isle of Capri
Casino) and the Bossier Police Jury.  Such settlement resulted in Horseshoe
agreeing to pay an additional 1% tax on its gross gaming revenues to Bossier
Parish with a minimum annual payment of $1,500,000, regardless of actual
revenue.  Under the terms of such agreement, Horseshoe has the right to receive
a credit against gross gaming tax for the amount of increased property taxes
assessed against its property in Bossier Parish resulting from increased
assessments attributable to its major expansion project to be completed later
this year.  Such credit may be taken up to a maximum of 80% of the tax on
gaming revenues, and applies during the entire ten year term of the agreement.

         Competition

         The Horseshoe Bossier City competes directly with Harrah's in
Shreveport and the Isle of Capri and Casino Magic in Bossier City.  These four
riverboats together currently comprise the Bossier City/Shreveport market.
The Louisiana Riverboat Gaming Commission has recently awarded two additional
licenses to operate riverboat casinos in the Bossier City/Shreveport market. As
only 15 Louisiana riverboats and one land-based casino in New Orleans are
presently authorized by law, potential competition in Louisiana is presently
limited. The Bossier City/Shreveport casinos capture the Dallas/Ft. Worth
market and share the Houston area market with four existing riverboats in Lake
Charles, a land-based casino owned by the Coushatta Indian Tribe located near
Lake Charles and two riverboats in Baton Rouge. If Texas or Arkansas were to
approve gaming, competition would increase and the value of the Horseshoe
Bossier City would be negatively affected.

         Management believes that the Bossier City/Shreveport casinos have an
operational advantage as all Louisiana riverboats except the four in Bossier
City/Shreveport must cruise in three-hour increments. The cruising exemption
for the Bossier City/Shreveport market was included in the Louisiana Gaming
Statutes to account for the difficult navigational aspects of the Red River.
The Horseshoe Bossier City casino remains dockside, allowing passengers to
enter and exit as they please and enabling Management to conduct 24-hour a day
continuous gaming operations.

THE HORSESHOE CASINO CENTER

         Overview

         The Horseshoe Casino Center opened February 13, 1995 in Tunica County,
Mississippi at Casino Center, a 70-acre three-casino complex.

         Tunica, Mississippi Gaming Market

         The Tunica County gaming market consists entirely of dockside casino
operations located on the Mississippi River or its tributaries. Tunica County
benefits from its proximity to several major population centers and to the
popularity of the Memphis region as a vacation destination that offers numerous
attractions, ample hotel and entertainment facilities and excellent
transportation access. Over 2.5 million people live within 90 miles and over
10.7 million people live within 200 miles of the Horseshoe Casino Center.
Within 500 miles (eight hours by car or approximately one-hour flight time) the
total population base increases to approximately 54.9 million.



                                       5
<PAGE>   6

         Memphis Area Economy/Tourism

         According to the Memphis Convention and Visitors Bureau, more than 3.5
million people visited Memphis and its surrounding areas (Shelby County) in
1994. The non-gaming attractions include the National Civil Rights Museum,
Graceland, Sun Recording Studios, the Memphis Zoo, the Great American Pyramid,
the Beale Street Historic District, Mud Island, the Liberty Bowl, the Kroger
St. Jude Tennis Classic, the FedEx St. Jude Golf Classic and a selection of
museums, art galleries and botanical gardens. Seasonal events such as the
Memphis in May International Festival and the Mid-South Fair make Memphis and
its surroundings a popular vacation area.

         Mississippi Gaming Environment

         The State of Mississippi legalized casino gaming on the waters of the
Mississippi River and the Mississippi Gulf Coast region in June 1990. The
Mississippi gaming laws were patterned after the gaming laws in Nevada. While
the Mississippi gaming regulations state that the casinos must be located on
the water, they need not cruise or have engines.

         Other aspects of the Mississippi gaming regulations include:  the
relatively low gaming tax rate (8.8% at the State level and approximately 3.2%
plus an annual $82,000 fee at the local level), the ability to offer 24-hour a
day continuous gaming, the ability to offer all types of casino games (other
than bingo and race sports betting), no betting or loss limits, and no space or
size restrictions. Moreover, house credit may be extended to qualified patrons.
While there are no legislative limitations on the number of licenses in Tunica
County, competition is limited by the availability of legal and accessible
sites on the Mississippi River.

         In November 1996, the Mississippi County closest to Memphis (DeSoto
County) voted against gaming. There is current legislation that is
expected to be signed into law by the governor that would allow DeSoto County
to vote on this issue again in October 2004.  If approved, or if gaming were
approved in Arkansas or Tennessee, numerous additional sites closer to Memphis
would be available for gaming.  Thus, while Tunica County is currently the
closest legalized gaming jurisdiction to the Memphis metropolitan area, there
is no assurance that this situation will not change in the future.

         Competition

         The Tunica market is presently comprised of ten casinos, two of which
opened in 1996.  One of the casinos which opened in 1996 is the largest casino
resort in Tunica County, and located approximately one mile closer than the
Horseshoe Casino Center to Memphis, currently the largest feeder market into
Tunica County.

DEVELOPMENT OPPORTUNITY IN ST. LOUIS, MISSOURI

         Horseshoe Casinos (Missouri), L.L.C. ("HCM") was formed to pursue a
filing made on June 15, 1995 in response to a Solicitation of Interest for
Development and Operation of Riverboat Gaming Facility and Related Development
at Potential Riverfront Sites in Unincorporated North St. Louis County,
Missouri issued by the St. Louis County Port Authority.

         HCM has proposed to develop an approximately $125 million facility on
a 141-acre site along the Missouri River in a commercial industrial complex
known as Earth City, located in an unincorporated area of St. Louis County.
The project will feature a riverboat with 30,000 square feet of gaming and
1,371 gaming positions, a dockside barge facility with 13,600 square feet of
gaming and 650 gaming positions, a 66,800 square foot land based pavilion with
restaurants, retail space, and ticketing/queuing area and a 200-room hotel.

         HCM will be owned 70% by Horseshoe Ventures and 30% by Earth City
Joint Ventures (an entity owned by the present site owner and other related
investors).  After HCM is in operation, Horseshoe Ventures will



                                       6
<PAGE>   7

distribute 80% of its interest in HCM to the Company and 20% of its interest to
JBB.  The Company will have the obligation, after HCM has been in operation for
a period of three (3) years, to acquire the remaining 20% interest in HCM from
JBB for cash or membership interest in the Company based upon an evaluation
formula.  If the acquisition is for cash, the value of HCM will be deemed to be
equal to four times the annual EBITDA of HCM during the preceding two (2) year
period, less the amount of indebtedness to which HCM is then subject.  If the
acquisition is for membership interest in the Company, then the amount to be
issued will be determined using the value of HCM described in the preceding
sentence and the value of the other holdings of the Company as determined by an
independent appraisal.

         HCM has received the endorsement by St. Louis County of the Project
and HCM has submitted a Riverboat Gaming License Application to the Missouri
Gaming Commission, which must approve the Application.

         HCM has been in litigation with the Missouri Coalition for the
Environment.  The Coalition has claimed that HCM's intention to use certain
property extending from the existing levee to the Missouri River to build an
elevated walkway and its barge terminal facility violates a consent order
reflecting a 1976 settlement agreement between the Coalition and a predecessor
site-owner.  On March 4, 1997, the United States District Court, Eastern
District of Missouri, Eastern division, determined that HCM's plans are
violative of the consent order.  On March 18, 1997, HCM filed with the Court, a
Motion to Alter/Amend Judgment.  In the event the Court determines not to alter
or amend its March 4, 1997 judgment or an appeal sustains such judgment, then
HCM would be unable to develop the Project in accordance with its submission to
St. Louis County and it is unclear what effect that would have on the
endorsement by St. Louis County of the Project.

         While HCM has submitted an Application for a riverboat gaming license
to the Missouri Gaming Commission, the Missouri Gaming Commission has not been
processing such Applications as they are submitted, but rather has been
selecting only limited Applications to process.  It is not certain that, in the
near future, the Commission will process HCM's Application.

         Accordingly, the Company makes no representations as to the likelihood
that HCM will have the right to develop its proposed Earth City Project.

COMPETITIVE STRATEGY

         The Company's objective is to develop a high volume of traffic through
its casinos and to attract middle income gamblers, tourists and local clientele
as its principal customers.  These customers can be divided into the following
market segments:  local clientele, day trippers and multi-day visitors.  The
Company's strategy consists of offering favorable gaming odds and high limits,
treating every customer as an important player, having a comfortable atmosphere
where players are recognized and treated well by Horseshoe personnel, and
providing high quality food and beverages at reasonable prices. Management
believes that this strategy can be replicated in other emerging jurisdictions
with the right sites and appropriate facility designs.

         While Management's marketing strategy primarily focuses on the middle
income customer, Management believes that the Horseshoe Casinos attract a
substantial number of high income customers with favorable odds and high
limits, and a substantial number of lower income customers with a wide variety
of low minimum table games and slot machines.  The Company's competitive
strategy also involves locating the Company's casinos in the most favorable
locations available in favorable markets.  The Bossier City/Shreveport market
is the largest market in the State of Louisiana as measured by gaming revenues,
according to statistics published by the Louisiana State Gaming Authorities.
Five federal highways and two interstate highways lead to the Horseshoe Bossier
City. Interstate 20, an east-west traffic artery connecting Bossier
City/Shreveport to Dallas/Fort Worth, is heavily traveled by locals and
extensively used by travelers.  Bossier City/Shreveport is the closest and most
accessible gaming market to Dallas/Fort Worth (approximately 180 miles or three
hours drive time).  The Horseshoe Bossier City is directly accessible and
visible from Interstate 20.


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<PAGE>   8


         The Horseshoe Casino Center is located in Tunica County, Mississippi,
which is currently the closest legalized gaming jurisdiction to the Memphis
metropolitan area and the largest gaming market in the State of Mississippi.
The Casino Center area is situated off U.S. Highway 61, approximately 30 miles
from downtown Memphis, Tennessee and 25 miles from the Memphis International
Airport.  Major highway access to the area is provided by Interstates 40 and
55, and US Highways 51, 61, 64, 70, 72, 78 and 79.  The Horseshoe Casino
Center's site is accessed via the Casino Center Drive turn-off from U.S.
Highway 61, the main artery from metropolitan Memphis. The Horseshoe Casino
Center's 100-foot high neon sign draws the attention of arriving customers to
the casino. In addition to the visual impact of the signage, the Horseshoe
Casino Center occupies the middle site of Casino Center.  See "--The Horseshoe
Casino Center--Tunica, Mississippi Gaming Market," "--The Horseshoe Casino
Center--Memphis Area Economy/Tourism" and "--The Horseshoe Casino
Center--Mississippi Gaming Environment."



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REGULATORY MATTERS

         The Company is subject to state and Federal laws which regulate
businesses generally and the gaming business specifically.  Below is a brief
description of some of the more significant regulations to which the Company is
subject.  All laws are subject to change and different interpretations.  This
is especially true with respect to current laws regulating the gaming industry,
since in many cases these laws and the regulatory agencies that apply them are
new.  Changes in laws or their interpretation may result in the imposition of
more stringent, burdensome or expensive requirements, or the outright
prohibition of an activity.

         Louisiana Gaming Regulation

         In July 1991, the Louisiana legislature adopted legislation permitting
certain types of gaming activity on certain rivers and waterways in Louisiana.
The legislation granted authority to supervise riverboat gaming activities to
the Louisiana Riverboat Gaming Commission and the Riverboat Gaming Enforcement
Division of the Louisiana State Police (the "Louisiana Enforcement Division").
The Louisiana Riverboat Gaming Commission was authorized to hear and determine
all appeals relative to the granting, suspension, revocation, condition or
renewal of all licenses, permits and applications.  In addition, the Louisiana
Riverboat Gaming Commission was authorized to establish regulations concerning
authorized routes, duration of excursions, minimum levels of insurance,
construction of riverboats and periodic inspections.  The Louisiana Enforcement
Division was authorized to investigate applicants and issue licenses,
investigate violations of the statute and conduct continuing reviews of gaming
activities.

         In the 1996 special session of the Louisiana legislature, Louisiana
lawmakers passed a measure which established the Louisiana Gaming Control Board
and provides that the board is the successor to all such prior authorities with
regard to the regulation and supervision of gaming in Louisiana except for the
regulation of horse racing and offtrack betting and the conducting of
charitable gaming operations.  Effective May 1, 1996, the powers, duties,
functions, and responsibilities with respect to riverboat gaming of the
Louisiana Riverboat Gaming Commission and the Louisiana Enforcement Division
are transferred to the Louisiana Gaming Control Board.  The Louisiana
Enforcement Division continues to provide investigative and enforcement support
to the Louisiana Gaming Control Board.

         The statute authorizes issuance of up to 15 licenses to conduct gaming
activities on a riverboat of new construction in accordance with applicable
law.  However, no more than six licenses may be granted to riverboats operating
from any one parish.

         In issuing a license, the Louisiana Gaming Control Board must find
that the applicant is a person of good character, honesty and integrity and a
person whose prior activities, criminal record, if any, reputation, habits, and
associations do not pose a threat to the public interest of the State of
Louisiana or to the effective regulation and control of gaming, or create or
enhance the dangers of unsuitable, unfair or illegal practices, methods and
activities in the conduct of gaming or the carrying on of business and
financial arrangements in connection therewith.  The Louisiana Gaming Control
Board will not grant a license unless it finds that:  (i) the applicant is
capable of conducting gaming operations, which means that the applicant can
demonstrate the capability, either through training, education, business
experience, or a combination of the above, to operate a gaming casino; (ii) the
proposed financing of the riverboat and the gaming operations is adequate for
the nature of the proposed operation and from a source suitable and acceptable
to the Louisiana Gaming Control Board; (iii) the applicant demonstrates a
proven ability to operate a vessel of comparable size, capacity and complexity
to a riverboat so as to ensure the safety of its passengers; (iv) the applicant
submits a detailed plan of design of the riverboat in its application for a
license; (v) the applicant designates the docking facilities to be used by the
riverboat; (vi) the applicant shows adequate financial ability to construct and
maintain a riverboat; and (vii) the applicant has a good faith plan to recruit,
train and upgrade minorities in all employment classifications.



                                       9
<PAGE>   10

         Certain persons affiliated with a riverboat gaming licensee, including
directors and officers of the licensee, directors and officers of any holding
company of the licensee involved in gaming operations, persons holding five
percent or greater interests in the licensee, and persons exercising influence
over a licensee ("Affiliated Gaming Persons"), are subject to the application
and suitability requirements of the Louisiana gaming law.

         The Louisiana gaming law specifies certain restrictions and conditions
relating to the operation of riverboat gaming, including the following: (i)
gaming is not permitted while a riverboat is docked, other than the forty-five
minutes between excursions, and during times when dangerous weather or water
conditions exist, except that the three casinos operating in the Bossier
City/Shreveport area are permitted to operate exclusively at dockside pursuant
to a special exemption; (ii) each roundtrip riverboat cruise may not be less
than three nor more than eight hours in duration, subject to specified
exceptions; (iii) agents of the Louisiana Enforcement Division and the
Louisiana Gaming Control Board are permitted on board at any time during gaming
operations; (iv) gaming devices, equipment and supplies may only be purchased
or leased from permitted suppliers; (v) gaming may only take place in the
designated gaming area while the riverboat is upon a designated river or
waterway; (vi) gaming equipment may not be possessed, maintained or exhibited
by any person on a riverboat except in the specifically designated gaming area,
or a secure area used for inspection, repair or storage of such equipment;
(vii) wagers may be received only from a person present on a licensed
riverboat; (viii) persons under 21 are not permitted in designated gaming
areas; (ix) except for slot machine play, wagers may be made only with tokens,
chips or electronic cards purchased from the licensee aboard a riverboat; (x)
licensees may only use docking facilities and routes for which they are
licensed and may only board and discharge passengers at the riverboat's
licensed berth; (xi) licensees must have adequate protection and indemnity
insurance; (xii) licensees must have all necessary Federal and state licenses,
certificates and other regulatory approvals prior to operating a riverboat; and
(xiii) gaming may only be conducted in accordance with the terms of the license
and the rules and regulations adopted by the Louisiana Enforcement Division and
the Louisiana Gaming Control Board.

         An initial license to conduct riverboat gaming operations is valid for
a term of five years.  HE was issued an initial operator's license by the
Louisiana Enforcement Division on February 22, 1994.  The Louisiana gaming law
provides that a renewal application for the period succeeding the initial five
year term of the operator's license must be made to the Louisiana Enforcement
Division.  The application for renewal consists of a statement under oath of
any and all changes to the information, including financial information,
provided in the previous application.

         The transfer of a license or permit or an interest in a license or
permit is prohibited except as permitted by the Louisiana gaming law.  The
sale, purchase, assignment, transfer, pledge or other hypothecation, lease,
disposition or acquisition (a "Transfer") by any person of securities which
represent 5% or more of the total outstanding shares issued by a corporation
that holds a license is subject to Louisiana Gaming Control Board disapproval.
A security issued by a corporation that holds a license may generally disclose
these restrictions.  Prior Louisiana Gaming Control Board approval is required
for the Transfer of any ownership interest of 5% or more in any non-corporate
licensee or for the Transfer of any "economic interest" of 5% or more in any
licensee or Affiliated Gaming Person. An "economic interest" is defined for
purposes of a Transfer as any interest whereby a person receives or is entitled
to receive, by agreement or otherwise, a profit, gain, thing of value, loan,
credit, security interest, ownership interest or other economic benefit.

         Riverboat gaming licensees and their Affiliated Gaming Persons are
required to notify the Louisiana Enforcement Division within thirty days after
the receipt by any such persons of any loans or extensions of credit.  The
Louisiana Gaming Control Board is required to investigate the reported loan or
extension of credit and to either approve or disapprove the transaction.  If
disapproved, the loan or extension of credit must be rescinded by the licensee
or Affiliated Gaming Person.  The Company is an Affiliated Gaming Person of HE.
HE and the Company submitted the required disclosure to the Louisiana
Enforcement Division within thirty days of the closing of the sale of the Old
Notes.  Any other advances by the Company to HE in the form of loans or other
intercompany indebtedness are subject to the disapproval power of the Louisiana
Enforcement Division.

         Fees to the State of Louisiana for conducting gaming activities on a
riverboat include (i) $50,000 per riverboat for the first year of operation and
$100,000 per year per riverboat thereafter plus (ii) 18-1/2% of net gaming
proceeds.



                                       10
<PAGE>   11

         Mississippi Gaming Regulation

         The ownership and operation of casino gaming facilities in Mississippi
are subject to extensive state and local regulation, but primarily the
licensing and regulatory control of the Mississippi Gaming Commission and the
Mississippi State Tax Commission.  The Company must register and be licensed
under the Mississippi Gaming Control Act (the "Mississippi Act") and its gaming
operations are subject to the regulatory control of the Mississippi Gaming
Commission and various local, city and county regulatory agencies.  The
Mississippi Act, which legalized dockside casino gaming in Mississippi, was
enacted on June 29, 1990.  Although not identical, the Mississippi Act is
similar to the gaming laws of Nevada.  Effective October 29, 1991, the
Mississippi Gaming Commission adopted regulations in furtherance of the
Mississippi Act which are also similar in many respects to the Nevada gaming
regulations.

         The laws, regulations and supervisory procedures of Mississippi and
the Mississippi Gaming Commission seek to: (i) prevent unsavory or unsuitable
persons from having any direct or indirect involvement with gaming at any time
or in any capacity; (ii) establish and maintain responsible accounting
practices and procedures; (iii) maintain effective control over the financial
practices of licensees, including establishing minimum procedures for internal
fiscal affairs and safeguarding of assets and revenues, providing reliable
record keeping and making periodic reports to the Mississippi Commission; (iv)
prevent cheating and fraudulent practices; (v) provide a source of state and
local revenues through taxation and licensing fees; and (vi) ensure that gaming
licensees, to the extent practicable, employ Mississippi residents.  The
regulations are subject to amendment and interpretation by the Mississippi
Gaming Commission.

         The Mississippi Act provides for legalized dockside gaming at the
discretion of the 14 counties that either border the Gulf Coast or the
Mississippi River but only if the voters in such counties have not voted to
prohibit gaming in that county.  As of April 24, 1995, dockside gaming was
permissible in nine of the 14 eligible counties in the State and gaming
operations had commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren
and Washington counties. The law permits unlimited stakes gaming on permanently
moored vessels on a 24-hour basis and does not restrict the percentage of space
which may be utilized for gaming.  There are no limitations on the number of
gaming licenses which may be issued in Mississippi. The legal age for gaming in
Mississippi is 21.

         Under Mississippi law, gaming vessels in Tunica county must be located
on the Mississippi River or on navigable waters.  On May 29, 1993, the
Mississippi Gaming Commission granted site approval to the site.  On October
13, 1994, the Horseshoe Casino Center received a gaming operator's license from
the Mississippi Gaming Commission.  At the same meeting, certain key principals
of RPG were found suitable.  Said license and findings of suitability were
renewed on September 17, 1996 and will now expire on September 17, 1998.

         The Company and RPG are required to submit detailed financial,
operating and other reports to the Mississippi Gaming Commission.
Substantially all loans, leases, sales of securities and similar financing
transactions entered into by the Company and RPG must be reported to or
approved by the Mississippi Gaming Commission.  RPG is also required to
periodically submit detailed financial and operating reports to the Mississippi
Gaming Commission and to furnish any other information required thereby.

         Each of the directors, officers and key employees of the Company who
are actively and directly engaged in the administration or supervision of
gaming, or who have any other significant involvement with the activities of
the Company, and each of the officers and directors and certain employees of
the general partner of RPG, must be found suitable therefor, and may be
required to be licensed, by the Mississippi Gaming Commission.  The finding of
suitability is comparable to licensing, and both require submission of detailed
personal financial information followed by a thorough investigation.  In
addition, any individual who is found to have a material relationship to, or
material involvement with, the Company or RPG may be required to be
investigated in order to be found suitable or to be licensed as a business
associate of the Company or RPG. Key employees, controlling persons or others
who exercise significant influence upon the management or affairs of the
Company or RPG may also be deemed to have such a relationship or involvement.
There can be no assurance that such persons will be found suitable by the
Mississippi Gaming Commission.  An application for licensing may be denied for
any cause deemed reasonable by the Mississippi Gaming Commission.  Changes in
licensed positions must be reported to the Mississippi Gaming Commission.  In
addition to its authority to deny an application for a license, the Mississippi




                                       11
<PAGE>   12

Gaming Commission has jurisdiction to disapprove a change in corporate
position.  If the Mississippi Gaming Commission were to find a director,
officer or key employee unsuitable for licensing or unsuitable to continue
having a relationship with the Company or RPG, the Company or the general
partner of RPG would have to suspend, dismiss and sever all relationships with
such person.  The Company or RPG would have similar obligations with regard to
any person who refuses to file appropriate applications.  Each gaming employee
must obtain a work permit which may be revoked upon the occurrence of certain
specified events.

         Mississippi statutes and regulations give the Mississippi Gaming
Commission the discretion to require a suitability finding with respect to
anyone who acquires any security of the Company or RPG, regardless of the
percentage of ownership.  The current policy of the Mississippi Gaming
Commission is to require anyone acquiring 5% or more of any voting securities
of a public company with a licensed subsidiary or private company licensee to
be found suitable.  If the owner of voting securities who is required to be
found suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners.  The
applicant is required to pay all costs of investigation.

         Any owner of voting securities found unsuitable and who holds,
directly or indirectly, any beneficial ownership of equity interests in the
Company or RPG beyond such period of time as may be prescribed by the
Mississippi Gaming Commission may be guilty of a misdemeanor.  Any person who
fails or refuses to apply for a finding of suitability or a license within 30
days after being ordered to do so by the Mississippi Gaming Commission may be
found unsuitable.  The Company is subject to disciplinary action if, after it
receives notice that a person is unsuitable to be an owner of or to have any
other relationship with it, the Company or RPG (i) pays the unsuitable persons
any dividends or interest upon any of its securities or any payments or
distribution of any kind whatsoever, (ii) recognizes the exercise, directly or
indirectly, of any voting rights of its securities by the unsuitable person, or
(iii) pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific circumstances.
In addition, if the Mississippi Gaming Commission finds any owner of voting
securities unsuitable, such owner must immediately surrender all securities to
the Company or RPG, as applicable, and the Company or RPG must purchase the
security so offered for cash at fair market value within 10 days.

         The Company and RPG will be required to maintain current ownership
ledgers in the State of Mississippi which may be examined by the Mississippi
Gaming Commission at any time.  If any securities are held in trust by an agent
or by a nominee, the record holder may be required to disclose the identity of
the beneficial owner to the Mississippi Gaming Commission.  A failure to make
such disclosure may be grounds for finding the record holder unsuitable.  The
Company and RPG also are required to render maximum assistance in determining
the identity of the beneficial owner.  The Company may be required to disclose
to the Mississippi Gaming Commission upon request the identities of the holders
of the Senior Notes.  In addition, the Mississippi Gaming Commission under the
Mississippi Act may, in its discretion, (i) require holders of debt securities,
such as the Senior Notes, to file applications, (ii) investigate such holders,
and (iii) require such holders to be found suitable to own such debt
securities.  Although the Mississippi Gaming Commission generally does not
require the individual holders of obligations such as notes to be investigated
and found suitable, the Mississippi Gaming Commission retains the discretion to
do so for any reason, including but not limited to a default, or where the
holder of the debt instrument exercises a material influence over the gaming
operations of the entity in question.  Any holder of the debt securities
required to apply for a finding of suitability must pay all investigative fees
and costs of the Mississippi Gaming Commission in connection with such an
investigation.

         The regulations provide that a change in control of the Company or RPG
may not occur without the prior approval of the Mississippi Gaming Commission.
A Mississippi gaming licensee may not make a public offering of its securities.
Mississippi law prohibits the Company from making a public offering or private
placement of its securities without the approval of or waiver of approval by
the Mississippi Gaming Commission if any part of the proceeds of the offering
is to be used to finance the construction, acquisition or operation of gaming
facilities in Mississippi, or to retire or extend obligations incurred for one
or more of such purposes.  The Mississippi Gaming Commission has approved the
sale of the Senior Notes and certain other transactions to be consummated in
connection therewith.



                                       12
<PAGE>   13

         The Mississippi Act requires that certificates representing securities
of the Company or RPG bear a legend to the general effect that the securities
are subject to the Mississippi Act and regulations of the Mississippi Gaming
Commission.  The Mississippi Gaming Commission, through the power to regulate
licensees, has the power to impose additional restrictions on the holders of
the Company's or RPG's securities at any time.

         Neither the Company nor RPG may engage in gaming activities in
Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Gaming Commission.  Such approvals were
granted by the Mississippi Gaming Commission on October 13, 1994.  The failure
to obtain or retain any such approval could have a material adverse effect on
the Company or RPG.  See "Risk Factors -- Government Approvals; Gaming
Licensing and Regulation."

         The licenses obtained by the Company and RPG are not transferable and
will need to be renewed every two years.  There can be no assurance that any
renewal application will be approved.  Each issuing agency may at any time
dissolve, suspend, condition, limit or restrict a license or approval to own
equity interests in the Company or RPG for any cause deemed reasonable by such
agency.  Substantial fines for each violation of gaming laws or regulations may
be levied against the Company or RPG in Mississippi.  A violation under any
gaming license held by the Company or RPG may be deemed a violation of all the
other licenses held by the Company or RPG.  Suspension or revocation of any of
the foregoing licenses or of the approval of the Company or RPG would have a
material adverse effect upon the business of the Company.

         License fees and taxes, computed in various ways depending on the type
of gaming involved, are payable to the State of Mississippi and to the counties
and cities in which RPG's operations will be conducted.  Depending upon the
particular fee or tax involved, these fees and taxes are payable either
monthly, quarterly or annually and are based upon (i) the percentage of the
gross gaming revenues received by the casino operation, (ii) the number of slot
machines operated by the casino, (iii) the number of table games operated by
the casino or (iv) the number of casino patrons.  The foregoing license fees
are allowed as a credit against RPG's Mississippi income tax liability for the
year paid.

         In October 1994, the Mississippi Gaming Commission adopted a
regulation requiring, as a condition of licensure or license renewal, that a
gaming establishment's site development plan include an approved 500-car
parking facility in close proximity to the casino complex and infrastructure
facilities which will amount to at least 25% of the casino cost.  Such
facilities may include any of the following:  a 250-room hotel of at least a
two-star rating (as defined by the current edition of the Mobil Travel Guide) a
theme park, a golf course, marinas, a tennis complex, entertainment facilities
or any other such facility as approved by the Mississippi Gaming Commission as
infrastructure.  Parking facilities, roads, sewage and water systems or
facilities normally provided by governmental entities are excluded.  The
Mississippi Gaming Commission may, in its discretion, reduce the number of
hotel rooms required where it is shown, to the satisfaction of the Mississippi
Gaming Commission, that sufficient rooms are available to accommodate the
anticipated visitor load.  Such reduction in the number of rooms does not
affect the 25% investment requirement imposed by the regulation.  The Horseshoe
Casino Center and related facilities have complied with such requirements.

         The sale of alcoholic beverages, including beer and wine, at the
Horseshoe Casino Center is subject to licensing, control and regulation by the
Alcoholic Beverage Control Division (the "ABC") of the Mississippi State Tax
Commission.  The ABC requires that all equity owners and managers file personal
record forms and fingerprint cards for their licensing process.  In addition,
owners of more than 5% of RPG's equity and RPG's officers and managers must
submit detailed financial information to ABC for licensing.  All such licenses
are revocable and are non-transferable.  The ABC has full power to limit,
condition, suspend or revoke any such license, and any such disciplinary action
could (and revocation would) have a material adverse effect on the operations
of the Horseshoe Casino Center.

EMPLOYEES

         As of December 31, 1996, the Company employed 3,691 persons of which
1,779 are employed at the Horseshoe Casino Center in Tunica, Mississippi, 1,886
are employed at the Horseshoe Bossier City in Bossier City,



                                       13
<PAGE>   14

Louisiana and 26 are employed by HGI.  At such date, none of the Company's
employees were covered by collective bargaining agreements.

         The Company believes that its relationship with its employees is
excellent and is not aware of any threatened labor activity affecting its
employees.  The Company has never experienced a work stoppage due to a labor
dispute.

ITEM 2.  PROPERTIES.

         The Company owns and operates casinos in Bossier City,
Louisiana and Tunica County, Mississippi.  All of the Company's real properties
are subject to first priority liens securing the Credit Facility Agreement and
second priority liens securing the Senior Notes.  See "Item 1.  Business--The
Roll-Up Transaction and the Financing."

         The Horseshoe Bossier City

         The Horseshoe Bossier City is located on an approximately 16-acre site
on the east side of the Red River, directly facing downtown Shreveport,
Louisiana. The property consists of an approximately 60,000-square foot,
five-deck riverboat with approximately 30,000 square feet of gaming area and an
approximately 43,000-square foot dockside pavilion surrounded by parking for
over 1,100 cars. The riverboat and pavilion are joined via an enclosed,
climate-controlled boarding ramp with handicap access. A 120-foot high marquis
sign and message board is visible from Interstate 20.

        The main, second and third decks of the riverboat feature a total of
1,069 slot machines and 53 table games.  The casino area includes a
deli/snack bar and three casino bars containing video poker machines. The top
deck of the riverboat opens to the riverside skyline and contains viewing areas
for a respite from gambling activity. The lowest level of the riverboat
contains the engine room, offices, count rooms, security and
surveillance offices and facilities for the Louisiana State Police.

         Management believes that the dockside pavilion offers the largest and
most varied restaurant facilities in the market. The restaurants have been
designed to offer moderately priced, high quality food in order to attract
local and repeat patrons; this attraction is a hallmark of the marketing
strategy at the Horseshoe Casinos.

         Although the Horseshoe Bossier City does not currently offer hotel
rooms on site, the property offers its customers accommodations at the
Horseshoe Hotel, a recently refurbished 201-room hotel located approximately
five miles east of the casino on Interstate-20. The Horseshoe Bossier City also
recently completed construction of an approximately 1100-space multidecked
parking structure.

        HE is currently expanding its present facility through the substitution
of a new riverboat for the existing riverboat.  The expansive new riverboat
will replace the existing structure and at the same time, increase casino space
by approximately 40%. The new   facility will feature approximately 1,400
slots, 63 table games and 10 poker tables. In addition, the Company is
currently constructing a 606 room, all suite, 25 story hotel tower, which will
also include a health club and spa and approximately 4,000 square feet of
meeting space.  A renovation and expansion of the existing dockside facilities
is also in progress.  Which will include  the addition of two specialty
restaurants, a coffee shop, the enlargement of the existing buffet restaurant
and the addition of over 60,000 square feet of administrative space.
Management expects to complete the development and construction project in the
fourth quarter of 1997.

         The Horseshoe Casino Center

        The Horseshoe Casino Center is an approximately 162,000-square foot
structure built on a barge, and contains 30,000-square feet of gaming area
containing 1,022 slot machines, 33 table games and 10 poker tables, two full
service restaurants, bars and retail facilities, all of which are located on
ground level.  The Horseshoe Casino Center also has 200 hotel rooms situated
directly above the casino. The project is located in Tunica County, Mississippi
at Casino Center, a 70-acre three-casino complex.   Approximately 4,000 lighted
and secured parking spaces are provided adjacent to the Casino Center.



                                       14
<PAGE>   15

         Management is currently enlarging the existing casino and is
constructing 309 additional hotel suites, a 1,000 seat entertainment facility
and a 1,100-space parking facility.  Construction of the additional casino,
restaurants, hotel rooms and entertainment facility are anticipated to be
completed during the fourth quarter of 1997.


ITEM 3.  LEGAL PROCEEDINGS.

         There are no material legal proceedings pending against the Company or
any of its properties.


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

         Not applicable.

                                    PART II

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

         There is no established public trading market for the equity interests
in the Company.  As of March 15, 1997, the number of record holders of equity
interests in the Company was 57.

         The Company has paid dividends since October 10, 1995, in an aggregate
amount equal to $26,943,000, which were calculated in accordance with the
Credit Facility Agreement and the Indenture to enable the holders of equity
interests in the Company to pay state and federal income taxes on their
proportionate share of the Company's income.  Except for these permitted tax
distributions, the Company has paid no dividends.  The Company anticipates that
much of its earnings will be retained for the development and expansion of its
business.  The Credit Facility Agreement and the Indenture contain provisions
which restrict the ability of the Company to make distributions to the holders
of equity interests, based on the Company's earnings, the ability of the
Company to meet certain restrictions on borrowing, and certain other criteria.


ITEM 6.  SELECTED FINANCIAL DATA.

         The following selected consolidated financial information has been
derived from the historical consolidated financial statements of the Company.

         The information set forth below should be read in conjunction with
"Item 7.  Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and notes
thereto included elsewhere in this Form 10-K.




                                       15
<PAGE>   16

                      SELECTED CONSOLIDATED FINANCIAL DATA

         The following table summarizes certain selected consolidated financial
data, which should be read in connection with the Company's Consolidated
Financial Statements and Notes thereto included elsewhere herein and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."  The selected consolidated financial data as of and for the years
ended December 31, 1996, 1995 and 1994 and for the period from inception
through December 31, 1993 have been derived from the Company's audited
consolidated financial statements included elsewhere herein.

<TABLE>
<CAPTION>
                                                            Year Ended December 31
                                          ----------------------------------------------------------
                                               1996          1995(c)        1994(b)     1993(a)
                                          -------------   ------------   ----------  ------------
                                                        (Dollars in Thousands)
<S>                                       <C>             <C>            <C>             <C>
 STATEMENT OF OPERATIONS DATA:

         Net revenues:
             Casino                       $ 317,479       $ 283,402      $ 59,230        $  --
             Non-casino                      14,252          14,983         4,173
                                          ---------       ---------      --------        -------
                                            331,731         298,385        63,403           --
OPERATING EXPENSES:
             Casino                         162,408         133,299        24,339
             Non-casino                      20,474          20,131         4,987
             Other                           62,156          57,706        26,637          1,742
             Depreciation and                15,989          12,545         2,499
                                          ---------       ---------      --------        -------
         amortization
         Operating income (loss)             70,704          74,704         4,941         (1,742)
         Interest (expense) income, net     (21,964)        (18,735)       (6,259)           221
         Gain on sale of land                 5,242
         Other, Net                              82
                                          ---------       ---------      --------        -------
         Net income (loss) before
         extraordinary loss on
         early retirement of debt and
         minority interest                   48,822          55,969         3,924         (1,521)
         Extraordinary loss on early
         retirement of debt                                  (7,179)
         Minority interest in (income)
         loss of
         subsidiaries(d)                      1,861          (8,850)       (5,691)           130
                                          ---------       ---------      --------        -------
         Net income (loss)                $  46,961       $  39,940      $ (1,767)       $(1,391)
                                          =========       =========      ========        =======
</TABLE>



<TABLE>
<CAPTION>
                                                   As of December 31
                                            ---------------------------------
                                              1996        1995         1994
                                            --------     --------    --------
<S>                                         <C>          <C>         <C>
BALANCE SHEET DATA:
         Cash and cash equivalents (f)      $ 79,159     $ 65,541    $ 18,584
         Total assets                        377,597      300,088     145,535

         Long-term debt, including
         current maturities(e)               232,708      197,603     124,963
         Total members' equity                79,782       52,747       3,633
</TABLE>

(a) Includes the consolidated results of the Company and its subsidiaries from
    the date each entity was formed through December 31, 1993, including
    subsidiaries involved in development activities only.
(b) The Horseshoe Bossier City opened on July 9, 1994.
(c) The Horseshoe Casino Center opened on February 13, 1995.
(d) Horseshoe Gaming owns less than 100% of certain subsidiaries.  Minority
    interest represents the share of each subsidiary's income attributable to
    those interests not owned by Horseshoe Gaming as well as the 1994 gain on
    sale of land by RPG of $5,242,000 distributed to some, but not all, of the
    Company's members.
(e) Includes deferred interest payable on notes payable to affiliates of
    $2,467,000 as of December 31, 1994.
(f) Excludes escrow funds, restricted for expansion of existing facilities,
    development of New Projects or repayment of debt, amounting to
    approximately $42,235,000 (1996) and $31,316,000 (1995).





                                       16
<PAGE>   17

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

GENERAL

         The following discussion and analysis provides information which
Management believes is relevant to an assessment and understanding of the
Company's consolidated financial condition and results of operations.  The
discussion should be read in conjunction with "Selected Consolidated Financial
Data" and the Consolidated Financial Statements and notes thereto.

INTRODUCTION

         The formation of the Company culminated with the completion of the
Roll-Up Transaction (see "Business--The Roll-Up Transaction and the
Financing"), which was deemed effective October 1, 1995.  The Roll-Up
Transaction resulted in the Company (a newly-formed holding company) owning 50%
or more of several entities that were previously owned by Mr.  Binion, certain
related parties and certain unrelated parties.  Mr. Binion now serves as the
Chairman of the Board of Directors and Chief Executive Officer of Horseshoe
Gaming, Inc. ("HGI"), the manager of the Company.

         As a result of the Roll-Up Transaction, the Company owns 89% of HE, the
partnership that owns the Horseshoe Bossier City, 100% of RPG, the partnership
that owns the Horseshoe Casino Center, 50% of HIND, which unsuccessfully
pursued a casino development opportunity in Indiana, and 80% of Horseshoe
Ventures, L.L.C., a Delaware limited liability company ("Horseshoe Ventures"),
which was formed to pursue casino development opportunities in new
jurisdictions other than Indiana.  As of December 31, 1995, the Company
acquired an additional 2.92% ownership interest in HE. During 1996, the Company
entered into an option agreement to acquire an additional 1% ownership interest
in HE.  The consolidated financial statements of the Company include the
assets, liabilities, revenues and expenses for all entities included in the
Roll-Up Transaction, as if such entities were subsidiaries of   the Company for
all periods presented.  Further, prior to the Roll-Up Transaction, certain
expenses incurred pursuing development of casinos in new jurisdictions were
incurred by Mr. Binion.  Mr. Binion was reimbursed for such expenses by
Horseshoe Ventures in October 1995. These expenses are included in the
consolidated financial statements of the Company, for all periods presented, as
if they had been incurred by Horseshoe Ventures.

RESULTS OF OPERATIONS

         The Horseshoe Bossier City is one of four riverboat casinos currently
operating in the Bossier City/Shreveport, Louisiana market.  Two additional
riverboat casinos are expected to be operating in the Bossier City/Shreveport
market, one by the end of 1997 and the other by the end of 1998.  Management
believes that the Bossier City/Shreveport market is sufficiently large to allow
six riverboat casinos to operate profitably.  The Horseshoe Bossier City has
begun expansion plans, including additional hotel rooms (see "Liquidity and
Capital Resources" section below for additional discussion of development
plans.)  While management expects that this new competition will affect the
Horseshoe Bossier City's revenues and operating income, management also
believes its expansion plans and the addition of two riverboat casinos in the
Bossier City/Shreveport market will increase the size and scope of the overall
gaming market, mitigating the potential adverse impact on future operating
levels at the Horseshoe Bossier City.  The impact on operating margins from the
overall increase in supply to this market is uncertain.

         The Horseshoe Casino Center operates in the competitive Tunica County,
Mississippi, market, which currently consists of ten casinos.  Several of the
existing Tunica casinos, including the Horseshoe Casino Center, have begun
expansion plans, including hotel rooms (see "Liquidity and Capital Resources"
section below for additional discussion of development plans.)  While
management expects that this new competition will affect the Horseshoe Casino
Center's revenues and operating income, management also believes the project
will increase the size and scope of the overall Tunica gaming market,
mitigating the potential adverse impact on future operating levels at the
Horseshoe Casino Center.  The impact on operating margins from the overall
increase in supply to this market is uncertain.





                                       17
<PAGE>   18

         The Company has not experienced any significant seasonal trends;
however, the Company has a limited operating history and the Company may
determine in the future that its revenues and income may be seasonal in nature.

Year Ended December 31, 1996 and 1995

        The significant improvement in the Company's net revenues for the year
ended December 31, 1996, compared with the prior year is related primarily to
improvements in revenue per day at the Horseshoe Bossier City and the Horseshoe
Casino Center operating for a full year in 1996 compared with a partial year
in 1995.  Operating results for 1995 include operations for the Horseshoe
Casino Center commencing February 13, 1995.

The Horseshoe Bossier City

         The Horseshoe Bossier City contributed net revenues and operating
income, respectively, of $174.9 million and $32.2 million for the year ended
December 31, 1996 and $160.8 million and $36.3 million for the year ended
December 31, 1995.

         The Horseshoe Bossier City's net revenues include casino revenues and
non-casino revenues, respectively, of $166.8 million and $8.1 million for the
year ended December 31, 1996 and $151.2 million and $9.6 million for the year
ended December 31, 1995.  The increase in net revenues for the year ended
December 31, 1996 compared to the prior year period is due to an increase in
total casino volume of 24.4%.  The increase in total volume was offset by a
reduction in overall win percentage of 1.0 pt.  Casino revenue per day
increased approximately 10.1% in 1996 to $456,000 from $414,000 for the year
ended December 31, 1995.

         The Horseshoe Bossier City's operating margin for the year ended
December 31, 1996 was 18.4% compared with 22.6% for year ended December 31,
1995.  The reduction in operating margin of 4.2 pts. was caused by an increase
in expenses associated with promotional programs and direct marketing programs
and an increase in general and  administrative expenses. Depreciation and
amortization increased $2.7 million over the 1995 period due to amortization of
goodwill which began in October, 1995 and an increase in depreciation expense
due to property improvements.

The Horseshoe Casino Center

         The Horseshoe Casino Center contributed net revenues and operating
income, respectively, of $156.9 million and $44.6 million for the year ended
December 31, 1996 and $137.6 million and $42.8 million for the year ended
December 31, 1995.

         The Horseshoe Casino Center's net revenues include casino revenues and
non-casino revenues, respectively, of $150.7 million and $6.2 million for the
year ended December 31, 1996 and $132.2 million and $5.4 million for the year
ended December 31, 1995.  The increase in net revenues for the year ended
December 31, 1996 compared to the prior year period is primarily due to the
increase in the number of days of operation.  The year ended December 31, 1995
only includes 322 days of operations, whereas the 1996 period includes a full
twelve months.  Casino revenue per day increased in 1996 to $412,000 from
$411,000 for the year ended December 31, 1995.

         The Horseshoe Casino Center's operating margin for the year ended
December 31, 1996 was 28.4% compared with 36.2%, before the write-off of
pre-opening expenses, for the year ended December 31, 1995.  The reduction in
operating margin of 7.8 pts. was caused by an increase in expenses associated
with promotional programs and direct marketing programs including, one-time
promotional charges which were incurred by the Company prior to the opening and
during the first month of operations of a new competing casino facility
which opened in the Tunica market.  An increase in general and administrative
and bad debt expenses also contributed to the lower operating margins in 1996.

Other Factors Affecting Earnings

        The increase in net interest expense of $3.2 million for the year ended
December 31, 1996, compared with the year ended December 31, 1995, is due to an
increase in the amount of debt outstanding.  This was partially offset by a
reduction in the overall interest rate on the Company's long-term debt, which
resulted from the Company's





                                       18
<PAGE>   19

refinancing of substantially all of its existing indebtedness in October 1995.
This refinancing resulted in an extraordinary loss on early retirement of debt
of $7.2 million in 1995.

        Development expenses, which are included in operating income, were $6.6
million and $4.4 million for the years ended December 31, 1996 and 1995,
respectively.  The increase in development expenses in 1996 over 1995 is due
to the Company's failure to obtain a license to conduct gaming in the state of
Indiana.  Total expenses incurred by the Company pursuing its Indiana license
was $3.9 million and $1.7 million for the years ended December 31, 1996 and
1995, respectively.

Year Ended December 31, 1995 and 1994

         The significant improvement in the Company's operating results for the
year ended December 31, 1995, compared with the year ended December 31, 1994 is
directly related to the timing of the opening of the Company's two operating
riverboat casinos. The Horseshoe Bossier City opened in Bossier City, Louisiana
on July 9, 1994, and the Horseshoe Casino Center opened in Tunica County,
Mississippi on February 13, 1995.  Accordingly, 1994 operating results include
operations for the Horseshoe Bossier City only, commencing July 9, 1994.

The Horseshoe Bossier City

         The Horseshoe Bossier City contributed net revenues and operating
income, respectively, of $160.8 million and $36.3 million for the year ended
December 31, 1995 and $63.4 million and $8.5 million for the year ended
December 31, 1994.  The operating income amounts for 1994 include a $6.7
million charge for preopening expenses.

         The Horseshoe Bossier City's net revenues include casino revenues and
non-casino revenues, respectively, of $151.2 million and $9.6 million for the
year ended December 31, 1995 and $59.2 million and $4.2 million for the year
ended December 31, 1994.  Its operating margin for 1995 was 22.6% compared with
23.9% for the year ended December 31, 1994.  The 1994 margin excludes the
effect of the charge for preopening expenses of approximately $6.7 million in
July, 1994.  Casino revenue per day increased approximately 22.5% in 1995 to
$414,000 from $338,000 for the year ended December 31, 1994.

The Horseshoe Casino Center

         The Horseshoe Casino Center was open for ten and one-half months in
1995 and contributed net revenues and operating income of $137.6 million and
$42.8 million, respectively.  Included in operating income is a $7.0 million
charge for pre-opening expenses.  The Horseshoe Casino Center's 1995 net
revenues include $132.2 million of casino revenues and $5.4 million of
non-casino revenues.  The operating margin before the write-off of preopening
expenses was 36.2%  Casino revenue per day was $411,000 for 1995.

Other Factors Affecting Earnings

        The increase in net interest expense of $12.5 million for the year
ended December 31, 1995, compared with the year ended December 31, 1994, is due
to the time at which construction of the Company's two riverboat casinos was
completed.  The Company borrowed the majority of the construction funds for the
two casinos in 1994.  During the construction period of both casinos, most of
the related interest was capitalized into the cost of the facilities.  The
capitalization of interest ceased when the construction of each riverboat
casino was completed.  As discussed in the Liquidity and Capital Resources
section below, in October 1995, the Company completed a refinancing of
substantially all of its existing indebtedness.  This refinancing, among other
things, reduced the overall interest rate on the Company's long-term debt, and
resulted in an extraordinary loss on early retirement of debt of $7.2 million
in 1995.

         The primary item included in other income in 1994 is a $5.2 million
gain on the sale of land in Tunica County, Mississippi.  This land was owned by
RPG; however RPG's partnership agreement required that any gain from the sale
of this land be distributed to certain, but not all, of the Company's members.
Since not all of the Company's members received the benefit of the gain on
sale, such gain is included in minority interest in (income) loss of
subsidiaries in the Company's 1994 consolidated statement of operations.





                                       19
<PAGE>   20

         Development expenses, which are included in operating income, were
$4.4 million and $2.1 million for the years ended December 31, 1995 and 1994,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

         In October 1995, the Company refinanced substantially all of its
exiting indebtedness with net proceeds from an initial draw of $93.2 million on
a $100 million credit facility (the "Initial Credit Facility") and from the
sale of $100 million of Series A Notes.  The Series A Notes were sold with the
warrants to purchase an additional $50 million of Series A Notes on April 10,
1996, at a price of 98.15% of par value which, upon exercise, raised
approximately $49 million after fees and expenses.  The Initial Credit Facility
bears interest at six-month LIBOR plus 3.0% and requires semi-annual principal
payments of 5% of the then outstanding balance with final maturity on September
30, 1999.

        As of December 31, 1996, the Company had cash and cash equivalents of
approximately $121.4 million, including approximately $42.2 million in the
excess proceeds escrow account, which is restricted to the expansion of existing
facilities, pursuit and development of new projects and the repayment of debt.
On April 10, 1996, the Company received proceeds of approximately $48 million
upon the sale of Series A Notes pursuant to the exercise of the warrants, which
funds were also placed in the Excess Proceeds Escrow Account.  The Company
expects to spend approximately $185 million for the expansion of the Bossier
City, Louisiana facility, and approximately $95 million for expansion of the
Tunica, Mississippi facility.  As of December 31, 1996 the Company has already
expended $44.8 million for the expansion of its Bossier City and Tunica
facilities.  The Company can borrow additional funds under its current credit
facility, of which $50 million has been committed.  An additional $50 million is
available to be borrowed for furniture, fixtures and equipment and working
capital and general corporate purposes.  The Company has been approached by
various lending agencies to provide the additional financing discussed above
with terms acceptable to the Company.  Management believes that the Company's
cash and cash equivalents on hand and cash from operations will be adequate to
meet the Company's existing obligations when they become due.  Additional
financing will be required to fund the Company's development plans discussed
above.

DEVELOPMENT

Bossier City, Louisiana

         HE has begun its expansion of the entire casino facility at a cost of
approximately $185 million.  The expansion plans include a 25 story hotel tower
with up to 606 suites, including a health club and spa, the renovation and
expansion of existing dockside facilities, including the addition of two
specialty restaurants, a coffee shop, the enlargement of the existing buffet,
and the recently completed 1,100 car parking garage, all connected to an
expanded dockside facility.  Management estimates the project will be completed
during the fourth quarter of 1997.

         In addition, on March 28, 1996, HE completed the purchase of the Le
Bossier Hotel, including furnishings and fixtures, for approximately $5.2
million.  HE had previously leased this facility under a long-term operating
lease.





                                       20
<PAGE>   21

Tunica, Mississippi

         RPG has begun to further develop its casino site in Tunica,
Mississippi, for a total cost of approximately $95 million.  Development plans
include an additional 15,000 square feet of gaming space for 440 slot machines
and 21 tables games, 309 additional hotel suites, a multi-level, 1,100 space
parking garage and an entertainment facility which will accommodate
approximately 1,000 customers and additional facilities, to include a health
club, two additional restaurants, convention facilities and other amenities.
Management expects the project will be completed during the fourth quarter of
1997.

OTHER ITEMS

         The Company is required to repurchase ownership interests held by
employees, in the event of termination of their employment, based on an
independent appraisal.  The total ownership interest held by employees subject
to buy-out provisions was 9.1% as of December 31, 1996.  The value of these
ownership interests, amounting to $24.9 million, has been recorded as a
liability in the accompanying consolidated financial statements as Redeemable
Ownership Interests.


ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         See the Index to Consolidated Financial Statements and the Index to
Financial Statement Schedules included at "Item 14.  Exhibits, Financial
Statement Schedules, and Reports on Form 8-K."


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.

         Section 6.2 of the Limited Liability Company Agreement of the Company
(the "Company Agreement") provides that the Company shall be managed by a
manager (the "Manager").  Pursuant to Section 6.1 of the Company Agreement, HGI
serves as the Manager of the Company until the occurrence of its "Withdrawal,"
which pursuant to Section 1 of the Company Agreement, means the occurrence of
the bankruptcy (as defined in the Company Agreement), dissolution or
liquidation of HGI, or the withdrawal, resignation or retirement of HGI from
the Company for any reason, and those situations when HGI may no longer
continue as a member of the Company by reason of any law or pursuant to any
terms of the Company Agreement.  HGI has only one class of stock outstanding.
The outstanding shares of common stock of HGI are owned 68.52% by Mr. Binion,
15.74% by Peri Howard, 13.38% by Leslie Kenny, and 2.36% by Mr. Binion, as
Trustee of the 1995 Leslie Kenny Irrevocable Trust.

         The current executive officers and directors of HGI and of HGP, and
contains officers of RPG and HE, are listed below, together with their ages and
all positions and offices held by them.

<TABLE>
<CAPTION>
 Name                        Age                                    Position
 ----                        ---                                    --------
 <S>                          <C>   <C>
 Jack B. Binion               60    Chairman of the Board of Directors and Chief Executive Officer of HGI,
                                    and Sole Director and Chief Executive Officer of HGP.
 Phyllis M. Cope              62    Director of HGI.
 Peri Howard                  36    Director of HGI.
 Paul R. Alanis               48    President of HGI and of HGP.
 Walter J. Haybert            54    Treasurer and Chief Financial Officer of HGI and of HGP.
 John J. Schreiber            56    Senior Vice President - Governmental Relations of HGI and of HGP.
 J. Michael Allen             49    Senior Vice President - Operations of HGI and of HGP.
</TABLE>





                                       21
<PAGE>   22

<TABLE>
 <S>                          <C>   <C>
 Loren S. Ostrow              45    Senior Vice President, Secretary and General Counsel of HGI and of HGP.
 Gary Border                  47    Senior Vice President - Marketing of HGI and of HGP.
 J. Lawrence Lepinski         50    Senior Vice President and General Manager of Horseshoe Bossier City.
 Bob McQueen                  43    Senior Vice President and General Manager of Horseshoe Casino Center.
</TABLE>

         Mr. Binion has served as Chief Executive Officer of HGI since its
inception (under the name New Gaming Capital Corporation) in December, 1992 and
as Chief Executive Officer of HGP since its inception immediately prior to the
Roll- Up Transaction.  Mr. Binion served as the Chief Executive Officer of
Gaming Consulting, Inc., the general partner of the entity that was the general
partner of RPG, from its inception in May, 1993 until it merged into HGI in the
Roll-Up Transaction.  Mr. Binion has also been the President and Chief
Executive Officer since 1964 of the Horseshoe Club Operating Company, which
owns and operates Binion's Horseshoe in Las Vegas, Nevada.

         Ms. Cope is the wife of Jack Binion.  She was elected director of
HGI in January 1997 and will serve until further notice.

         Ms. Howard is the daughter of Phyllis Cope.  She was elected
director of HGI in January 1997 and will serve until further notice.

         Mr. Alanis has served as the President of HGI and of HGP since January
1, 1996.  Mr. Alanis has served as the President of KII-Pasadena, Inc. since
December, 1988 and as President of Koar International, Inc. from 1991 until
1995.  Prior to that, Mr. Alanis served as President of Koar, Inc.

         Mr. Haybert became employed by an Affiliate of the Company in August,
1995, and became employed as the Treasurer and Chief Financial Officer of HGI
and of HGP upon the consummation of the Roll-Up Transaction.  From April, 1992
until July, 1995, Mr. Haybert was the Vice President of Gaming Development of
Harrah's Entertainment, Inc. and from November, 1991 to March, 1992 Mr. Haybert
was the President of Haybert & Associates.  Prior to that, Mr. Haybert served
in executive positions for the Resorts Casino Hotel in Atlantic City and the
Taj Mahal Casino.

         Mr. Schreiber has served as Senior Vice President of HGI since the
Roll-Up Transaction and, prior to that, as Senior Vice President of Horseshoe
Club Operating Company since April, 1994.  From May, 1992 through April, 1994,
Mr.  Schreiber served as President of St. Charles Riverfront Station and as
Vice President of Governmental Affairs for Station Casinos, Inc.  From August,
1989 through May, 1992, Mr. Schreiber served as Vice President and Director of
Corporate Security and the Washington Representative for Caesar's World, Inc.

         Mr. Allen has served as Senior Vice President of Horseshoe Gaming,
Inc. since the Roll-up Transaction and prior to that as General Manager of the
Horseshoe Casino Center since May, 1994.  Prior to that, Mr. Allen served as
Principal of Gaming Associates, Inc. from September, 1992.  From April, 1991 to
September, 1992, Mr. Allen served as Vice President of Slot Operations - Player
Development of Carnival Cruise Lines and from April, 1989 to April, 1991 Mr.
Allen served as Vice President-Slot Operations - Marketing of the Trump Castle,
Casino Hotel.

         Mr. Ostrow has served as Senior Vice President and General Counsel of
HGI and of HGP since January 1, 1996.  Mr. Ostrow has served as Senior Vice
President of KII-Pasadena, Inc., since December, 1988, and as Senior Vice
President of Koar International, Inc. from 1991 until 1995.  Prior to that, Mr.
Ostrow served as Vice President of Koar, Inc.

         Mr. Border has served as Senior Vice President - Marketing of HGI
since July, 1996.  Since 1987, Mr. Border served as President and founder of
Marketing Results, Inc.

         Mr. Lepinski has served as Senior Vice President and General Manager
of the Horseshoe Bossier City since September, 1995.  Prior to that, Mr.
Lepinski served as General Manager of Bally's Saloon and Gambling Hall in
Tunica, Mississippi since August, 1993.  From May, 1991 to August, 1993, Mr.
Lepinski served as Vice President Casino Operations for Genting Highlands in
Malaysia, and from July, 1986 to May, 1991 as Vice President Operations for
Lucayan Beach Casino in the Grand Bahamas.





                                       22
<PAGE>   23

         Mr. McQueen has served as Senior Vice President and General Manager of
the Horseshoe Casino Center since July, 1996 and prior to that as Vice
President of Casino Operations for Horseshode Casino Center since June, 1994.
From April 1992 to June 1994 Mr. McQueen served as a Senior Level Executive
with Carnival Cruise Lines and from 1987 to 1992 Mr.  McQueen served as General
Manager for Lucayan Beach Casino in the Grand Bahamas.


ITEM 11.         EXECUTIVE COMPENSATION.

         The following table sets forth all compensation awarded to, earned by
or paid to the Chief Executive Officer and the other four most highly
compensated executive officers (the "Named Executive Officers") for their
services to the Company for the year ended December 31, 1996 and 1995.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                       Annual Compensation
                        ------------------------------------------------

 Name and Principal                                        Other Annual      Restricted          All Other
      Position          Year      Salary        Bonus     Compensation(1)     Units(2)         Compensation
--------------------------------------------------------------------------------------------------------------
<S>                     <C>     <C>          <C>           <C>              <C>               <C>
Jack B. Binion          1996    $         0  $         0   $             0  $         0       $            0

                        1995              0            0                 0            0                    0
Paul R. Alanis(3)       1996        494,636      200,000                 0            0                7,351(7)

                        1995              0            0                 0            0              110,000(3)

Walter J. Haybert(4)    1996        351,792            0                 0            0                6,785(7)
                        1995         94,231       35,138           342,098    1,026,296                4,681(7)

John J. Schreiber(5)    1996        351,792       50,000                 0            0                6,752(7)
                        1995         94,231            0           978,993      427,624                4,960(7)

J. Michael Allen(6)     1996        367,713            0                 0            0                1,792(7)

                        1995         90,192       67,000           251,052    1,117,342                5,653(8)
</TABLE>

(1)      The Company has determined the value of the Units for purposes of this
         Table based on the appraisal conducted by the investment banking firm
         of Houlihan Lokey Howard and Zukin in connection with the Roll-Up
         Transaction.

(2)      The Company will make Permitted Tax Distributions to its members with
         respect to the Units, including those Units that are restricted (see
         "Description of New Notes").

(3)      While Mr. Alanis performed policy making functions of HGI similar to
         that of an officer, during fiscal year 1995, he was an employee of
         KII-Pasadena, Inc., which was party to a consulting agreement with
         HGI.  The consulting agreement provided for payments to KII-Pasadena,
         Inc. of $55,000 per month  (See "Related Party Transactions").  Mr.
         Alanis owns 67% of the stock of KII-Pasadena, Inc.  The amount of
         compensation to Mr.  Alanis indicated is equal to Mr. Alanis' share of
         the consulting payments to KII-Pasadena, Inc. for the three- month
         period ended December 31, 1995.

(4)      250,245 of the 500,489 Units granted to Mr. Haybert in fiscal year
         1995 have vested as of December 31, 1996, the remaining units vest
         pursuant to the schedule in Mr. Haybert's employment agreement with
         HGI.  (See "- Employment Agreements.")  Their value at December 31,
         1996 is $686,170.





                                       23
<PAGE>   24

(5)      483,191 of the 514,469 Units granted to Mr. Schreiber during fiscal
         year 1995 have vested, the remaining units vest pursuant to the
         schedule in Mr. Schreiber's employment agreement with HGI.  (See "-
         Employment Agreements.") Their value at December 31, 1996 is $85,764.

(6)      789,722 of the 1,316,203 Units granted to Mr. Allen have vested, the
         remaining units vest pursuant to the schedule in Mr. Allen's
         employment agreement with HGI.  (See "- Employment Agreements.")
         Their value at December 31, 1996 is $1,443,611.

(7)      Premium on insurance policies.

(8)      Housing and automobile allowance.

COMPENSATION OF DIRECTORS; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION

         The Bylaws of HGI provide for a six member board of directors.  There
are currently three directors.  Directors serve until the next annual meeting
of stockholders and until their successors have been elected and qualified.
Vacancies on the board of directors may be filled by a majority of the
remaining directors.  The directors do not receive compensation for services on
the Board.

         Officers serve at the discretion of the Board.  The Board has no
Compensation Committee.  Mr. Alanis has participated in discussions with Mr.
Binion regarding executive compensation.

EMPLOYMENT AGREEMENTS

         Mr. Binion has provided services pursuing, developing and managing
gaming operations for the Company and its Subsidiaries.  Mr. Binion has not
been compensated for his services in the past nor is there an existing
employment agreement providing for Mr. Binion to receive compensation for his
services in the future.  It is anticipated, however, that Mr. Binion will enter
into an employment agreement with HGI, the Manager of the Company in 1997.  Mr.
Binion is not currently compensated for his services to the Company.

         Mr. Alanis is party to an employment agreement with HGI, which
agreement contains customary employment terms and provides for a current annual
base salary of $500,000, fringe benefits, participation in such health and
pension plans as HGI shall adopt for all HGI executives, and a bonus of
$200,000 payable in four equal installments on the last days of February, May,
August and November, 1996.  The employment agreement provides that, if
warranted by his performance, it is HGI's intention to pay Mr. Alanis a bonus
of at least equal size in 1997 and 1998 should the Company in 1996 and 1997
sustain a level of activity and financial performance equal or greater to the
level of activity and financial performance of the Company during calendar year
1995.  The employment agreement also contains a put/call provision whereby,
upon termination of Mr. Alanis' employment, the Company may, at its option, or
must, at Mr. Alanis' option (with either option exercisable within 30 days of
such termination), purchase Mr. Alanis' ownership interest for cash in an
amount equal to its then fair market value.  The employment agreement provides
that Mr. Alanis' employment shall terminate on December 31, 1998, unless
earlier terminated as provided therein.  HGI may terminate Mr. Alanis'
employment for cause (including upon Mr. Alanis' disability) or without cause.
If, as of December 31, 1996, the employment of Mr. Alanis had been terminated
for cause, $141,667 would have been payable to Mr. Alanis, and $1,400,000 would
have been payable if his employment had been terminated without cause.  The
employment agreement also includes confidentiality provisions.

         Mr. Haybert is party to an employment agreement with HGI, which
agreement contains customary employment terms and provides for a current annual
base salary of $350,000, fringe benefits, and participation in such health and
pension plans as HGI shall adopt for all HGI executives.  The employment
agreement also provides Mr. Haybert with 500,489 Units in the Company, subject
to a specified divestiture schedule.  Under such schedule, 75% of Mr. Haybert's
ownership interest is subject to divestiture upon Mr. Haybert's termination or
voluntary resignation prior to July 20, 1996, 50% is subject to divestiture
upon Mr. Haybert's termination or voluntary resignation prior to July 20, 1997,
and 25% is subject to divestiture upon Mr. Haybert's termination or voluntary
resignation prior to July 31, 1998.  The employment agreement also provides
that all of Mr. Haybert's ownership





                                       24
<PAGE>   25

interest shall become fully vested immediately upon the occurrence of any
transaction whereby Mr. Binion (including any entities through which he holds
his ownership interest in the Company), family members of Mr. Binion and/or
trusts established for the benefit of Mr. Binion's heirs transfer a controlling
interest in the Company to a third party in a transaction other than a public
offering.  HGI also agreed to make available, within ten (10) days after a
request by Mr. Haybert, a personal loan of up to $200,000, bearing interest at
the rate of 10% per annum to be secured by the pledge of Mr. Haybert's Units in
the Company.  The employment agreement also contains a put/call provision
whereby, upon termination of Mr. Haybert's employment, the Company may, at its
option, or must, at Mr. Haybert's option (with either option exercisable within
90 days of such termination), purchase that portion of Mr. Haybert's ownership
interest that is not subject to divestiture for cash in an amount equal to its
then fair market value.  If Mr. Haybert is terminated without cause, an
additional 25% of his ownership interest shall no longer be subject to
divestiture.  The employment agreement provides that Mr. Haybert's employment
shall terminate on July 31, 1998, unless earlier terminated as provided
therein.  HGI may terminate Mr. Haybert's employment for cause (including upon
Mr. Haybert's disability) or without cause.  If, as of December 31, 1996, the
employment of Mr. Haybert had been terminated for cause, $712,628 would have
been payable to Mr. Haybert, and $1,054,359 would have been payable if his
employment had been terminated without cause.  The employment agreement also
includes confidentiality provisions.  The assignment agreement whereby the
Company issued the ownership interest to Mr. Haybert provides that, for
purposes of determining the fair market value of Mr.  Haybert's ownership
interest, prior to any Subsidiary's being granted a license to own and/or
operate a gaming business, the value of such Subsidiary shall be limited to the
amount of the Company's capital investment therein.  Because it originally was
contemplated that Mr. Haybert would receive his ownership interest and the
share of Net Profits to which it would entitle him in July, 1995, and Mr.
Haybert did not in fact receive his ownership interest until the October 1,
1995 effective date of the Roll-Up Transaction, HGI paid Mr. Haybert a one time
bonus in an amount equal to the $35,138 in Net Profits to which he would have
been entitled.

         Mr. Schreiber is party to an employment agreement with HGI, which
agreement contains customary employment terms and provides for a current annual
base salary of $350,000, fringe benefits, participation in such health and
pension plans as HGI shall adopt for all HGI executives, and a one time bonus
of $50,000 payable on or before January 15, 1996.  Prior to execution of the
employment agreement, Mr. Schreiber owned 236,265 Units.  The employment
agreement increased Mr. Schreiber's ownership interest in the Company by
514,469 Units, subject to a specified divestiture schedule.  Under such
schedule, 75% of Mr. Schreiber's ownership interest was fully vested upon
execution of the employment agreement, and the remaining 25% vests in 18 equal
portions on the last day of each month commencing October 30, 1995 and ending
March 31, 1997.  The employment agreement also provides that all of Mr.
Schreiber's ownership interest shall become fully vested immediately upon the
occurrence of any transaction whereby Mr. Binion (including any entities
through which he holds his ownership interest in the Company), family members
of Mr. Binion and/or trusts established for the benefit of Mr. Binion's heirs
transfer a controlling interest in the Company to a third party in a
transaction other than a public offering.  The employment agreement also
contains a put/call provision whereby, upon termination of Mr.  Schreiber's
employment, the Company may, at its option, or must, at Mr. Schreiber's option
(with either option exercisable within 30 days of such termination), purchase
that portion of Mr. Schreiber's ownership interest that is not subject to
divestiture for cash in an amount equal to its then fair market value.  In the
event that Mr. Schreiber is terminated with or without cause, the minimum
appraisal value for his ownership interest shall be $1,320,369, regardless of
the amount thereof that is fully vested at such time.   The employment
agreement provides that Mr. Schreiber's employment shall terminate on September
30, 1998, unless earlier terminated as provided therein.  The employment
agreement also includes confidentiality provisions.  The assignment agreement
whereby the Company issued the ownership interest to Mr. Schreiber provides
that, for purposes of determining the fair market value of Mr. Schreiber's
ownership interest, prior to any Subsidiary's being granted a license to own
and/or operate a gaming business, the value of such Subsidiary shall be limited
to the amount of the Company's capital investment therein.





                                       25
<PAGE>   26

         Mr. Allen is party to an employment agreement with HGI, which
agreement contains customary employment terms and provides for a current annual
base salary of $350,000, fringe benefits, participation in such health and
pension plans as HGI shall adopt for all HGI executives, and a one time bonus
of $67,000 payable on or before January 15, 1996.  The employment agreement
also increased Mr. Allen's ownership interest in the Company by 500,489 Units,
subject to a specified divestiture schedule.  Under such schedule, 45% of Mr.
Allen's ownership interest vested fully upon execution of the employment
agreement, and the remaining 55% vests as follows:  an additional 15% vests and
shall not be subject to divestiture beginning on May 15, 1996; an additional
15% vests and shall not be subject to divestiture beginning on May 15, 1997; an
additional 15% vests and shall not be subject to divestiture beginning on May
15, 1998; and the remaining 10% vests and shall not be subject to divestiture
beginning on May 11, 1999.  The employment agreement also provides that all of
the ownership interest shall become fully vested immediately upon the
occurrence of any transaction whereby Mr. Binion (including any entities
through which he holds his ownership interest in the Company), family members
of Mr. Binion and/or trusts established for the benefit of Mr. Binion's heirs
transfer a controlling interest in the Company to a third party in a
transaction other than a public offering.  The employment agreement also
contains a put/call provision whereby, upon termination of Mr. Allen's
employment, the Company may, at its option, or must, at Mr.  Allen's option
(with either option exercisable within 30 days of such termination), purchase
that portion of Mr. Allen's ownership interest that is not subject to
divestiture for cash in an amount equal to its then fair market value.  The
employment agreement provides that Mr. Allen's employment shall terminate on
May 11, 1999, unless earlier terminated as provided therein.  HGI may terminate
Mr. Allen's employment for cause (including upon Mr. Allen's disability) or
without cause.  If, as of December 31, 1996, the employment of Mr. Allen had
been terminated for cause, $29,167 would have been payable to Mr. Allen, and
$29,167 would have been payable if his employment had been terminated without
cause.  The employment agreement also includes confidentiality provisions.  The
assignment agreement whereby the Company issued the ownership interest to Mr.
Allen provides that, for purposes of determining the fair market value of Mr.
Allen's ownership interest, prior to any Subsidiary's being granted a license
to own and/or operate a gaming business, the value of such Subsidiary shall be
limited to the amount of the Company's capital investment therein.


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

         The following table sets forth certain information regarding
beneficial ownership of membership interests in the Company ("Units"), as of
December 31, 1996, by each person who is known by the Company to own
beneficially more than 5% of the Units, by each director of the Company, each
of the executive officers and by all directors and executive officers of the
Company as a group.

<TABLE>
<CAPTION>
                                                              Percentage of
                  Name(1)                   Number of Units       Units
      ----------------------------------    ---------------   ------------
      <S>                                   <C>               <C>
      Jack B. Binion  . . . . . . . . .     80,999,065(2)      80.7%
      Phyllis M. Cope . . . . . . . . .      6,555,882(3)       6.5%
      Hanwa . . . . . . . . . . . . . .      7,017,220(4)       7.0%

      HGI . . . . . . . . . . . . . . .     30,715,128(5)      30.6%
      Peri Howard . . . . . . . . . . .      9,027,039(6)       9.0%
      Paul Alanis . . . . . . . . . . .      3,155,935          3.1%

      J. Michael Allen  . . . . . . . .      1,316,203          1.3%
      Walter J. Haybert . . . . . . . .        500,489            *
      John Schreiber  . . . . . . . . .        750,734            *
      Directors and executive
      officers as a group (5 persons) .     86,722,426         86.4%
----------------
</TABLE>

*    Less than 1%.



                                       26
<PAGE>   27

(1)      The persons named in this table have sole voting power and investment
         power with respect to all shares of capital stock shown as
         beneficially owned by them, subject to community property laws where
         applicable and the information contained in this table and these
         notes.
(2)      Includes (a) the 17,366,247 Units held by Mr. Binion as an individual;
         (b) the 30,715,128 Units owned by HGI, of which Mr. Binion is
         President, Chairman of the Board of Directors and the majority
         shareholder; (c) the 6,555,882 Units owned by Phyllis M. Cope; (d) the
         9,027,039 Units owned by Peri Howard; and (e) 17,334,769 Units held by
         members of Mr. Binion's family or trusts for the benefit of members of
         Mr. Binion's family.  Mr. Binion expressly disclaims beneficial
         ownership of the 63,632,818 Units which are held of record by HGI or
         by members of Mr. Binion's family or by trusts established for the
         benefit of certain members of the families of Mr. Binion or Phyllis
         M. Cope, for purposes of Sections 13(d) and 13(g) of the Exchange Act.
(3)      Includes 3,277,941 Units held by Phyllis M. Cope as Trustee of the Ted
         J. Fechser Trust, and 3,277,941 Units held by Phyllis M. Cope, as
         Trustee of the Fancy Ann Fechser Trust.  Phyllis M. Cope expressly
         disclaims beneficial ownership of any Units held by her as trustee of
         such trusts, which are trusts established for the benefit of certain
         members of the families of Mr. Binion or Phyllis M. Cope, for purposes
         of Sections 13(d) and 13(g) of the Exchange Act.
(4)      Issuable upon Hanwa's exercise of Company Warrants.
(5)      Includes 7,017,220 Units to be surrendered by Mr. Binion upon Hanwa's
         exercise of Company Warrants.
(6)      Includes 945,059 Units held by Peri Howard, as Trustee of the Ted J.
         Fechser Trust, 945,059 Units held by Peri Howard, as Trustee of the
         Fancy Ann Fechser Trust, 945,059 Units held by Peri Howard, as Trustee
         of the James Christopher Fechser Trust, 945,059 Units held by Peri
         Howard, as Trustee of the Robert Daniel Fechser Trust, 945,059 Units
         held by Peri Howard, as Trustee of the Katie O'Neill Trust, 945,059
         Units held by Peri Howard, as Trustee of the Kellie O'Neill Trust,
         945,059 Units held by Peri Howard, as Trustee of the Rachel Fechser
         Trust, 945,059 Units held by Peri Howard, as Trustee of the Ben E.
         Johnson Trust, 189,013 Units held by Peri Howard, as Trustee of the
         Bonnie Binion Trust, and 189,013 Units held by Peri Howard, as Trustee
         of the Benny Behnen Trust; 189,013 Units held by Peri Howard, as
         Trustee of the Jack Behnen Trust, 231,779 Units held by Robinson
         Property Group, Inc. (of which Peri Howard is the sole shareholder,
         director and officer), 289,724 Units held by Jerry Howard, and 378,025
         Units held by Peri Howard as an individual.  Peri Howard expressly
         disclaims beneficial ownership of any Units held by her as trustee of
         such trusts, which are trusts established for the benefit of certain
         members of the families of Mr. Binion or Phyllis M. Cope, for purposes
         of Sections 13(d) and 13(g) of the Exchange Act.


ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.





                                       27
<PAGE>   28


         In 1995 the Company engaged certain placement agents, including Onyx
Partners, Inc. ("Onyx") to offer the Senior Notes and Warrants and agreed to
pay the placement agents a fee equal to 2.0% of the gross proceeds.  The
Company also engaged Onyx to arrange the Credit Facility and agreed to pay Onyx
an additional fee for those services.  Onyx has in the past and may in the
future perform financial advisory services for the Company for a fee.  The
Company has agreed to indemnify the placement agents and their controlling
persons against certain liabilities in connection with the offer and sale of
the Senior Notes and Warrants and the arrangement of the Credit Facility,
including liabilities under the Securities Act, and to contribute to payments
that the placement agents may be required to make in respect thereof.
Affiliates of Onyx, who were owners of limited partnership interests and
warrants for the purchase of limited partnership interests in NGCP and RPG,
exercised their warrants and rolled their ownership interests into the Company.
Certain affiliates of Onyx hold Senior Notes.  Affiliates of Onyx are owners of
limited partnership interests in HCM.

         The Company retained the services of KII-Pasadena, Inc. ("KII"), a
California corporation owned by Paul Alanis and Loren Ostrow, pursuant to a
consulting agreement (the "Consulting Agreement") that originally was entered
into between Koar International, Inc., a California corporation that was owned
by Messrs. Alanis and Ostrow, and Mr. Binion (who later assigned his rights and
obligations to HE and RPG).  Pursuant to the Consulting Agreement, KII acted on
behalf of the Company as developer of the Horseshoe Bossier City and the
Horseshoe Casino Center and has provided consulting services to the Company
related to new gaming developments.  The total amount paid pursuant to the
Consulting Agreement, which was cancelled December 31, 1995, since its
inception in March, 1993 was $1,255,000, as well as reimbursements for
out-of-pocket expenditures.  Onyx has agreed to pay KII or its principals for
introducing to Onyx the opportunity of providing financing services to the
Company, a finder's fee equal to 30% of the net fees, commissions and other
compensation received by Onyx for its services in placing the Senior Notes and
arranging the Credit Facility after deduction for all relevant unreimbursed
expenses.  The total fee paid to KII, or its principals, by Onyx, including the
amount payable with respect to the sale of Senior Notes upon the exercise of
the Warrants was approximately $1,151,000.  In the Roll-Up Transaction, Messrs.
Alanis and Ostrow exchanged limited partnership interests in NGCP and RPG for
Units in the Company.  On January 1, 1996, Paul Alanis and Loren Ostrow became
officers of the Company.





                                       28
<PAGE>   29

         The Company conducts a portion of its marketing through an entity that
is owned by the wife of an officer.  Amounts paid to this company totaled
$1,633,000, $1,029,000 and $84,000 for the years ended December 31, 1996, 1995
and 1994 respectively.

         The Company has made loans to various employees with ownership
interests in the company.  The amount outstanding under these notes was
$1,715,000 as of December 31, 1996.  The notes to employees are secured by
their ownership interests in the Company.  The notes have various due dates
ranging from February 1998 through October 1999 and interest rates ranging from
7% to 10%.




                                       29
<PAGE>   30

                                    PART IV

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

<TABLE>
<CAPTION>
                                                                                                                    PAGE
                                                                                                                   NUMBER
                                                                                                                   ------
<S>                                                                                                                   <C>
(A)(1)   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:

         HORSESHOE GAMING L.L.C. AND SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
         NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
         ROBINSON PROPERTY GROUP, L.P.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
</TABLE>

(A)(2)   INDEX TO FINANCIAL STATEMENT SCHEDULES:

         All schedules are omitted as the required information is inapplicable
or not present in amounts sufficient to require submission of the schedule, or
because the information is presented in the consolidated financial statements
or related notes.

(A)(3)   EXHIBITS:

         The exhibits listed on the accompanying Exhibit Index are filed as
         part of this Form 10-K.

(B)      REPORTS ON FORM 8-K:

         None.

(C)      EXHIBITS:

         The exhibits listed on the accompanying Exhibit Index are filed as
         part of this Form 10-K.



                                       30
<PAGE>   31
                    HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
Horseshoe Gaming, L.L.C. and Subsidiaries                                                                 Page
-----------------------------------------                                                                 ----
<S>                                                                                                       <C>
Report of Independent Public Accountants                                                                   F-3
Consolidated Financial Statements:
    Balance sheets as of December 31, 1996 and 1995                                                        F-4
    Statements of operations for the years ended December 31, 1996, 1995 and 1994                          F-5
    Statements of members' equity (deficit) for the years ended December 31, 1996,
      1995 and 1994                                                                                        F-6
    Statements of cash flows for the years ended December 31, 1996, 1995 and 1994                          F-7
    Notes to consolidated financial statements                                                             F-8

New Gaming Capital Partnership and Subsidiary
---------------------------------------------

Report of Independent Public Accountants                                                                  F-23
Consolidated Financial Statements:
    Balance sheets as of December 31, 1996 and 1995                                                       F-24
    Statements of operations for the years ended December 31, 1996, 1995 and 1994                         F-25
    Statements of partners' capital (deficit) for the years ended December 31,
      1996, 1995 and 1994                                                                                 F-26
    Statements of cash flows for the years ended December 31, 1996, 1995 and 1994                         F-27
    Notes to consolidated financial statements                                                            F-28
</TABLE>




                                       F-1
<PAGE>   32
                    HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS
                                   (CONTINUED)



<TABLE>
<S>                                                                                                       <C>
Robinson Property Group, L.P.
-----------------------------

Report of Independent Public Accountants                                                                  F-39
Financial Statements:
    Balance sheets as of December 31, 1996 and 1995                                                       F-40
    Statements of operations for the years ended December 31, 1996, 1995 and 1994                         F-41
    Statements of partners' capital (deficit) for the years ended December 31,
      1996, 1995 and 1994                                                                                 F-42
    Statements of cash flows for the years ended December 31, 1996, 1995 and 1994                         F-43
    Notes to financial statements                                                                         F-44
</TABLE>




                                       F-2
<PAGE>   33
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Horseshoe Gaming, L.L.C.:

We have audited the accompanying consolidated balance sheets of Horseshoe
Gaming, L.L.C. (a Delaware limited liability company) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, members' equity (deficit) and cash flows for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Horseshoe Gaming, L.L.C. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.



                                             ARTHUR ANDERSEN LLP

Las Vegas, Nevada,
  March 4, 1997.



                                       F-3
<PAGE>   34
                    HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                 December 31,
                                                              1996         1995
                                                           ---------    ---------
                                     ASSETS
<S>                                                        <C>          <C>
Current Assets:
  Cash and cash equivalents                                $  79,159    $  65,541
  Accounts receivable, net of allowance for doubtful
    accounts of $3,451 and $2,663                              8,026        5,207
  Inventories                                                  1,435        1,481
  Prepaid expenses and other                                   1,639        1,404
                                                           ---------    ---------
         Total current assets                                 90,259       73,633
                                                           ---------    ---------
Property and Equipment:
  Land                                                        10,225        6,920
  Buildings, boat, barge and improvements                    121,807      100,849
  Furniture, fixtures and equipment                           41,572       35,568
  Less:  accumulated depreciation                            (26,493)     (13,642)
                                                           ---------    ---------
                                                             147,111      129,695
  Construction in progress                                    38,644        9,187
                                                           ---------    ---------
         Net property and equipment                          185,755      138,882
                                                           ---------    ---------

Other Assets:
  Escrow funds                                                42,235       31,316
  Goodwill, net                                               39,226       40,640
  Other                                                       20,122       15,617
                                                           ---------    ---------
                                                           $ 377,597    $ 300,088
                                                           =========    =========

                         LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
  Current maturities of long-term debt                     $  11,060    $  10,747
  Accounts payable                                             3,184        3,910
  Construction payables                                       14,106        3,200
  Accrued expenses and other                                  23,751       25,313
                                                           ---------    ---------
         Total current liabilities                            52,101       43,170

Long-term Debt, less current maturities                      221,648      186,856

Minority Interest                                               (827)      (1,128)

Commitments and Contingencies (Notes 8 and 9)

Redeemable Ownership Interests, net of deferred
  compensation of $3,033 and $6,375                           24,893       18,443

Members' Equity                                               79,782       52,747
                                                           ---------    ---------
                                                           $ 377,597    $ 300,088
                                                           =========    =========
</TABLE>



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


                                      F-4
<PAGE>   35
                    HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                         ----------------------------------
                                            1996         1995        1994
                                         ---------    ---------    --------
<S>                                      <C>          <C>          <C>
Revenues:
  Casino                                 $ 317,479    $ 283,402    $ 59,230
  Food and beverage                         26,947       24,299       5,879
  Hotel                                      7,919        7,289       1,830
  Other                                      4,419        4,092         881
                                         ---------    ---------    --------
                                           356,764      319,082      67,820
  Promotional allowances                   (25,033)     (20,697)     (4,417)
                                         ---------    ---------    --------
    Net revenues                           331,731      298,385      63,403
                                         ---------    ---------    --------

Expenses:
  Casino                                   162,408      133,299      24,339
  Food and beverage                         12,317       12,741       3,167
  Hotel                                      6,798        5,662       1,144
  Other                                      1,359        1,728         676
  General and administrative                55,527       46,298      17,844
  Development                                6,629        4,387       2,128
  Depreciation and amortization             15,989       12,545       2,499
  Preopening                                    --        7,021       6,665
                                         ---------    ---------    --------
    Total expenses                         261,027      223,681      58,462
                                         ---------    ---------    --------
Operating Income                            70,704       74,704       4,941
                                         ---------    ---------    --------

Other Income (Expense):
  Interest expense                         (28,090)     (20,188)     (6,797)
  Interest and other income                  6,126        1,453         538
  Gain on sale of land                          --           --       5,242
  Other, net                                    82           --          --
  Minority interest in income
    of subsidiaries                         (1,861)      (8,850)     (5,691)
                                         ---------    ---------    --------

Income (Loss) Before Extraordinary
  Loss on Early Retirement of Debt          46,961       47,119      (1,767)

Extraordinary Loss on Early Retirement
  of Debt                                       --       (7,179)         --
                                         ---------    ---------    --------

Net Income (Loss)                        $  46,961    $  39,940    $ (1,767)
                                         =========    =========    ========
</TABLE>

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


                                       F-5
<PAGE>   36
                    HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                    Members'          Contributions
                                                    Equity             Receivable               Total
                                                   --------           -------------           --------
<S>                                                <C>                   <C>                  <C>
Balance at December 31, 1993                       $  1,031              $(3,500)             $ (2,469)

Contributions                                         4,164                   --
                                                                                                 4,164
Collections of contributions receivable                  --                3,500                 3,500
Distributions                                        (4,169)                  --                (4,169)
Warrants and partnership interests
  issued in conjunction with senior
  and subordinated notes (Note 5)                     4,374                   --                 4,374
Net loss                                             (1,767)                  --                (1,767)
                                                   --------              -------              --------

Balance at December 31, 1994                          3,633                   --                 3,633

Contributions                                         1,273               (1,150)
                                                                                                   123
Distributions:
  Cash                                              (21,222)                  --               (21,222)
  Payable                                            (1,857)                  --                (1,857)
Increase in redeemable ownership interests          (13,963)                  --               (13,963)
Capital accounts of minority interests purchased      4,543                   --                 4,543
Step-up in basis of assets due to purchase
  of minority interests                              41,755                 (205)               41,550
Net income                                           39,940                   --                39,940
                                                   --------              -------              --------

Balance at December 31, 1995                         54,102               (1,355)               52,747

Collection of contributions receivable                   --                1,355                 1,355
Distributions                                       (18,853)                  --               (18,853)
Increase in redeemable ownership interests           (2,428)                  --                (2,428)
Net income                                           46,961                   --                46,961
                                                   --------              -------              --------

Balance at December 31, 1996                       $ 79,782              $    --              $ 79,782
                                                   ========              =======              ========
</TABLE>

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




                                       F-6
<PAGE>   37
                    HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                              ---------------------------------
                                                                1996         1995        1994
                                                              --------    ---------    --------
<S>                                                           <C>         <C>          <C>
Cash flows from operating activities:
    Net income (loss)                                         $ 46,961    $  39,940    $ (1,767)
    Adjustments to reconcile net income (loss) to
       net cash provided by operating activities:
           Minority interest in income of
              subsidiaries                                       1,861        8,850       5,691
           Depreciation and amortization                        15,989       12,545       2,499
           Amortization of debt discount,
              deferred finance charges and other                 3,032        2,849       1,682
           (Gain) loss on disposal of land and other assets      1,011           --      (5,242)
           Provision for doubtful accounts                       4,388        2,186         477
           Increase in redeemable ownership interests            4,546        6,003       1,414
           Extraordinary loss on early
              retirement of debt                                    --        7,179          --
           Preopening expenses                                      --        7,021       6,665
           Net change in assets and liabilities                 (8,390)       4,544      (1,484)
                                                              --------    ---------    --------
                 Net cash provided by operating activities      69,398       91,117       9,935
                                                              --------    ---------    --------

Cash flows from investing activities:
    Purchases of property and equipment                        (58,824)     (18,986)    (65,675)
    Increase (decrease) in construction payables                10,906          (84)      3,284
    Proceeds from sale of land                                   1,400           --       8,595
    Deferred license fee                                            --           --      (1,000)
    Purchase of land held for sale                                  --       (1,344)         --
    Net increase in escrow funds                               (10,919)     (31,316)         --
    Net increase in other assets                                (8,024)      (6,588)     (1,565)
                                                              --------    ---------    --------
                 Net cash used in investing activities         (65,461)     (58,318)    (56,361)
                                                              --------    ---------    --------

Cash flows from financing activities:
    Proceeds from debt and warrants                             49,073      200,772      80,954
    Payments on debt                                           (15,547)    (149,879)    (11,624)
    Capital contributions                                           --          123       7,664
    Capital distributions                                      (20,710)     (21,222)     (4,169)
    Contributions from minority holders                             --          600         575
    Distributions to minority holders                           (1,560)      (6,069)     (6,102)
    Deferred interest payable                                       --       (2,467)      2,101
    Debt issue costs and commitment fees                        (1,575)      (7,700)     (4,399)
                                                              --------    ---------    --------
                 Net cash provided by financing activities       9,681       14,158      65,000
                                                              --------    ---------    --------

Net change in cash and cash equivalents                         13,618       46,957      18,574
Cash and cash equivalents, beginning of period                  65,541       18,584          10
                                                              --------    ---------    --------
Cash and cash equivalents, end of period                      $ 79,159    $  65,541    $ 18,584
                                                              ========    =========    ========
</TABLE>

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





                                     F-7
<PAGE>   38
                    HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND BASIS OF PRESENTATION

General

Horseshoe Gaming, L.L.C. (the "Company") was formed in Delaware in August 1995
to acquire, through a roll-up transaction effective October 1, 1995, four
entities under the control of Mr. Jack B. Binion ("Mr. Binion"), which conduct
gaming, hotel and other related operations in Bossier City, Louisiana, and
Tunica County, Mississippi, and are actively involved in efforts to develop
gaming operations in new jurisdictions. Because of the integrated nature of
these operations, the Company is considered to be engaged in one industry
segment. A description of each entity is as follows:

-        New Gaming Capital Partnership ("NGCP") is a Nevada limited partnership
         which was formed on February 4, 1993. NGCP is 100% owned by the Company
         and its subsidiary Horseshoe GP, Inc. As of December 31, 1996 and 1995,
         NGCP owned 91.92% of Horseshoe Entertainment, L.P. ("HE"), a Louisiana
         limited partnership which owns and operates the Horseshoe Bossier City
         (see Note 9).

-        Robinson Property Group, L.P. ("RPG") is a Mississippi limited
         partnership which was formed on June 7, 1993. RPG owns and operates the
         Horseshoe Casino Center located in Tunica County, Mississippi, and is
         100% owned by the Company and its subsidiary Horseshoe GP, Inc.

-        Horseshoe Casinos (Indiana), LLC ("HIND") is an Indiana limited
         liability company which was formed in October 1994, to pursue a new
         casino development in Indiana and is 50% owned and managed by the
         Company.

-        Horseshoe Ventures, L.L.C. ("Horseshoe Ventures") is a Delaware limited
         liability company which was formed in August 1995 to pursue the
         development of casinos in new jurisdictions other than in Indiana and
         is 80% owned and managed by the Company.

NGCP and RPG

The Company obtained its ownership interest in NGCP and RPG by exchanging
ownership interests in the Company for partnership interests in NGCP and RPG.
The exchange of ownership interests between the Company and Mr. Binion and
certain affiliates of Mr. Binion has been accounted for at historical cost
similar to that in pooling of interests accounting. On the effective date of the
roll-up transaction, Mr. Binion and certain affiliates of Mr. Binion owned 80.0%
and 82.7% of NGCP and RPG, respectively. The exchange for the remaining
partnership


                                       F-8
<PAGE>   39
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

interests of NGCP and RPG, other than ownership interests issued pursuant to
employee compensation arrangements (see Note 8), have been accounted for as a
purchase of minority interests based on fair value as determined by an
independent appraisal. The total cost of the minority interests in NGCP and RPG
acquired by the Company, based on the fair value of the ownership interests
exchanged, was $17,729,000 and $24,026,000, respectively, which has been
allocated as follows (in thousands):

<TABLE>
<CAPTION>
                                               NGCP          RPG          Total
                                             -------       -------       -------
<S>                                          <C>           <C>           <C>
Land                                         $   149       $ 2,231       $ 2,380
Gaming licenses                                  154            76           230
Goodwill                                      17,426        21,514        38,940
Contribution receivable                           --           205           205
                                             -------       -------       -------
     Total                                   $17,729       $24,026       $41,755
                                             =======       =======       =======
</TABLE>

Gaming licenses are amortized over the remaining term of each license, which is
approximately two and one-half years for NGCP and approximately twelve months
for RPG. Goodwill is amortized on a straight-line basis over 25 years, which
management estimates is the related benefit period (see discussion of the
Company's accounting policy for long-lived assets below). Management regularly
evaluates whether or not the future undiscounted cash flows of NGCP and RPG are
sufficient to recover the carrying amount of the goodwill associated with each
entity. Additionally, management continually monitors such factors as the status
of new or proposed legislation, the competitive environment and the general
economic conditions of the markets in which it operates. If the estimated future
undiscounted cash flows are not sufficient to recover the carrying amount of
goodwill and, accordingly, an impairment has occurred, management intends to
write down the carrying amount of goodwill to its estimated fair value based on
discounted cash flows. The amount of amortization expense recorded for the year
ended December 31, 1996 and for the three months in 1995 following the roll-up
transaction was $1,647,000 and $418,000, respectively.

The financial statements for NGCP and RPG are consolidated for all periods
presented. Prior to the roll-up transaction, the ownership interests not owned
by Mr. Binion and certain affiliates of Mr. Binion, other than ownership
interests issued pursuant to employee compensation arrangements (see Note 8),
are included in minority interests in the accompanying consolidated financial
statements. Such minority interests represented 15.4% of NGCP and 15.1% of RPG
for all periods prior to the roll-up transaction. Subsequent to October 1, 1995,
minority interests represent the limited partners of HE, which owned 11% of HE
at the time of the roll-up transaction and 8.08% at December 31, 1996 and 1995
(see Note 9).


                                      F-9
<PAGE>   40
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

HIND

The Company is the manager of HIND and obtained its 50% ownership interest from
Mr. Binion in exchange for a promissory note of $500,000, which equaled 50% of
the total equity initially contributed to HIND by Mr. Binion and certain
affiliates of Mr. Binion. The note was paid in full on October 26, 1995, at
which time the Company also advanced HIND $1,689,000 to reimburse Mr. Binion for
costs and expenses incurred pursuing a new development in Indiana. The Company
also committed to provide all future financing to HIND for its development,
operation and maintenance of a casino gaming establishment and all related
facilities. The remaining 50% of HIND is owned by Mr. Binion and affiliates of
Mr. Binion.

The purchase of 50% of HIND has also been accounted for as a combination of
entities under common control. Prior to the roll-up transaction, HIND was
controlled by Mr. Binion. HIND is now controlled by the Company. The Company has
unilateral and perpetual control over the assets and operations of HIND by
virtue of legal contract. Accordingly, there exists a parent/subsidiary
relationship by means other than record ownership of majority voting stock.
Therefore, the financial statements of HIND are consolidated for all periods
presented.

The amount of HIND's net loss, which is included in development expenses in the
accompanying consolidated statements of operations, was $3,945,000, $1,724,000
and $427,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
In 1996, the state of Indiana announced its decision not to select HIND's
proposal for a riverboat casino license in Harrison County, Indiana. Minority
interest in HIND's losses is recognized only to the extent funded by Mr. Binion
and affiliates. The amount of minority interest included in the accompanying
consolidated statements of operations was $0, $286,000 and $214,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. The Company is
obligated to fund 100% of the future losses of HIND.

Horseshoe Ventures

The Company and JBB Gaming Investments, L.L.C. ("JBB"), a Delaware limited
liability company owned by Mr. Binion and an affiliate of Mr. Binion, formed
Horseshoe Ventures to pursue the development of casinos in new jurisdictions
other than Indiana. The Company is the manager of Horseshoe Ventures and
contributed a note for $400,000, plus a commitment to provide future financing,
in exchange for an 80% membership interest. The note was paid in full on October
26, 1995. JBB contributed $100,000 in cash in exchange for a 20% membership
interest. Horseshoe Ventures reimbursed Mr. Binion for the total costs and
expenses incurred pursuing the development of casinos in new jurisdictions,
other than Indiana, in the form of a note for $4,269,000, which was paid in full
on October 26, 1995. Since these costs and expenses were reimbursed to Mr.
Binion, such amounts are included in the accompanying consolidated financial
statements as if they were incurred by the Company and its subsidiaries. The
amount of Horseshoe Ventures' net loss, which is included in development
expenses in the accompanying consolidated statements of operations, was
$2,183,000, $2,663,000 and $1,701,000 for the years ended December 31, 1996,
1995 and 1994, respectively. There is no minority interest in these losses
reflected in the accompanying consolidated statements of operations, because the
Company funded 100% of such losses and is obligated to fund 100% of future
losses.


                                      F-10
<PAGE>   41
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

Other

The Company is managed by Horseshoe Gaming, Inc. ("HGI"), which owns
approximately 30.6% of the Company and is owned by Mr. Binion and certain
affiliates of Mr. Binion. Mr. Binion is the Chief Executive Officer of HGI. The
Company reimburses HGI for expenses associated with the management of the
Company but does not compensate HGI for services as manager. HGI's sole purpose
is to manage the Company; accordingly, all expenses incurred by HGI are charged
to the Company and are reflected in the accompanying consolidated statements of
operations in the period such expenses are incurred by HGI.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
all of its subsidiaries (see Note 1), since the Company either holds more than a
50% ownership interest or has the ability to control such subsidiaries in its
capacity as manager. All significant intercompany accounts and transactions have
been eliminated.

Cash and Cash Equivalents

Cash and cash equivalents include commercial paper, amounts held in mutual
funds and other investments with original maturities of 90 days or less when
purchased.

Inventories

Inventories are stated at the lower of cost, as determined on a first-in,
first-out basis, or market value and consist primarily of food, beverage, retail
merchandise, kitchen smallwares and employee wardrobe.

Property and Equipment

Property and equipment are stated at cost. The costs of normal repairs and
maintenance are expensed as incurred while major expenditures that extend the
useful lives of assets are capitalized.

Depreciation is provided for on the straight-line basis over the estimated
useful lives of the assets as follows:

        Buildings, boat, barge and improvements               15 to 30 years
        Furniture, fixtures and equipment                      3 to 10 years


                                      F-11
<PAGE>   42
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Capitalized Interest

The Company capitalizes interest for associated borrowing costs of major
construction projects. Capitalization of interest ceases when the asset is
substantially complete and ready for its intended use. Interest capitalized
during the years ended December 31, 1996, 1995 and 1994 was $1,272,000, $651,000
and $3,595,000, respectively.

Casino Revenues

In accordance with industry practice, casino revenues represent the net win from
gaming activities, which is the difference between gaming wins and losses.

Casino Promotional Allowances

Casino promotional allowances consist primarily of the retail value of
complimentary food and beverage, rooms and other services furnished to guests
without charge. Such amounts are included in gross revenues and deducted as
promotional allowances. The estimated costs of providing such complimentary
services, which are substantially included in casino department expenses, are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                           --------------------------------
                                             1996         1995        1994
                                           -------      -------      ------
         <S>                               <C>          <C>          <C>
         Food and beverage                 $22,055      $17,165      $2,998
         Hotel                               3,034        2,665         814
         Other operating expenses              619          486          18
                                           -------      -------      ------
                                           $25,708      $20,316      $3,830
                                           =======      =======      ======
</TABLE>

Development and Preopening Expenses

Until all necessary approvals to proceed with the development of a new casino
project are obtained from the appropriate regulatory authorities, the related
development costs are expensed as incurred. Preopening costs incurred after the
receipt of necessary approvals are deferred as incurred and expensed upon the
opening of the related casino. Preopening costs of $6,665,000 were expensed in
connection with the opening of Horseshoe Bossier City in July 1994, and
preopening costs of $7,021,000 were expensed in connection with the opening of
the Horseshoe Casino Center in February 1995.


                                      F-12
<PAGE>   43
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Deferred Finance Charges

As of December 31, 1994, deferred finance charges, which are included in other
assets, consisted of fees and expenses incurred to issue the Old Notes discussed
in Note 5, including placement fees paid for by the issuance of ownership
interests and warrants to purchase ownership interests (the "Equity Warrants")
in RPG and NGCP. The value of such ownership interests and Equity Warrants,
based on independent appraisal, was recorded as deferred finance charges with a
corresponding credit to members' equity. These ownership interests and Equity
Warrants were subsequently exchanged for ownership interests and warrants to
purchase ownership interests in the Company.

The deferred finance charges related to the Old Notes were being amortized over
the period from the initial funding of the debt through the latest date of
repayment of the debt using the effective interest method. In October 1995, the
Company wrote off the balance of unamortized deferred finance charges of
approximately $3,182,000 which is included in the extraordinary loss on early
retirement of debt in the 1995 consolidated statement of operations.

The balance of deferred finance charges as of December 31, 1996 and 1995 was
$5,880,000 and $6,692,000, respectively, and consists of fees and expenses
incurred to issue the New Senior Notes and to obtain the Senior Secured Credit
Facility in October 1995, as discussed in Note 5. The deferred finance charges
related to the New Senior Notes and Senior Secured Credit Facility are being
amortized over the term of the debt using the effective interest method.

Income Taxes

The Company is organized as a limited liability company under Delaware laws. The
Internal Revenue Service will classify a limited liability company as a
partnership for federal income tax purposes if the limited liability company
lacks certain characteristics of corporations.

Management believes that the Company lacks the corporate characteristics and
will be classified as a partnership for federal income tax purposes.
Accordingly, no provision is made in the accounts of the Company for federal
income taxes, as such taxes are liabilities of the members. The Company's income
tax return and the amount of allocable taxable income are subject to examination
by federal taxing authorities. If an examination results in a change to taxable
income, the income tax reported by the members may also change. The tax bases in
the Company's assets and liabilities were in excess of the amounts reported in
the accompanying consolidated financial statements by $7,754,000 and $13,027,000
at December 31, 1996 and 1995, respectively. Taxable income was in excess of net
income reported in the accompanying consolidated statements of operations for
all periods presented.


                                      F-13
<PAGE>   44
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Redeemable Ownership Interests

The Company is obligated to repurchase ownership interests held by certain
employees in the event of their termination at a price equal to the then fair
market value, based on an independent appraisal. The fair value of such
ownership interests is reported outside of members' equity in the accompanying
consolidated balance sheets for all periods presented. The ownership interests
issued to employees pursuant to employment contracts is recorded as deferred
compensation in the accompanying consolidated balance sheets and expensed at
fair market value over the vesting period (see Note 8).

In addition, certain individuals obtained ownership interests in the Company or
its subsidiaries prior to becoming employees of the Company. Upon becoming an
employee, each individual entered into an employment agreement which includes,
among other things, a put/call provision in the event of the employee's
termination at a price equal to the then fair market value, based on an
independent appraisal. These individuals became employees of the Company between
October 1, 1995, and January 1, 1996, and held ownership interests in the
Company totaling 5.1% as of December 31, 1996 and 1995. The fair value of these
ownership interests of $16,391,000 and $13,516,000 has also been classified
outside of members' equity in the accompanying consolidated balance sheets as of
December 31, 1996 and 1995, respectively.

Capital Distributions

The New Senior Notes and the Senior Secured Credit Facility contain covenants
that limit capital distributions to the members. Capital distributions to the
members are to be based upon taxable income and the federal and state corporate
statutory tax rates in effect. Such distributions are to be paid quarterly based
upon estimated taxable income. After filing by the Company and its subsidiaries
of their annual tax returns, each member is to reimburse the Company for
overpayments of capital distributions or the Company is to withhold such amounts
from future distributions to the members.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," management continually evaluates whether events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable. Based on management's evaluations, no significant impairments of
long-lived assets have occurred during the three years ended December 31, 1996.

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 amounts 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.


                                      F-14
<PAGE>   45
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Prior Year Reclassifications

Certain prior year balances have been reclassified to conform with the current
year presentation.

3. CONSOLIDATED STATEMENTS OF CASH FLOWS

Non-cash investing and financing activities consist of the following:

         Purchases of property and equipment financed through payables totaled
         $0, $17,833,000 and $31,115,000 for the years ended December 31, 1996,
         1995 and 1994, respectively.

         A capital contribution of $1,150,000 was made through the issuance of a
         contribution receivable during the year ended December 31, 1995. The
         Company received land in satisfaction of the receivable during 1996.

         Distributions totaling $1,857,000, which were accrued at December 31,
         1995, were paid during 1996. Additionally, in 1995, the Company
         recorded a payable for the purchase of an employee's ownership in the
         Company in the amount of $3,306,000 of which $1,653,000 is included in
         current maturities of long-term debt and $1,653,000 is included in
         long-term debt as of December 31, 1995.

The net change in assets and liabilities consists of the following (in
thousands):


<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                               --------------------------------
                                                 1996        1995         1994
                                               -------     --------     -------
<S>                                            <C>         <C>          <C>
(Increase) decrease in assets:
    Accounts receivable                        $(7,207)    $ (6,327)    $(1,543)
    Inventories                                     46         (142)     (1,339)
    Prepaid expenses and other                    (281)        (335)     (1,069)
    Preopening expenses                             --       (3,202)     (8,879)
Increase (decrease) in liabilities:
    Accounts payable                              (726)         (24)      1,689
    Accrued expenses and other                    (222)      14,574       9,657
                                               -------     --------     -------
                                               $(8,390)    $  4,544     $(1,484)
                                               =======     ========     =======
</TABLE>

Cash payments made for interest, excluding amounts capitalized, totaled
$24,799,000, $19,848,000 and $3,619,000 for the years ended December 31, 1996,
1995 and 1994, respectively.


                                      F-15
<PAGE>   46
4. ACCRUED EXPENSES AND OTHER

Accrued expenses and other consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                   December 31,
                                                              ---------------------
                                                                1996          1995
                                                              -------       -------
         <S>                                                  <C>           <C>
         Payroll and related tax liabilities                  $ 2,811       $ 2,056
         Vacation and other employee benefits                   3,969         3,060
         Accrued interest                                       5,283         5,116
         Gaming, sales, use and property taxes                  2,400         3,417
         Progressive slot and slot club liabilities             4,325         4,053
         Other accrued expenses                                 4,963         7,611
                                                              -------       -------
                                                              $23,751       $25,313
                                                              =======       =======
</TABLE>

5. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                        ------------------------
                                                                          1996            1995
                                                                        --------       ---------
        <S>                                                             <C>            <C>
        Senior Secured Credit Facility; variable interest at LIBOR
           plus 3%; due in semi-annual installments
           with remaining balance due September 30, 1999                $ 79,303       $  93,185

        12.75% Senior Notes (effective interest rate of
           approximately 13.01%), due September 30, 2000,
           net of unamortized discount of $2,272 and $1,900              147,728          98,100

        Notes Payable, interest ranging from 6% to
           9%, due in various installments through
           January 1999                                                    5,677           6,318
                                                                        --------       ---------
                                                                         232,708         197,603

        Less:  current maturities                                        (11,060)        (10,747)
                                                                        --------       ---------

                                                                        $221,648       $ 186,856
                                                                        ========       =========
</TABLE>

In April 1994, Horseshoe Riverboat Casinos, LLC ("HRC"), which was owned 50% by
HE and 50% by RPG, completed a private placement of debt securities which were
used for the construction of the Horseshoe Bossier City and the Horseshoe Casino
Center. The total amount of Senior Notes and Subordinated Notes (collectively,
the "Old Notes") issued by HRC was $38,000,000 and $32,000,000, respectively,
and was loaned to HE and RPG on identical terms. These notes were retired in
October 1995 with the proceeds from the New Senior Notes and Senior Secured
Credit Facility (see discussion below).


                                      F-16
<PAGE>   47
5. LONG-TERM DEBT (CONTINUED)

The Old Notes carried warrants to purchase partnership interests in RPG and
NGCP. The value of these warrants on the date of issue, based on independent
appraisal, was recorded as a discount against the face value of the Old Notes
with a corresponding credit to members' equity. Certain of the warrant holders
exercised such warrants and exchanged their newly issued partnership interests
for membership interests in the Company. The remaining warrants were exchanged
for warrants to purchase an approximate aggregate 7.01% membership interest in
the Company. Upon exercise of the warrants, the Company shall distribute to HGI
the amounts received with respect thereto. HGI shall reduce its membership
interest in the Company by an amount equal to the membership interest in the
Company acquired by the warrant holders upon exercise thereof.

The Old Notes were secured by HE and RPG's land, buildings and certain personal
property. Mr. Binion personally guaranteed the repayment of $10,000,000 of the
Senior Notes payable. All of the partners in RPG and all of the partners of NGCP
pledged their individual partnership interests as guarantees for payment of the
Old Notes.

On October 10, 1995, the Company retired the Old Notes, the senior vessel
financing and certain notes payable to affiliates with a portion of the proceeds
from a $150,000,000 Senior Secured Credit Facility due September 30, 1999 (the
"Credit Facility") and a private placement of $100,000,000 of 12.75% senior
notes (with an effective interest rate of approximately 13.01%) due September
30, 2000 (the "New Senior Notes"). The senior equipment financing was retired in
December 1995. An extraordinary loss on early retirement of debt of $7,179,000
was recognized in 1995 for prepayment penalties and the write-off of the
unamortized discounts and deferred finance charges.

The commitment fee for the Credit Facility was $1,200,000, and at closing the
Company issued notes totaling $93,185,000. The Company may issue additional
notes under the Credit Facility of up to $6,815,000 through September 30, 1999.
Notes issued under the first $100,000,000 of the Credit Facility bear interest
at six-month LIBOR plus 3.0% and require 5% of the outstanding principal balance
to be repaid semi-annually.

The Credit Facility and the related interest are guaranteed unconditionally by
RPG and are secured by a first pledge of the Company's ownership interest in all
present and future subsidiaries with the exception of NGCP's ownership interest
in HE. The Credit Facility is also secured by (i) a first lien position on
substantially all of the assets of Horseshoe Casino Center other than certain
gaming equipment; (ii) a first lien position on all intercompany notes received
by the Company from its subsidiaries, in each case secured by a first lien on
the casino and real property of each subsidiary; (iii) a first lien on
substantially all of the assets of HIND, excluding equipment; and (iv) a first
pledge of the minority interest in all present and future subsidiaries owned by
Mr. Binion and certain affiliates of Mr. Binion. In addition, Mr. Binion
personally guaranteed the repayment of $8,250,000 of the Credit Facility.


                                      F-17
<PAGE>   48
5. LONG-TERM DEBT (CONTINUED)

The New Senior Notes were issued at 98% of par value and included warrants to
purchase an additional $50,000,000 of New Senior Notes at a price of 98.15% of
par value. These warrants were exercised on April 10, 1996, and the Company
received proceeds of $49,073,000. The New Senior Notes and the related
interest are guaranteed unconditionally by RPG and are secured by a second
pledge of the Company's ownership interest in all present and future
subsidiaries with the exception of NGCP's ownership interest in HE. The New
Senior Notes are also secured by (i) a second lien position on substantially all
of the assets of Horseshoe Casino Center other than certain gaming equipment;
(ii) a second lien position on all intercompany notes received by the Company
from its subsidiaries, in each case secured by a second lien on the casino and
real property of each subsidiary; and (iii) a second pledge of the minority
interest in all present and future subsidiaries owned by Mr. Binion and certain
affiliates of Mr. Binion.

The New Senior Notes and the Credit Facility contain covenants that, among other
things, (i) limit the amount of additional indebtedness which may be incurred by
the Company and its subsidiaries; (ii) prohibit any consolidation or merger of
the Company or its subsidiaries with an affiliate or third party, any sale of
substantially all of the Company or its subsidiaries' assets, or any payment of
subordinated indebtedness prior to its scheduled maturity; and (iii) require the
Company and its subsidiaries to invest excess funds in cash equivalents, as
defined, and government securities with a maturity of one year or less.

The New Senior Notes are not redeemable prior to September 30, 1999, except
prior to September 30, 1998, the Company may redeem up to 35% of the aggregate
principal amount at 110% of the par value with the net cash proceeds of a public
offering of the Company's stock. In addition, the Credit Facility may be repaid
at 101% of par value prior to September 30, 1998.

The excess proceeds from the New Senior Notes and the Credit Facility of
approximately $31,100,000, as well as the $49,073,000 of proceeds received
on April 10, 1996, were placed in an escrow account to be used solely for the
expansion of the Company's existing facilities, development of new casinos and
retirement of debt.

As of December 31, 1996, the five year maturities for long-term debt are as
follows (in thousands):

<TABLE>
                  <S>                                              <C>
                  1997                                             $ 11,060
                  1998                                                8,153
                  1999                                               65,767
                  2000                                              150,000
                  2001                                                   --
                                                                   --------
                                                                    234,980
                  Less unamortized discount                          (2,272)
                                                                   --------
                                                                   $232,708
                                                                   ========
</TABLE>

As of December 31, 1996 and 1995, the fair market value of the New Senior Notes,
based on quoted market prices was $162,750,000 and $99,125,000, respectively.
The fair market value of the Company's other long-term debt approximated its
carrying value as of December 31, 1996 and 1995, based on the borrowing rates
currently available for debt with similar terms.


                                      F-18
<PAGE>   49
6. TRANSACTIONS WITH RELATED PARTIES

On the inception date of NGCP and RPG (February 4, 1993, and June 7, 1993,
respectively), the partners were required to make capital contributions of
$4,000,000 and $3,000,000, respectively. Such contributions were not paid in
cash until 1994; therefore, a contributions receivable was recorded for the
required contributions. The contributions receivable earned interest at an
annual rate of 10% until paid. The related interest receivable balance was $0
and $305,000 as of December 31, 1996 and 1995, respectively.

Mr. Binion has provided services pursuing, developing and managing gaming
operations for the Company and its subsidiaries. Mr. Binion has not been
compensated for his services in the past nor is there an existing employment
agreement providing for Mr. Binion to receive compensation for his services in
the future; however, the Company and Mr. Binion may enter into such an
employment agreement during 1997.

KII-Pasadena, Inc., which is owned by two individuals that became executive
officers of HGI on January 1, 1996, has acted on behalf of the Company as
developer for the Horseshoe Bossier City and the Horseshoe Casino Center and has
provided consulting services to the Company related to pursuing new gaming
developments. Total fees paid to KII-Pasadena, Inc. for such services were $0,
$660,000 and $460,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Additionally, one of the placement agents for the New Senior Notes
and Credit Facility discussed in Note 5 agreed to pay the principals of
KII-Pasadena, Inc. a finders' fee equal to 30% of the net fees, commissions and
other compensation received, or to be received, by the placement agent for its
services related to these financing transactions. The total fees paid to
KII-Pasadena, Inc., or its principals, by the placement agent was $260,000 and
$891,000 during the years ended December 31, 1996 and 1995, respectively.

The principals of the placement agent referred to above own approximately 3.9%
of the Company and are expected to own interests in certain of the Company's
proposed casino developments in new jurisdictions. In connection with the sale
of the New Senior Notes and the arrangement of the Credit Facility, the Company
paid fees to the placement agent of $3,210,000 and indemnified the placement
agent and its principals against certain liabilities, including liabilities
under the Securities Act of 1933. In connection with the exercise of the
warrants to purchase an additional $50,000,000 of New Senior Notes, the Company
paid fees to the placement agent of $981,000. These fees were recorded as
deferred finance charges in the accompanying financial statements. Additional
fees were paid to the placement agent during 1996 for various financial advisory
services totaling $510,000.

Included in other assets in the accompanying consolidated balance sheets are
notes receivable from employees with ownership interests in the Company and
limited partners of HE totaling $3,734,000 and $1,175,000 as of December 31,
1996 and 1995, respectively. The notes to employees are secured by their
ownership interests in the Company, and the notes to the limited partners are
secured by their ownership interests in HE. The notes have various due dates
ranging from February 1998 through October 1999 and interest rates ranging from
7% to 10%.


                                      F-19
<PAGE>   50
6. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

In November 1995, HE canceled a legal service retainer agreement it had entered
into in 1993 with an individual for a one-time fee of $600,000, which is
included in general and administrative expenses in 1995. Two relatives of such
individual are limited partners in HE, holding an aggregate ownership interest
of 5.08%. The original agreement covered legal services for a period of five
years commencing December 1, 1993, and ending November 30, 1998, and required
sixty monthly payments of $16,667. The amounts paid under this contract for
legal services amounted to $0, $167,000 and $200,000 for the years ended
December 31, 1996, 1995 and 1994. HE has no further obligations under the legal
service retainer agreement.

During the years ended December 31, 1996, 1995 and 1994, there were numerous
transactions with parties affiliated with the Company. These transactions
included, but are not limited to, payments for consulting fees, various
operating expenses and other items. The total amount of such expenditures for
the years ended December 31, 1996, 1995 and 1994 were $3,267,000, $9,133,000
and $2,338,000, respectively.

7. GAIN ON SALE OF LAND

The Company, through its subsidiary RPG, acquired land for the development of
the Horseshoe Casino Center in 1993 for approximately $4,696,000. The funds to
purchase the land were loaned to the Company directly and indirectly by Mr.
Binion. RPG's partnership agreement required that any gain from the sale of this
land be distributed to certain of the original limited partners of RPG. Such
limited partners are affiliates of Mr. Binion and have subsequently exchanged
their partnership interests in RPG for ownership interests in the Company in
connection with the roll-up transaction discussed in Note 1.

In June 1994, RPG sold a portion of the land and recognized a gain of
$5,242,000. Of this gain, $3,155,000 was distributed to the original limited
partners of RPG in cash, and $2,087,000 was distributed in the form of a note.
Since not all of the Company's members received the benefit of the gain on sale,
such gain is included in minority interest in (income) loss of subsidiaries in
the accompanying consolidated statements of operations for the year ended
December 31, 1994. The remaining land, which had a net book value of $1,058,000,
was transferred to RPG's original limited partners on October 20, 1995.

8. EMPLOYEE COMPENSATION AND BENEFITS

Employment Agreements

During 1994, HE and RPG entered into employment agreements with certain key
employees that provide certain benefits in the event such employees are
terminated. These employees also received ownership interests in NGCP and RPG,
which were subsequently exchanged for membership interests in the Company and
vest over the terms specified in the various employment agreements, which is
generally five years. These employment agreements include a put/call provision
which if exercised by the employee would require the Company to repurchase these
ownership interests in the event of termination at the then fair market value
based on an independent appraisal. Accordingly, these compensation agreements
are accounted for asvariable stock purchase plans. Compensation expense is
recorded each period equal to the change in the fair market value of ownership
interests issued pursuant to these agreements.


                                      F-20
<PAGE>   51
8. EMPLOYEE COMPENSATION AND BENEFITS (CONTINUED)

During the fourth quarter of 1995, certain employees of HGI received ownership
interests in the Company, vesting generally over three years, pursuant to
similar employment agreements which also include put/call provisions in the
event of termination. As stated in Note 1, the Company is required to reimburse
HGI for all expenses incurred related to the operations of the Company and would
be required to fund any repurchase of HGI employees' ownership interests in the
Company, pursuant to these employment agreements. Accordingly, the deferred
compensation and related compensation expense associated with the HGI employees
are included in the accompanying consolidated financial statements of the
Company.

The total ownership interest in the Company issued to employees pursuant to such
employment agreements was 4.0% and 3.8% as of December 31, 1996 and 1995,
respectively, of which 2.4% and 1.5% was vested as of December 31, 1996 and
1995, respectively. The amount of compensation expense recorded in the
accompanying consolidated statements of operations related to these ownership
interests was $4,340,000, $6,272,000 and $1,514,000 for the years ended December
31, 1996, 1995 and 1994, respectively.

During September 1995, one of the HE employees who had entered into an
employment agreement during 1993 resigned from HE. Pursuant to a settlement
agreement with the employee, HE agreed to pay severance benefits of $230,000
which was expensed in 1995. In addition, the Company agreed to acquire the
employee's vested ownership interest in the Company of .95% for $3,306,000 based
on an independent appraisal, which is included in the 1995 compensation expense
amount discussed above. Such amount is payable in two equal installments on
April 1, 1996 and 1997, and bears interest at 9%.

 401(k) Savings Plan

Effective January 1, 1995, a 401(k) savings plan was established at RPG whereby
eligible employees may contribute up to 15% of their salary. An identical 401(k)
savings plan was established on January 1, 1996 for employees of the Company and
its subsidiaries other than RPG. The Company matches 50% of the employees'
contributions up to a maximum of 6% of their salary, and the employees vest in
the matching contribution over six years. Employees are eligible to participate
in the plan on the first day of the next calendar quarter following six months
of service. The Company's matching contributions were $667,000 and $158,000 for
the year ended December 31, 1996 and 1995, respectively.

9. COMMITMENTS AND CONTINGENCIES

Litigation

The Company and its subsidiaries, during the normal course of operating its
business, become engaged in various litigation. In the opinion of the Company's
management, the ultimate disposition of such litigation will not have a material
impact on the Company's operations.


                                      F-21
<PAGE>   52
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Minority Interest Purchase Commitments

In February 1996, NGCP entered into an option agreement to purchase an
additional 1% limited partnership interest in HE for $1,541,000, of which
approximately $514,000 was paid at closing. The option expires on December 31,
1997. In September 1996, NGCP loaned the limited partner $900,000, which is
included in other assets in the accompanying consolidated balance sheet as of
December 31, 1996. The note, including interest at 7%, is due December 31, 1998.

Effective December 31, 1995, NGCP purchased a 2.92% limited partnership interest
in HE for $4,473,000, of which $1,473,000 was paid at closing during January
1996, with the remaining $3,000,000 evidenced by a 6% per annum promissory note,
payable in three annual installments of $1,000,000, plus accrued interest,
beginning January 2, 1997. The limited partner agreed to remit to HE
approximately $123,000, which was equal to his negative capital balance at the
time of closing. The purchase agreement allocated $2,384,000 of the purchase
price to a non-compete agreement with the remaining $2,089,000 allocated to the
purchase of the limited partner's interest. The asset related to the non-compete
agreement is being amortized over the life of the agreement (three years). The
purchase price of the limited partnership interest is included in goodwill and
is being amortized over an estimated benefit period of approximately 25 years.
The Company has agreed to pay additional consideration of up to $500,000 a year
for three years based on certain earnings criteria which will be added to the
purchase price and amortized accordingly. At December 31, 1996, the earnings
criteria were met and additional consideration of $500,000 was recorded.
$267,000 of the additional consideration was allocated to the non-compete
agreement, and the remaining $233,000 was allocated to goodwill. The unamortized
balance of the non-compete agreement is included in other assets in the
accompanying consolidated balance sheets and was $2,384,000 and $1,584,000 as of
December 31, 1996 and 1995, respectively.

The Company is also required to purchase the minority ownership interests in any
new projects developed by Horseshoe Ventures following 36 months of operations.
The purchase price is to be based on earnings during the 36-month period and is
payable in cash or ownership interests in the Company.

Construction Commitments

The Company is currently expanding both of its existing casino properties, which
are expected to be completed during the fourth quarter of 1997 at a total
estimated cost of $280,000,000. As of December 31, 1996, the total amount
incurred was $59,603,000, of which $20,959,000 had been placed in service as of
December 31, 1996.


                                      F-22
<PAGE>   53
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Partners of New Gaming Capital Partnership:

We have audited the accompanying consolidated balance sheets of New Gaming
Capital Partnership (a Nevada partnership) and subsidiary as of December 31,
1996 and 1995, and the related consolidated statements of operations, partners'
capital (deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New Gaming Capital Partnership
and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.



                                             ARTHUR ANDERSEN LLP

Las Vegas, Nevada,
 March 4, 1997.




                                      F-23
<PAGE>   54
                  NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  December 31,
                                                            ----------------------
                                                               1996         1995
                                                            ---------    ---------
                                     ASSETS
<S>                                                         <C>          <C>
Current Assets:
    Cash and cash equivalents                               $  14,913    $  27,025
    Accounts receivable, net of allowance for doubtful
       accounts of $803 and $1,407                              1,901        1,825
    Inventories                                                   957        1,063
    Prepaid expenses and other                                  1,102        1,225
                                                            ---------    ---------
                 Total current assets                          18,873       31,138
                                                            ---------    ---------
Property and Equipment:
    Land                                                        6,115        4,215
    Buildings, boat and improvements                           71,554       50,678
    Furniture, fixtures and equipment                          24,125       19,403
    Less: accumulated depreciation                            (15,028)      (8,247)
                                                            ---------    ---------
                                                               86,766       66,049
    Construction in progress                                   18,482        8,889
                                                            ---------    ---------
                 Net property and equipment                   105,248       74,938
                                                            ---------    ---------
Other Assets:
    Goodwill, net                                              18,788       19,341
    Other                                                      11,269        8,314
                                                            ---------    ---------
                                                            $ 154,178    $ 133,731
                                                            =========    =========

                        LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
    Current maturities of long-term debt                    $  11,854    $   7,320
    Accounts payable                                            1,882        1,239
    Due to affiliates                                           2,536        5,596
    Construction payables                                       7,161        3,200
    Accrued expenses and other                                  8,373       12,398
                                                            ---------    ---------
                 Total current liabilities                     31,806       29,753

Long-term Debt, less current maturities                        97,837       70,692

Minority Interest                                                (827)      (1,128)

Commitments and Contingencies (Notes 7 and 8)

Partners' Capital                                              25,362       34,414
                                                            ---------    ---------
                                                            $ 154,178    $ 133,731
                                                            =========    =========
</TABLE>

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


                                      F-24
<PAGE>   55
                  NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                      Year ended December 31,
                                                ----------------------------------
                                                   1996         1995        1994
                                                ---------    ---------    --------
<S>                                             <C>          <C>          <C>
Revenues:
    Casino                                      $ 166,768    $ 151,210    $ 59,230
    Food and beverage                              15,573       14,618       5,879
    Hotel                                           4,431        4,197       1,830
    Other                                           1,650        1,863         881
                                                ---------    ---------    --------
                                                  188,422      171,888      67,820
    Promotional allowances                        (13,559)     (11,106)     (4,417)
                                                ---------    ---------    --------
       Net revenues                               174,863      160,782      63,403
                                                ---------    ---------    --------

Expenses:
    Casino                                         89,713       78,071      24,339
    Food and beverage                               8,484        9,246       3,167
    Hotel                                           3,429        3,600       1,144
    Other                                             597        1,035         676
    General and administrative                     31,090       26,402      16,468
    Development                                       500           --          --
    Depreciation and amortization                   8,855        6,162       2,433
    Preopening                                         --           --       6,665
                                                ---------    ---------    --------
       Total                                      142,668      124,516      54,892
                                                ---------    ---------    --------
Operating Income                                   32,195       36,266       8,511
                                                ---------    ---------    --------

Other Income (Expense):
    Interest expense                              (11,436)     (10,235)     (4,939)
    Interest income                                   867          664         142
    Other, net                                        418           --          --
    Minority interest in income of subsidiary      (1,861)      (2,580)       (442)
                                                ---------    ---------    --------

Income Before Extraordinary Loss
    on Early Retirement of Debt                    20,183       24,115       3,272

Extraordinary Loss on Early Retirement
    of Debt                                            --       (4,081)         --
                                                ---------    ---------    --------

Net Income                                      $  20,183    $  20,034    $  3,272
                                                =========    =========    ========
</TABLE>

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


                                      F-25
<PAGE>   56
                  NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
             CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                  Partners'    Contributions
                                                   Capital       Receivable        Total
                                                  --------     -------------     --------
<S>                                               <C>              <C>           <C>
Balance at December 31, 1993                      $     13         $(500)        $   (487)

Net income                                           3,272            --            3,272
Collection of contributions receivable                  --           500              500
Contributions                                        4,739            --            4,739
Distributions                                       (4,369)           --           (4,369)
Warrants and partnership interests
    issued in conjunction with senior
    and subordinated notes (Note 5)                  2,867            --            2,867
                                                  --------         -----         --------

Balance at December 31, 1994                         6,522            --            6,522

Net income                                          20,034            --           20,034
Contributions                                          123            --              123
Distributions:
    Cash                                            (8,137)           --           (8,137)
    Payable (Note 2)                                (1,857)           --           (1,857)
Step-up in basis of assets due to purchase
    of minority interest                            17,729            --           17,729
                                                  --------         -----         --------

Balance at December 31, 1995                        34,414            --           34,414

Net income                                          20,183            --           20,183
Distributions                                      (29,235)           --          (29,235)
                                                  --------         -----         --------

Balance at December 31, 1996                      $ 25,362         $  --         $ 25,362
                                                  ========         =====         ========
</TABLE>

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


                                      F-26
<PAGE>   57
                  NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                             --------------------------------
                                                               1996        1995        1994
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Cash flows from operating activities:
    Net income                                               $ 20,183    $ 20,034    $  3,272
    Adjustments to reconcile net income
       to net cash provided by operating activities:
          Minority interest in income of subsidiary             1,861       2,580         442
          Depreciation and amortization                         8,855       6,162       2,433
          Provision for doubtful accounts                         987         930         477
          Amortization of debt discounts,
            deferred finance costs and other                      708       3,171       2,364
          Gain on land held for sale                              (96)         --          --
          Extraordinary loss on early retirement of debt           --       4,081          --
          Preopening expenses                                      --          --       6,665
          Change in assets and liabilities                     (2,359)      2,144        (516)
                                                             --------    --------    --------
                 Net cash provided by operating activities     30,139      39,102      15,137
                                                             --------    --------    --------

Cash flows from investing activities:
    Purchase of property and equipment                        (37,326)    (13,788)    (43,154)
    Increase (decrease) in construction payables                3,961         (84)      3,284
    Deferred license fee                                           --          --      (1,000)
    Sale of land held for sale                                  1,440          --          --
    Purchase of land held for sale                                 --      (1,344)         --
    Increase in other assets                                   (4,379)     (4,895)       (662)
                                                             --------    --------    --------
                 Net cash used in investing activities        (36,304)    (20,111)    (41,532)
                                                             --------    --------    --------

Cash flows from financing activities:
    Proceeds from debt and warrants                            40,000      81,600      49,597
    Payments on debt                                           (8,821)    (70,925)    (11,821)
    Capital contributions                                          --         123       5,239
    Capital distributions                                     (31,092)     (8,137)     (4,369)
    Distributions to minority interests                        (1,560)     (3,460)       (660)
    Increase (decrease) in due to affiliates                   (3,128)       (259)      2,214
    Debt issue costs                                           (1,346)     (2,524)     (2,189)
                                                             --------    --------    --------
                 Net cash (used in) provided by
                     financing activities                      (5,947)     (3,582)     38,011
                                                             --------    --------    --------

Net change in cash and cash equivalents                       (12,112)     15,409      11,616
Cash and cash equivalents, beginning of period                 27,025      11,616          --
                                                             --------    --------    --------
Cash and cash equivalents, end of period                     $ 14,913    $ 27,025    $ 11,616
                                                             ========    ========    ========
</TABLE>

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


                                      F-27
<PAGE>   58
                  NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND BASIS OF PRESENTATION

New Gaming Capital Partnership (the "Partnership") was formed as a Nevada
limited partnership on February 4, 1993. The Partnership is 100% owned, directly
and indirectly, by Horseshoe Gaming, L.L.C. ("Gaming"), and is the 89% general
partner of Horseshoe Entertainment, L.P. ("HE"), a Louisiana limited
partnership, which owns and operates the Horseshoe Bossier City (the "Casino"),
a dockside riverboat casino located in Bossier City, Louisiana. The minority
interest amounts in the accompanying consolidated financial statements represent
the 11% of HE owned by limited partners. Effective December 31, 1995, the
Partnership purchased a 2.92% limited partnership interest from one of the
minority owners (see Note 8). HE also leased and operated the Le Bossier Hotel
(the "Le Bossier"), a 201 room hotel located approximately five miles from the
Casino in Bossier City, before purchasing it in March 1996. HE was formed on
February 4, 1993, the Le Bossier opened in May 1994 and the Casino opened on
July 9, 1994. Consistent with Louisiana state law, the gaming license granted to
HE is for a five year period, after which it may be renewed.

On October 1, 1995, Gaming completed a roll-up transaction which resulted in the
acquisition by Gaming of approximately 15% of the Partnership's ownership
interests (the "Roll-up"). The total cost of the Partnership interests purchased
by Gaming , based on the fair value of the ownership interests in Gaming
exchanged, was $17,729,000, of which $149,000 was allocated to land, $154,000
was allocated to gaming licenses and $17,426,000 was allocated to goodwill. The
purchase price allocation was based on an independent appraisal of the
individual assets, and these amounts were pushed down to the accompanying
financial statements of the Partnership.

The gaming license will be amortized over its remaining term, which is
approximately two and one-half years. Goodwill, which represents various
intangibles with indeterminate values, will be amortized on a straight-line
basis over 25 years, which management estimates is the related benefit period
(see discussion of the Company's accounting policy for long-lived assets below).
Management intends to regularly evaluate whether or not the future undiscounted
cash flows of the Partnership are sufficient to recover the carrying amount of
the goodwill associated with each entity. Additionally, management continually
monitors such factors as the status of new or proposed legislation, the
competitive environment and the general economic conditions of the market in
which it operates. If the undiscounted cash flows are not sufficient to recover
the carrying amount of goodwill and, accordingly, an impairment has occurred,
management intends to write down the carrying amount of goodwill to its
estimated fair value based on discounted cash flows. The amount of amortization
expense recorded in the year ended December 31, 1996, and for the three months
in 1995 following the roll-up transaction was $748,000 and $187,000,
respectively.


                                      F-28
<PAGE>   59
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Partnership
and HE. All significant intercompany accounts and transactions have been
eliminated.

Casino Revenues

In accordance with industry practice, casino revenues represent the net win from
gaming activities, which is the difference between gaming wins and losses.

Casino Promotional Allowances

Casino promotional allowances consist primarily of the retail value of
complimentary food and beverage, rooms and other services furnished to guests
without charge. Such amounts are included in gross revenues and deducted as
promotional allowances. The estimated costs of providing such complimentary
services are substantially included in casino department expenses as follows (in
thousands):

<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                               ---------------------------------
                                                 1996         1995         1994
                                               -------       ------       ------
    <S>                                        <C>           <C>          <C>
    Food and beverage                          $10,276       $6,921       $2,998
    Hotel                                        1,631        1,663          814
    Other operating expenses                       112           85           18
                                               -------       ------       ------
                                               $12,019       $8,669       $3,830
                                               =======       ======       ======
</TABLE>

Inventories

Inventories are stated at the lower of cost, as determined on a first-in,
first-out basis, or market value and consist primarily of food, beverage, retail
merchandise, kitchen smallwares and employee wardrobe.

Property and Equipment

Property and equipment are stated at cost. The costs of normal repairs and
maintenance are expensed as incurred while major expenditures that extend the
useful lives of assets are capitalized.

Depreciation is provided for on the straight-line basis over the estimated
useful lives or of the assets, as follows:

        Buildings, boat and improvements                     15 to 30 years
        Furniture, fixtures and equipment                     3 to 10 years


                                      F-29
<PAGE>   60
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Capitalized Interest

The Partnership capitalizes interest for associated borrowing costs of major
construction projects. Capitalization of interest ceases when the asset is
substantially complete and ready for its intended use. Interest capitalized
during the years ended December 31, 1996, 1995 and 1994, was $667,000, $0 and
$1,709,000, respectively.

Development and Preopening Expenses

Until all necessary approvals to proceed with the development of a new casino
project are obtained from the appropriate regulatory authorities, the related
development costs are expensed as incurred. Preopening costs incurred after the
receipt of necessary approvals are deferred as incurred and expensed upon the
opening of the related casino. Preopening costs of $6,665,000 were expensed in
connection with the opening of the Casino in July 1994.

Deferred Finance Charges

As of December 31, 1994, deferred finance charges, which are included in other
assets, consisted of fees and expenses incurred to issue the Old Notes discussed
in Note 5, including placement fees paid for by the issuance of ownership
interests and warrants to purchase ownership interests (the "Equity Warrants")
in the Partnership and Robinson Property Group, L.P. ("RPG"), an affiliate which
owns and operates the Horseshoe Casino Center in Tunica County, Mississippi. The
value of such ownership interests and Equity Warrants, based on independent
appraisal, was recorded as deferred finance charges with a corresponding credit
to partners' capital. These ownership interests and Equity Warrants were
subsequently exchanged for ownership interests and warrants to purchase
ownership interests in Gaming. These deferred finance charges were being
amortized over the period from the initial funding of the debt through the
latest date for repayment using the effective interest method. In October 1995,
the Partnership wrote off the balance of unamortized deferred finance charges of
$1,727,000 which is included in the extraordinary loss on early retirement of
debt in the 1995 consolidated statement of operations.

The balance of deferred finance charges as of December 31, 1996 and 1995, was
$3,005,000 and $2,367,000, respectively, and consists of fees and expenses
incurred by Gaming to issue the New Senior Notes and to obtain the Senior
Secured Credit Facility of which $75,000,000 was loaned to HE in 1995 as
discussed in Note 5 and an additional $40,000,000 was loaned in 1996 for
construction of a new hotel and completion of the parking garage. Accordingly,
Gaming has charged HE a portion of the related finance charges. These deferred
finance charges are being amortized from the initial funding date through the
latest repayment date of September 30, 2000, using the effective interest
method.


                                      F-30
<PAGE>   61
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash and Cash Equivalents

Cash and cash equivalents include commercial paper, amounts held in mutual
funds and other investments with original maturities of 90
days or less when purchased.

Advertising Costs

The Partnership expenses all costs associated with advertising as incurred, and
such amounts are included in general and administrative expenses in the
accompanying statements of operations.

Income Taxes

No provision is made in the accounts of the Partnership for federal and state
income taxes, as such taxes are liabilities of the members of Gaming. The
Partnership's income tax return and the amount of allocable taxable income are
subject to examination by federal and state taxing authorities. If an
examination results in a change to Partnership income, the income tax reported
by the members of Gaming may also change. The tax bases in the Partnership's
assets and liabilities were in excess of the amounts reported in the
accompanying consolidated financial statements by $4,677,000 and $3,887,000 at
December 31, 1996 and 1995, respectively. Taxable income was in excess of net
income reported in the accompanying consolidated statements of operations for
all periods presented.

Capital Distributions

The New Senior Notes and the Senior Secured Credit Facility contain covenants
that limit capital distributions to the limited partners of HE equal to the
limited partners' share of taxable income for each period. Such distributions
are to be paid quarterly based upon estimated taxable income. Promptly after
filing by HE of its annual tax returns, each limited partner of HE is to
reimburse HE for overpayments of capital distributions or HE is to withhold such
amounts from future distributions to the limited partners. Distributions to
limited partners are a component of minority interest in the accompanying
consolidated balance sheets. All required distributions to the limited partners
for 1996, 1995 and 1994 were made in full prior to the end of each year.

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 amounts 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.


                                      F-31
<PAGE>   62
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Reclassifications

Certain prior year balances have been reclassified to conform with the current
year presentation.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," management continually evaluates whether events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable. Based on management's evaluations, no significant impairments of
long-lived assets have occurred during the three years in the period ended
December 31, 1996.

3. CONSOLIDATED STATEMENTS OF CASH FLOWS

Non-cash financing and investing activities consist of the following:

         Ownership interests in HE valued at $378,000 were issued for payment of
         certain deferred offering costs as of December 31, 1994.

         Property and equipment was acquired through the issuance of debt
         totaling $0, $16,000 and $19,089,000 for the years ended December 31,
         1996, 1995 and 1994, respectively.

The net change in assets and liabilities consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                  -----------------------------
                                                    1996       1995       1994
                                                  -------    -------    -------
       <S>                                        <C>        <C>        <C>
       (Increase) decrease in assets:
           Accounts receivable                    $(1,063)   $(1,849)   $(1,383)
           Inventories                                106        187     (1,250)
           Prepaid expenses and other                 123       (653)      (572)
           Preopening expenses                         --         --     (5,674)
       Increase (decrease) in liabilities:
           Accounts payable                           643     (1,828)     2,457
           Accrued expenses and other              (2,168)     7,957      4,602
           Deferred interest payable                   --     (1,670)     1,304
                                                  -------    -------    -------
                                                  $(2,359)   $ 2,144    $  (516)
                                                  =======    =======    =======
</TABLE>

Cash payments made for interest, excluding amounts capitalized, totaled
$10,530,000, $12,999,000 and $2,941,000 for the three years ended December 31,
1996, 1995 and 1994.


                                      F-32
<PAGE>   63
4. ACCRUED EXPENSES AND OTHER

Accrued expenses and other consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                  December 31,
                                                             -------------------
                                                               1996        1995
                                                             -------     -------
        <S>                                                  <C>         <C>
        Payroll and related tax liabilities                  $ 1,479     $   974
        Vacation and other employee benefits                   2,173       2,202
        Accrued interest                                         181          --
        Gaming, sales, use and property taxes                  1,349       2,414
        Outstanding chip and token liabilities                   614         429
        Distributions payable                                     --       1,857
        Progressive slot and slot club liabilities             1,896       1,853
        Other accrued expenses                                   681       2,669
                                                             -------     -------

                                                             $ 8,373     $12,398
                                                             =======     =======
</TABLE>

5. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                           ------------------
                                                                             1996       1995
                                                                           --------   -------
        <S>                                                                <C>        <C>
        13.31% Intercompany Note Payable, due in semi-annual
           installments of 5% of the outstanding balance with
           remaining balance due in full on September 30, 2000             $106,191   $75,000

        6% Promissory Note Payable, due in annual installments
           through January 1999 (see Note 8)                                  3,500     3,000

        Other                                                                    --        12
                                                                           --------   -------
                                                                            109,691    78,012
        Less:  current maturities                                           (11,854)   (7,320)
                                                                           --------   -------

                                                                           $ 97,837   $70,692
                                                                           ========   =======
</TABLE>

In April 1994, Horseshoe Riverboat Casinos, LLC ("HRC"), which was owned 50% by
HE and 50% by RPG, completed a private placement of debt securities which were
used for the construction of the Horseshoe Bossier City and the Horseshoe Casino
Center. The total amount of Senior Notes and Subordinated Notes (collectively,
the "Old Notes") issued by HRC was $38,000,000 and $32,000,000, respectively,
and was loaned to HE and RPG on identical terms. The Old Notes were retired in
October 1995 with the proceeds from the New Senior Notes and Senior Secured
Credit Facility (see discussion below).


                                      F-33
<PAGE>   64
5. LONG-TERM DEBT (CONTINUED)

The Old Notes carried warrants to purchase partnership interests in RPG and the
Partnership. The value of these warrants on the date of issue, based on
independent appraisal, was recorded as a discount against the face value of the
Old Notes with a corresponding credit to partners' capital. Certain of the
warrant holders exercised such warrants and exchanged their newly issued
partnership interests for membership interests in Gaming. The remaining warrants
were exchanged for new warrants to purchase an approximate aggregate membership
interest in Gaming of 7.01%.

The Old Notes were secured by HE's land, buildings and certain personal
property. Mr. Jack B. Binion ("Mr. Binion"), the Chief Executive Officer of
Gaming, personally guaranteed the repayment of $10,000,000 of the Senior Notes
payable.

On October 10, 1995, Gaming loaned HE $75,000,000 from a portion of the proceeds
of a $150,000,000 Senior Secured Credit Facility due September 30, 1999 (the
"Credit Facility") and a private placement of $100,000,000 of 12.75% Senior
Notes due September 30, 2000 (the "New Senior Notes"), to retire substantially
all of HE's existing debt. An extraordinary loss on early retirement of debt of
$4,081,000 was recognized in 1995 for prepayment penalties and the write-off of
the unamortized discounts and deferred finance charges.

The Credit Facility and the related interest are guaranteed unconditionally by
RPG and are secured by a first pledge of Gaming's ownership interest in all
present and future subsidiaries with the exception of the Partnership's
ownership interest in HE. The Credit Facility is also secured by (i) a first
lien position on substantially all of the assets of Horseshoe Casino Center
other than certain gaming equipment; (ii) a first lien position on all
intercompany notes received by Gaming from its subsidiaries, in each case
secured by a first lien on the casino and real property of each subsidiary;
(iii) a first lien on substantially all of the assets of Horseshoe Casinos
(Indiana), LLC, excluding equipment; and (iv) a first pledge of the minority
interests in all present and future subsidiaries owned by Mr. Binion and certain
affiliates of Mr. Binion. In addition, Mr. Binion personally guaranteed the
repayment of $8,250,000 of the Credit Facility.

The New Senior Notes and the related interest are guaranteed unconditionally by
RPG and are secured by a second pledge of Gaming's ownership interest in all
present and future subsidiaries with the exception of the Partnership's
ownership interest in HE. The New Senior Notes are also secured by (i) a second
lien position on substantially all of the assets of Horseshoe Casino Center
other than certain gaming equipment; (ii) a second lien position on all
intercompany notes received by Gaming from its subsidiaries, in each case
secured by a second lien on the casino and real property of each subsidiary; and
(iii) a second pledge of the minority interests in all present and future
subsidiaries owned by Mr. Binion and certain affiliates of Mr. Binion.


                                      F-34
<PAGE>   65
5. LONG-TERM DEBT (CONTINUED)

The New Senior Notes and the Credit Facility contain covenants that, among other
things, (i) limit the amount of additional indebtedness which may be incurred by
Gaming and its subsidiaries; (ii) prohibit any consolidation or merger of Gaming
or its subsidiaries with an affiliate or third party, any sale of substantially
all of Gaming or its subsidiaries' assets, or any payment of subordinated
indebtedness prior to its scheduled maturity; and (iii) require Gaming and its
subsidiaries to invest excess funds in cash equivalents and government
securities with a maturity of one year or less.

HE's new note with Gaming is $150,000,000, bears interest at 13.31% and requires
that HE repay 5% of the outstanding balance of the note on a semi-annual basis.
The new note can not be repaid prior to maturity, which is September 30, 2000.
In January 1997 an additional $10,000,000 was loaned by Gaming to HE.

As of December 31, 1996, the maturities for long-term debt are $11,854,000
(1997), $10,344,000 (1998), $9,433,000 (1999) and $78,060,000 (2000).

6. TRANSACTIONS WITH AFFILIATES

During 1994, HRC advanced $2,214,000 in excess of HE's pre-established Senior
and Subordinated Note payable borrowings which was repaid in early 1995. At
December 31, 1996 and 1995, the due to affiliates balance relates primarily to
costs and expenses of the Partnership and HE paid for by Gaming.

Initial funding to HE was provided by loans from affiliates of the Partnership.
Such notes payable to affiliates accrued interest at 10% and had a scheduled
maturity of April 15, 2004. The notes payable to affiliates, and the related
deferred interest payable balances, were repaid in October 1995 with proceeds
from the intercompany loan from Gaming discussed in Note 5.

On the inception date of HE (February 4, 1993), the partners were required to
make capital contributions of $4,000,000. Such contributions were not paid in
cash until 1994; therefore, a contributions receivable was recorded for the
required contributions. The contributions receivable earned interest at an
annual rate of 10% until paid. The related interest receivable balance as of
December 31, 1994, was $478,000, which was repaid during 1995.

Included in other assets in the accompanying consolidated balance sheets are
notes receivable from limited partners of HE totaling $1,969,000 and $527,000
as of December 31, 1996 and 1995, respectively. The notes are secured by their
ownership interests in HE and are due in December 1998 with interest at 10%.

                                      F-35
<PAGE>   66
6. TRANSACTIONS WITH AFFILIATES (CONTINUED)

In November 1995, HE canceled a legal service retainer agreement it had entered
into in 1993 with an individual for a one-time fee of $600,000 which is included
in general and administrative expenses in 1995. Two relatives of such individual
are limited partners in HE holding an aggregate ownership interest of 5.08%. The
original agreement covered legal services for a period of five years commencing
December 1, 1993, and ending November 30, 1998, and required sixty monthly
payments of $16,667. The amounts paid under this contract for legal services
amounted to $167,000 and $200,000 for the years ended December 31, 1995 and
1994, respectively. HE has no further obligations under the legal service
retainer agreement.

During the years ended December 31, 1996, 1995 and 1994, there were numerous
transactions with limited partners of HE, parties affiliated with the general
and limited partners and other affiliates. These transactions included, but are
not limited to, payments for consulting fees, expense reimbursements, various
operating expenses and other items. The total amount of such expenditures for
the years ended December 31, 1996, 1995 and 1994, were $7,848,000, $4,717,000
and $1,972,000, respectively.

7. EMPLOYEE COMPENSATION AND BENEFITS

Employment Agreements

During 1994, HE entered into employment agreements with certain key employees
that provide certain benefits in the event such employees are terminated. These
employees also received ownership interests in the Partnership, which were
subsequently exchanged for membership interests in Gaming and vest over terms
specified in the various employment agreements, which is generally five years.
These employment agreements include a put/call provision which if exercised by
the employee would require Gaming to repurchase these ownership interests in the
event of termination at the then fair market value based on an independent
appraisal. Accordingly, these compensation agreements are accounted for as
variable stock purchase plans. Compensation expense is recorded each period
equal to the change in the fair market value of ownership interests issued
pursuant to these agreements. NGCP reimburses Gaming for the expense related to
these ownership interests; therefore, there is no deferred compensation reported
in the accompanying balance sheet at December 31, 1996.

The amount of compensation expense recorded in the accompanying consolidated
statements of operations related to these ownership interests was $1,720,000,
$3,547,000 and $1,477,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.

During September 1995, one of the Partnership's employees who had entered into
an employment agreement during 1993 resigned from the Partnership. Pursuant to a
settlement agreement with the employee, the Partnership agreed to pay severance
benefits of $230,000 which was expensed in 1995. In addition, Gaming agreed to
acquire the employee's vested ownership interest in the Partnership for
$3,306,000 based on an independent appraisal which is included in the 1995
compensation expense amount discussed above. Such amount is payable in two equal
installments on April 1, 1996 and 1997, and bears interest at 9%.


                                      F-36
<PAGE>   67
7. EMPLOYEE COMPENSATION AND BENEFITS (CONTINUED)

401(k) Savings Plan

Effective January 1, 1996, a 401(k) savings plan was established whereby
eligible employees of HE may contribute up to 15% of their salary. HE will match
50% of the employees' contributions up to a maximum of 6% of their salary.
Employees vest in HE's matching contribution over six years. Employees are
eligible to participate in the Plan on the first day of the next calendar
quarter following six months of service. HE's matching contributions were
$368,000 for the year ended December 31, 1996.

8. COMMITMENTS AND CONTINGENCIES

Litigation

The Partnership and its subsidiary, during the normal course of operating its
business, become engaged in various litigation. In the opinion of the
Partnership's management, the ultimate disposition of such litigation will not
have a material impact on the Partnership's operations.

Minority Interest Purchase Commitment

In February 1996, the Partnership entered into an option agreement to purchase
an additional 1% limited partnership interest in HE for $1,541,000, of which
approximately $514,000 was paid at closing. The option expires on December 31,
1997. In September 1996, the Partnership loaned the limited partner $900,000,
which is included in other assets in the accompanying consolidated balance sheet
as of December 31, 1996. The note, including interest at 7%, is due on December
31, 1998.

Effective December 31, 1995, the Partnership purchased a 2.92% limited
partnership interest in HE for $4,473,000, of which $1,473,000 was paid at
closing during January 1996, with the remaining $3,000,000 evidenced by a 6% per
annum promissory note, payable in three annual installments of $1,000,000, plus
accrued interest, beginning January 2, 1997. The limited partner agreed to remit
to the partnership approximately $123,000, which was equal to his negative
capital balance at the time of closing. The purchase agreement allocated
$2,384,000 of the purchase price to a non-compete agreement with the remaining
$2,089,000 allocated to the purchase of the limited partner's interest. The
asset related to the non-compete agreement is being amortized over the life of
the agreement (three years). The purchase price of the limited partnership
interest is included in goodwill and is being amortized over an estimated
benefit period of approximately 25 years. The Partnership has agreed to pay
additional consideration of up to $500,000 a year for three years based on
certain earnings criteria. At December 31, 1996, the earnings criteria were met
and additional consideration of $500,000 was recorded. $267,000 of the
additional consideration was allocated to the non-compete agreement, and the
remaining $233,000 was allocated to goodwill. The unamortized balance of the
non-compete agreement is included in other assets in the accompanying
consolidated balance sheets and was $2,384,000 and $1,584,000 as of December 31,
1996 and 1995, respectively.


                                      F-37
<PAGE>   68
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Construction Commitments

The Partnership is currently expanding its casino and hotel facilities, which
are expected to be completed during the fourth quarter of 1997 at a total
estimated cost of $185,000,000. As of December 31, 1996, the total amount
incurred was $39,441,000, of which $20,959,000 had been placed in service as of
December 31, 1996.


                                      F-38
<PAGE>   69
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Partners of Robinson Property Group, L.P.:

We have audited the accompanying balance sheets of Robinson Property Group, L.P.
(a Mississippi limited partnership) as of December 31, 1996 and 1995, and the
related statements of operations, partners' capital (deficit) and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Robinson Property Group, L.P.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.



                                             ARTHUR ANDERSEN LLP

Las Vegas, Nevada,
  March 4, 1997.





                                      F-39
<PAGE>   70
                          ROBINSON PROPERTY GROUP, L.P.
                                 BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                  December 31,
                                                            ----------------------
                                                               1996         1995
                                                            ---------    ---------
                                     ASSETS
<S>                                                         <C>          <C>
Current Assets:
    Cash and cash equivalents                               $  22,858    $  32,706
    Accounts receivable, net of allowance for doubtful
       accounts of $2,649 and $1,256                            5,883        3,144
    Inventories                                                   478          418
    Prepaid expenses and other                                    275          166
                                                            ---------    ---------
                 Total current assets                          29,494       36,434
                                                            ---------    ---------
Property and Equipment:
    Land                                                        4,110        2,505
    Buildings, barge and improvements                          50,253       50,171
    Furniture, fixtures and equipment                          16,933       16,142
    Less: accumulated depreciation                            (11,370)      (5,390)
                                                            ---------    ---------
                                                               59,926       63,428
    Construction in progress                                   20,162          298
                                                            ---------    ---------
                 Net property and equipment                    80,088       63,726
                                                            ---------    ---------
Other Assets:
    Goodwill, net                                              20,438       21,299
    Other                                                       3,857        4,403
                                                            ---------    ---------
                                                            $ 133,877    $ 125,862
                                                            =========    =========

                        LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
    Accounts payable                                        $   1,274    $   2,671
    Construction payables                                       6,945           --
    Due to affiliates                                           1,736        4,710
    Accrued expenses and other                                  8,503        8,404
                                                            ---------    ---------
                 Total current liabilities                     18,458       15,785

Long-term Debt                                                 43,000       70,000

Commitments and Contingencies (Notes 8 and 9)

Partners' Capital                                              72,419       40,077
                                                            ---------    ---------
                                                            $ 133,877    $ 125,862
                                                            =========    =========
</TABLE>


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


                                      F-40
<PAGE>   71
                          ROBINSON PROPERTY GROUP, L.P.
                            STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                              ---------------------------------
                                                 1996         1995        1994
                                              ---------    ---------    -------
<S>                                           <C>          <C>          <C>
Revenues:
    Casino                                    $ 150,711    $ 132,192    $    --
    Food and beverage                            11,374        9,681         --
    Hotel                                         3,488        3,092         --
    Other                                         2,769        2,229         --
                                              ---------    ---------    -------
                                                168,342      147,194         --
    Promotional allowances                      (11,474)      (9,591)        --
                                              ---------    ---------    -------
       Net revenues                             156,868      137,603         --
                                              ---------    ---------    -------

Expenses:
    Casino                                       72,695       55,228         --
    Food and beverage                             3,833        3,495         --
    Hotel                                         3,369        2,062         --
    Other                                           762          693         --
    General and administrative                   24,515       19,898      1,376
    Depreciation and amortization                 7,114        6,376         66
    Preopening expenses                              --        7,021         --
                                              ---------    ---------    -------
       Total                                    112,288       94,773      1,442
                                              ---------    ---------    -------
Operating Income (Loss)                          44,580       42,830     (1,442)
                                              ---------    ---------    -------

Other Income (Expense):
    Interest expense                             (6,190)      (8,381)    (1,770)
    Interest and other income                       797          445        302
    Gain on sale of land                             --           --      5,242
                                              ---------    ---------    -------

Income Before Extraordinary Loss on
    Early Retirement of Debt                     39,187       34,894      2,332

Extraordinary Loss on Early Retirement
    of Debt                                          --       (3,098)        --
                                              ---------    ---------    -------

Net Income                                    $  39,187    $  31,796    $ 2,332
                                              =========    =========    =======
</TABLE>

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


                                      F-41
<PAGE>   72
                          ROBINSON PROPERTY GROUP, L.P.
                    STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                   Partners'         Contributions
                                                   Capital             Receivable             Total
                                                   --------             -------             --------
<S>                                                <C>                  <C>                 <C>
Balance at December 31, 1993                       $  2,816             $(3,000)            $   (184)

Net income                                            2,332                  --                2,332
Collection of contributions receivable                   --               3,000                3,000
Distributions:
    Cash                                             (3,155)                 --               (3,155)
    Payable                                          (2,087)                 --               (2,087)
Warrants and partnership interests
    issued in conjunction with senior
    and subordinated notes (Note 5)                   1,507                  --                1,507
                                                   --------             -------             --------

Balance at December 31, 1994                          1,413                  --                1,413

Net income                                           31,796                  --               31,796
Contributions                                         1,150              (1,150)                  --
Distributions                                       (16,953)                 --              (16,953)
Step-up in basis of assets due to purchase
    of minority interest                             24,026                (205)              23,821
                                                   --------             -------             --------

Balance at December 31, 1995                         41,432              (1,355)              40,077

Net income                                           39,187                  --               39,187
Collection of contributions receivable                   --               1,355                1,355
Distributions                                        (8,200)                 --               (8,200)
                                                   --------             -------             --------

Balance at December 31, 1996                       $ 72,419             $    --             $ 72,419
                                                   ========             =======             ========
</TABLE>
                     The accompanying notes are an integral
                       part of these financial statements.


                                      F-42
<PAGE>   73
                          ROBINSON PROPERTY GROUP, L.P.
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                            --------------------------------
                                                              1996        1995        1994
                                                            --------    --------    --------
<S>                                                         <C>         <C>         <C>
Cash flows from operating activities:
    Net income                                              $ 39,187    $ 31,796    $  2,332
    Adjustments to reconcile net income
       to net cash provided by (used in)
       operating activities:
           Depreciation and amortization                       7,114       6,376          66
           Amortization of debt discount,
              deferred finance charges and other                 482       2,931         651
           Gain on sale of land                                   --          --      (5,242)
           Provision for doubtful accounts                     3,401       1,256          --
           Preopening expenses                                    --       7,021          --
           Extraordinary loss on early retirement of debt         --       3,098          --
           Change in assets and liabilities                   (7,302)     (1,722)     (1,433)
                                                            --------    --------    --------
                 Net cash provided by (used in)
                     operating activities                     42,882      50,756      (3,626)
                                                            --------    --------    --------

Cash flows from investing activities:
    Purchases of property and equipment                      (21,007)     (1,690)    (25,813)
    Increase (decrease) in construction payables               6,945      (3,284)      3,284
    Proceeds from sale of land                                    --          --       8,595
    Increase in other assets                                    (257)     (1,411)       (252)
                                                            --------    --------    --------
                 Net cash used in investing activities       (14,319)     (6,385)    (14,186)
                                                            --------    --------    --------

Cash flows from financing activities:
    Proceeds from long-term debt                               5,000      72,987      35,856
    Payments on long-term debt                               (32,000)    (75,592)     (9,080)
    Capital contributions                                         --          --       3,000
    Capital distributions                                     (8,200)    (15,875)     (3,155)
    Increase (decrease) in due to affiliates                  (3,042)      2,204          --
    Debt issue costs                                            (169)     (2,355)     (1,843)
                                                            --------    --------    --------
                 Net cash (used in) provided by
                     financing activities                    (38,411)    (18,631)     24,778
                                                            --------    --------    --------

Net change in cash and cash equivalents                       (9,848)     25,740       6,966
Cash and cash equivalents, beginning of period                32,706       6,966          --
                                                            --------    --------    --------

Cash and cash equivalents, end of period                    $ 22,858    $ 32,706    $  6,966
                                                            ========    ========    ========
</TABLE>

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


                                      F-43
<PAGE>   74
                          ROBINSON PROPERTY GROUP, L.P.

                          NOTES TO FINANCIAL STATEMENTS


1. ORGANIZATION AND BASIS OF PRESENTATION

Robinson Property Group, L.P. (the "Partnership") was formed as a Mississippi
limited partnership on June 7, 1993 and is 100% owned, directly and indirectly,
by Horseshoe Gaming, L.L.C. ("Gaming"). The Partnership owns and operates the
Horseshoe Casino Center (the "Casino"), a permanently moored vessel consisting
of a casino and hotel located in Tunica County, Mississippi, which opened on
February 13, 1995. Consistent with state law, the gaming license granted to the
Partnership in the State of Mississippi is for a two year period and must be
renewed. In February 1997, the Partnership renewed its license for an additional
two year period.

On October 1, 1995, Gaming completed a roll-up transaction which resulted in the
acquisition by Gaming of approximately 15% of the Partnership's ownership
interest held by minority interests (the "Roll-up"). The total cost of the
Partnership interests purchased by Gaming, based on the fair value of the
ownership interests in Gaming exchanged, was $24,026,000, of which $2,231,000
was allocated to land, $76,000 was allocated to gaming licenses, $205,000 was
allocated to contribution receivable and $21,514,000 was allocated to goodwill.
The purchase price allocation was based on an independent appraisal of the
individual assets, and these amounts were pushed down to the accompanying
financial statements of the Partnership.

The gaming license was amortized over its initial remaining term, and at
December 31, 1996 was fully amortized. Goodwill is amortized on a straight-line
basis over 25 years, which management estimates is the related benefit period
(see discussion of the Partnership's accounting policy for long-lived assets
below). Management regularly evaluates whether or not the future undiscounted
cash flows of the Partnership are sufficient to recover the carrying amount of
the goodwill. Additionally, management continually monitors such factors as the
status of new or proposed legislation, the competitive environment and the
general economic conditions of the market in which it operates. If the estimated
future undiscounted cash flows are not sufficient to recover the carrying amount
of goodwill and accordingly, an impairment has occurred, management intends to
write down the carrying amount of goodwill to its estimated fair value based on
discounted cash flows. The amount of amortization expense for goodwill recorded
in 1996 and for the three months in 1995 following the roll-up transaction was
$861,000 and $215,000, respectively.


                                      F-44
<PAGE>   75
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Casino Revenues

In accordance with industry practice, casino revenues represent the net win from
gaming activities, which is the difference between gaming wins and losses.

Casino Promotional Allowances

Casino promotional allowances consist primarily of the retail value of
complimentary food and beverage, rooms and other services furnished to guests
without charge. Such amounts are included in gross revenues and deducted as
promotional allowances. The estimated costs of providing such complimentary
services, which are substantially included in casino department expenses, are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                 -------------------------------
                                                   1996         1995       1994
                                                 -------      -------      -----
         <S>                                     <C>          <C>          <C>
         Food and beverage                       $11,779      $10,244      $  --
         Hotel                                     1,403        1,002         --
         Other operating expenses                    507          401         --
                                                 -------      -------      -----
                                                 $13,689      $11,647      $  --
                                                 =======      =======      =====
</TABLE>

Inventories

Inventories are stated at the lower of cost, as determined on a first-in,
first-out basis, or market value and consist primarily of food, beverage and
retail merchandise.

Property and Equipment

Property and equipment are stated at cost. The costs of normal repairs and
maintenance are expensed as incurred while major expenditures that extend the
useful lives of assets are capitalized.

Depreciation is provided for on a straight-line basis over the estimated useful
lives as follows:

           Buildings, barge and improvements                   15 to 30 years
           Furniture, fixtures and equipment                    3 to 10 years

Capitalized Interest

The Partnership capitalizes interest for associated borrowing costs of major
construction projects. Capitalization of interest ceases when the asset is
substantially complete and ready for its intended use. Interest capitalized
during the years ended December 31, 1996, 1995 and 1994 was $620,000, $651,000
and $1,886,000, respectively.


                                      F-45
<PAGE>   76
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Development and Preopening Expenses

Until all necessary approvals to proceed with the development of a new casino
project are obtained from the appropriate regulatory authorities, the related
development costs are expensed as incurred. Preopening costs incurred after the
receipt of necessary approvals are deferred as incurred and expensed upon the
opening of the related casino. Preopening costs of $7,021,000 were expensed in
connection with the opening of the Casino in February 1995.

Deferred Finance Charges

As of December 31, 1994, deferred finance charges, which are included in other
assets, consisted of fees and expenses incurred to issue the Old Notes discussed
in Note 5, including placement fees paid for by the issuance of ownership
interests and warrants to purchase ownership interests (the "Equity Warrants")
in the Partnership and New Gaming Capital Partnership ("NGCP"), an affiliate
which owns 91.92% of Horseshoe Entertainment, L.P. ("HE"), which owns and
operates the Horseshoe Bossier City in Bossier City, Louisiana. The value of
such ownership interests and Equity Warrants, based on independent appraisal,
was recorded as deferred finance charges with a corresponding credit to
partners' capital. These ownership interests and Equity Warrants were
subsequently exchanged for ownership interests and warrants to purchase
ownership interests in Gaming. These deferred finance charges were being
amortized over the period from the initial funding of the debt through the
latest date for repayment using the effective interest method. In October 1995,
the Partnership wrote off the balance of unamortized deferred finance charges of
$1,455,000 which is included in the extraordinary loss on early retirement of
debt in the 1995 statements of operations.

The balance of deferred finance charges as of December 31, 1996 and 1995, was
$1,924,000 and $2,237,000, respectively, and consists of fees and expenses
incurred by Gaming to issue the New Senior Notes and to obtain the Senior
Secured Credit Facility of which $70,000,000 was loaned to the Partnership as
discussed in Note 5. Accordingly, Gaming has charged the Partnership a portion
of the related finance charges. These deferred finance charges are being
amortized from the initial funding date through the required repayment date of
September 30, 2000, using the straight-line method.

Cash and Cash Equivalents

Cash and cash equivalents include commercial paper, amounts held in mutual
funds and other investments with original maturities of 90 days or less when
purchased.



                                      F-46
<PAGE>   77
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising Costs

The Partnership expenses all costs associated with advertising as incurred, and
such amounts are included in general and administrative expenses in the
accompanying statements of operations.

Income Taxes

No provision is made in the accounts of the Partnership for federal and state
income taxes, as such taxes are liabilities of the individual partners. The
Partnership's income tax return and the amount of allocable taxable income are
subject to examination by federal and state taxing authorities. If an
examination results in a change to Partnership income, the income tax reported
by the individual partners may also change. The tax bases in the Partnership's
assets and liabilities were greater than the amounts reported in the
accompanying financial statements by $3,077,000 and $9,140,000 at December 31,
1996 and 1995, respectively. In 1996, taxable income was less than net income
reported in the accompanying statements of operations, and in 1995 and 1994,
taxable income was in excess of net income reported in the accompanying
statements of operations.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," management continually evaluates whether events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable. Based on management's evaluations, no significant impairments of
long-lived assets have occurred during the three years ended December 31, 1996.

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 amounts 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.

Reclassifications

Certain prior year balances have been reclassified to conform with the current
year presentation.


                                      F-47
<PAGE>   78
3. STATEMENTS OF CASH FLOWS

Non-cash financing and investing activities consist of the following:

         Ownership interests in the partnership valued at $317,000 were issued
         for payment of certain deferred offering costs as of December 31, 1994.

         Property and equipment was acquired through the issuance of debt
         totaling $0, $17,817,000 and $17,183,000 for the years ended December
         31, 1996, 1995 and 1994, respectively.

         A capital contribution of $1,150,000 was made through the issuance of a
         contribution receivable during the year ended December 31, 1995. The
         Partnership received land in satisfaction of the receivable during
         1996.

The net change in assets and liabilities consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                  -----------------------------
                                                    1996       1995       1994
                                                  -------    -------    -------
<S>                                               <C>        <C>        <C>
(Increase) decrease in assets:
    Accounts receivable                           $(6,140)   $(4,400)   $    --
    Due from affiliates                                --      2,214         --
    Interest receivable - related party               305         32       (151)
    Inventories                                       (60)      (329)       (89)
    Prepaid expenses and other                       (109)       215     (2,595)
    Preopening expenses                                --     (3,202)    (3,205)
Increase (decrease) in liabilities:
    Accounts payable                               (1,397)     2,100     (1,064)
    Accrued expenses and other                         99      2,445      4,874
    Deferred interest payable - related party          --       (797)       797
                                                  -------    -------    -------
                                                  $(7,302)   $(1,722)   $(1,433)
                                                  =======    =======    =======
</TABLE>

Cash payments for interest, excluding amounts capitalized, totaled $8,436,000,
$8,271,000 and $678,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.




                                      F-48
<PAGE>   79
4. ACCRUED EXPENSES AND OTHER

Accrued expenses and other consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                  December 31,
                                                               -----------------
                                                                1996       1995
                                                               ------     ------
        <S>                                                    <C>        <C>
        Payroll and related tax liabilities                    $1,225     $1,082
        Vacation and other employee benefits                    1,793        858
        Accrued interest                                           --      2,122
        Gaming, sales, use and property taxes                   1,051      1,003
        Outstanding chip and token liabilities                    939        734
        Progressive slot and slot club liabilities              2,429      2,200
        Other accrued expenses                                  1,066        405
                                                               ------     ------
                                                               $8,503     $8,404
                                                               ======     ======
</TABLE>

5. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                         ------------------
                                                                                           1996       1995
                                                                                         -------    -------
        <S>                                                                              <C>        <C>
        13.31% Intercompany Note Payable, requiring the Partnership to apply
           100% of its available cash flow, as defined in the agreement, towards
           the outstanding principal balance with the balance due in full on
           September 30, 2000                                                            $43,000    $70,000

        Less:  current maturities                                                             --         --
                                                                                         -------    -------
                                                                                         $43,000    $70,000
                                                                                         -------    -------
</TABLE>

In April 1994, Horseshoe Riverboat Casinos, LLC ("HRC"), which was owned 50% by
the Partnership and 50% by HE, completed a private placement of debt securities
which were used for the construction of the Horseshoe Bossier City and the
Casino. The total amount of senior notes and subordinated notes (collectively,
the "Old Notes") issued by HRC was $38,000,000 and $32,000,000, respectively,
and was loaned to HE and the Partnership on identical terms. These notes were
retired in October 1995 with the proceeds from the New Senior Notes and Senior
Secured Credit Facility (see discussion following).


                                      F-49
<PAGE>   80
5. LONG-TERM DEBT (CONTINUED)

The Old Notes carried warrants to purchase partnership interests in the
Partnership and NGCP. The value of these warrants on the date of issue, based on
independent appraisal, was recorded as a discount against the face value of the
Old Notes with a corresponding credit to partners' capital. Certain of the
warrant holders exercised such warrants and exchanged their newly issued
partnership interests for membership interests in Gaming. The remaining warrants
were exchanged for new warrants to purchase an approximate aggregate membership
interest in Gaming of 7.01%.

The Old Notes were secured by the Partnership's land, buildings and certain
personal property. Mr. Jack B. Binion ("Mr. Binion"), the Chief Executive
Officer of Gaming, personally guaranteed the repayment of $10,000,000 of the
Senior Notes Payable.

On October 10, 1995, Gaming loaned the Partnership $70,000,000 from a portion of
the proceeds of a $150,000,000 Senior Secured Credit Facility due September 30,
1999 (the "Credit Facility") and a private placement of $100,000,000 of 12.75%
senior notes due September 30, 2000 (the "New Senior Notes"), to retire
substantially all of the Partnership's existing debt. An extraordinary loss on
early retirement of debt of $3,098,000 was recognized in 1995 for prepayment
penalties and the write-off of the unamortized discounts and deferred finance
charges.

The Credit Facility and the related interest are guaranteed unconditionally by
the Partnership and are secured by a first pledge of Gaming's ownership interest
in all present and future subsidiaries with the exception of NGCP's ownership
interest in HE. The Credit Facility is also secured by (i) a first lien position
on substantially all of the assets of the Casino other than certain gaming
equipment; (ii) a first lien position on all intercompany notes received by
Gaming from its subsidiaries, in each case secured by a first lien on the casino
and real property of each subsidiary; (iii) a first lien on substantially all of
the assets of Horseshoe Casinos (Indiana), LLC, excluding equipment; and (iv) a
first pledge of the minority interests in all present and future subsidiaries
owned by Mr. Binion and certain affiliates of Mr. Binion. In addition, Mr.
Binion personally guaranteed the repayment of $8,250,000 of the Credit Facility.

The New Senior Notes and the related interest are guaranteed unconditionally by
the Partnership and are secured by a second pledge of Gaming's ownership
interest in all present and future subsidiaries with the exception of NGCP's
ownership interest in HE. The New Senior Notes are also secured by (i) a second
lien position on substantially all of the assets of the Casino other than
certain gaming equipment; (ii) a second lien position on all intercompany notes
received by Gaming from its subsidiaries, in each case secured by a second lien
on the Casino and real property of each subsidiary; and (iii) a second pledge of
the minority interests in all present and future subsidiaries owned by Mr.
Binion and certain affiliates of Mr. Binion.


                                      F-50
<PAGE>   81
5. LONG-TERM DEBT (CONTINUED)

The New Senior Notes and the Credit Facility contain covenants that, among other
things, (i) limit the amount of additional indebtedness which may be incurred by
Gaming and its subsidiaries; (ii) prohibit any consolidation or merger of Gaming
or its subsidiaries with an affiliate or third party, any sale of substantially
all of Gaming or its subsidiaries' assets or any payment of subordinated
indebtedness prior to its scheduled maturity; and (iii) require Gaming and its
subsidiaries to invest excess funds in cash equivalents and government
securities with a maturity of one year or less.

The Partnership's new intercompany note with Gaming bears interest at 13.31% and
requires the Partnership to apply 100% of its available cash flow, as defined,
towards the outstanding principal balance with the balance due in full on
September 30, 2000. There are no material restrictions on the amount of cash or
other assets which the Partnership may distribute to Gaming, and the Partnership
may prepay the outstanding balance of the intercompany note at any time prior to
maturity without premium or penalty. During 1996, the Partnership repaid
$32,000,000 of the outstanding intercompany note and borrowed an additional
$5,000,000. Management of the Partnership intends to reborrow additional amounts
during 1997 for future capital expenditures; accordingly, as of December 31,
1996, no amounts have been classified as a current obligation. As of December
31, 1995, the balance of accrued interest payable to Gaming was $2,122,000 and
was included in accrued expenses and other in the accompanying balance sheet.
The Partnership had paid all accrued interest due to Gaming as of December 31,
1996.

6. GAIN ON SALE OF LAND

The Partnership acquired land for the development of the Casino in 1993 for
$4,696,000. The funds to purchase the land were loaned to the Partnership
directly and indirectly by Mr. Binion. The partnership agreement required that
any gain from the sale of this land be distributed to certain of the original
limited partners of the Partnership. Such limited partners are affiliates of Mr.
Binion and have subsequently exchanged their partnership interests in the
Partnership for ownership interests in Gaming.

In June 1994, the Partnership sold a portion of the land and recognized a gain
of $5,242,000. Of this gain, $3,155,000 was distributed to the original limited
partners of the Partnership in cash and $2,087,000 was distributed in the form
of a note. The remaining land, which had a net book value of $1,078,000, was
distributed to the original limited partners on October 20, 1995.

7. TRANSACTIONS WITH AFFILIATES

During 1994, HRC advanced HE $2,214,000 of the Partnership's pre-established
Senior and Subordinated Note Payable borrowings, which was repaid in early 1995.


                                      F-51
<PAGE>   82
7. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Initial funding to the Partnership was provided by loans from affiliates of the
Partnership. Such notes payable to affiliates accrued interest at 10% and were
due April 15, 2004. The notes had an outstanding balance of $5,605,000 as of
December 31, 1994. These notes payable to affiliates, and the related deferred
interest payable balance, were repaid in October 1995 with proceeds from the
intercompany loan from Gaming discussed in Note 5.

On the inception date of the Partnership (June 7, 1993), the partners were
required to make capital contributions of $3,000,000. Such contributions were
not paid in cash until 1994; therefore, a contributions receivable was recorded
for the required contributions. The contributions receivable earned interest at
an annual rate of 10% until paid. The related interest receivable balance as of
December 31, 1995 and 1994, was $305,000 and $337,000, respectively, and was
repaid during the first quarter of 1996.

During the years ended December 31, 1996, 1995 and 1994, there were numerous
transactions with the original partners of the Partnership, parties affiliated
with the partners and other affiliates. These transactions included, but are
not limited to, payments for consulting fees, expense reimbursements, various
operating expenses and other items. The total amount of such expenditures for
the years ended December 31, 1996, 1995 and 1994, were $736,000, $972,000 and
$366,000, respectively.

At December 31, 1996 and 1995, the due to affiliates balance relates primarily
to costs and expenses of the Partnership paid for by Gaming.

8. EMPLOYEE COMPENSATION AND BENEFITS

Employment Agreements

During 1994, the Partnership entered into employment agreements with certain key
employees that provide certain benefits in the event such employees are
terminated. These employees also received ownership interests in the
Partnership, which were subsequently exchanged for membership interests in
Gaming, and vest over terms specified in the various employment agreements,
which is generally five years. These employment agreements include a put/call
provision which, if exercised by the employee, would require Gaming to
repurchase these ownership interests in the event of termination at the then
fair market value based on an independent appraisal. Accordingly, these
compensation arrangements are accounted for as variable stock purchase plans.
Compensation expense is recorded each period equal to the change in the fair
market value of ownership interests issued pursuant to these agreements. The
Partnership reimburses Gaming for the expense related to these ownership
interests; therefore, there is no deferred compensation reported in the
accompanying balance sheet as of December 31, 1996.

The amount of compensation expense recorded in the accompanying consolidated
statements of operations related to these ownership interests was $2,620,000,
$2,456,000 and $37,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.


                                      F-52
<PAGE>   83
8. EMPLOYEE COMPENSATION AND BENEFITS (CONTINUED)

401(k) Savings Plan

Effective January 1, 1995, a 401(k) savings plan was established by the
Partnership whereby eligible employees can contribute up to 15% of their salary.
RPG matches 50% of the employees' contributions up to a maximum of 6% of their
salary. Employees vest in the Partnership's matching contribution over six
years. Employees of the Partnership are eligible to participate in the plan on
the first day of the next calendar quarter following six months of service. The
Partnership's matching contributions were $299,000 and $158,000 for the years
ended December 31, 1996 and 1995, respectively.

9. COMMITMENTS AND CONTINGENCIES

Litigation

The Partnership, during the normal course of operating its business, becomes
engaged in various litigation. In the opinion of the Partnership's management,
the ultimate disposition of such litigation will not have a material impact on
the Partnership's operations.

Construction Commitments

The Partnership is currently expanding its casino and hotel facilities, which
are expected to be completed during the fourth quarter of 1997 at a total
estimated cost of $95,000,000. As of December 31, 1996, the total amount
incurred was $20,162,000.





                                      F-53
<PAGE>   84


                                   SIGNATURES


                 Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Las Vegas, State of Nevada, on March __, 1997.

                          Horseshoe Gaming, L.L.C.,
                          a Delaware limited liability company

                          By:     Horseshoe Gaming, Inc.,
                                  a Nevada corporation
                          Its:    Manager


                                  By:      /s/ Jack B. Binion
                                           ------------------------
                                           Jack B. Binion
                                  Its:     Chief Executive Officer and
                                           Chairman of the Board of Directors

                 Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
         SIGNATURE                                      TITLE                                 DATE
   <S>                               <C>                                                 <C>
     /s/ Jack B. Binion                                                                  March __, 1997
---------------------------------    Chief Executive Officer and
       Jack B. Binion                Chairman of the Board of Directors
                                     (Principal Executive Officer) of Horseshoe
                                     Gaming, Inc.

   /s/ Walter J. Haybert             Chief Financial Officer and Treasurer               March __, 1997
---------------------------------    (Principal Financial and Accounting
     Walter J. Haybert
                                     Officer) of Horseshoe Gaming, Inc.
</TABLE>



                                      31
<PAGE>   85

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                                             Sequentially
   Exhibit                                                                                                     Numbered
   Number                                              Description                                               Page
   ------                                              -----------                                               ----
   <S>      <C>
   3.1*     Certificate of Formation of Horseshoe Gaming, L.L.C.
   3.2**    Limited Liability Company Agreement of Horseshoe Gaming, L.L.C., as amended to date.

   3.3*     Articles of  Incorporation of Horseshoe Gaming, Inc.  (formerly New Gaming Capital Corporation),
            as amended to date.

   3.4*     Bylaws of Horseshoe Gaming, Inc. (formerly New Gaming Capital Corporation).
   3.5*     Certificate of Limited  Partnership of Robinson Property  Group Limited Partnership,  as amended
            to date.

   3.6*     Second Amended  and Restated Limited  Partnership Agreement of  Robinson Property Group  Limited
            Partnership, as amended to date.
   3.7*     Articles of Incorporation of Horseshoe GP, Inc., as amended to date.

   3.8*     Bylaws of Horseshoe GP, Inc.

   4.1*     Senior Secured  Credit Facility Note Purchase  Agreement, dated as  of October 10, 1995, by  and
            among Horseshoe Gaming, L.L.C., Robinson  Property Group Limited Partnership and  the Purchasers
            as defined therein.
   4.2*     Form of Promissory Note for Senior Secured Credit Facility.

   4.3*     Exchange  Offer  Letters  dated October  10,  1995  by  and  between  Horseshoe Gaming,  L.L.C.,
            Horseshoe Riverboat  Casinos, LLC, Horseshoe Entertainment  and Robinson  Property Group Limited
            Partnership, on the one hand, and each  of the holders of 14.00% Senior  Secured Notes due April
            15,  2000 and/or  14.00% Subordinated  Notes due  April 15, 2001  issued by  Horseshoe Riverboat
            Casinos, LLC on the other hand.
   4.4*     Guarantee and  Security Agreement, dated  as of October 10, 1995,  from Robinson Property  Group
            Limited  Partnership, as  Note Guarantor,  in  favor  of the  holders of  Senior  Secured Credit
            Facility Notes due September 30, 1999.

   4.5*     Pledge  Agreement, dated  as of  October 10, 1995,  from Jack  Binion,  B&O Development  Limited
            Partnership and JBB Gaming Investments, L.L.C.  (formerly Worldwide Gaming Investments,  L.L.C.)
            in favor of the holders of Senior Secured Credit Facility Notes due September 30, 1999.

   4.6*     Pledge Agreement,  dated as of  October 10, 1995, from Horseshoe Gaming,  L.L.C. in favor of the
            holders of Senior Secured Credit Facility Notes due September 30, 1999.
   4.7*     Mortgage,  Security  Agreement  and  Assignment  of  Leases  and  Rents  executed  by  Horseshoe
            Entertainment, as Mortgagor, in favor of Horseshoe Gaming, L.L.C., as Mortgagee.

   4.8*     First  Preferred Ship  Mortgage on  the whole  of the  Queen of  the  Red executed  by Horseshoe
            Entertainment, as Owner and Mortgagor, in favor of Horseshoe Gaming, L.L.C., as Mortgagee.
   4.9*     Bossier City Security Agreement and Assignment thereof.
</TABLE>





                                       1


<PAGE>   86

<TABLE>
<CAPTION>
                                                                                                             Sequentially
   Exhibit                                                                                                     Numbered
   Number                                              Description                                               Page
   ------                                              -----------                                               ----
  <S>       <C>
  4.10*     Deed of Trust Security Agreement and Assignment of Leases and Rents from
            Robinson  Property  Group  Limited  Partnership,  as  Grantor,  to  Rowan  H.  Taylor,  Jr.,  an
            individual,  as Trustee for the benefit  of Horseshoe Gaming, L.L.C., and  Hanwa American Corp.,
            Yewdale Holdings Limited and debis Financial Services, Inc., as Beneficiaries.

  4.11*     First Preferred Ship Mortgage on the  whole of the  Horseshoe Casino and Hotel, Tunica  executed
            by Robinson Property  Group Limited Partnership,  as Owner and Mortgagor, in  favor of Horseshoe
            Gaming, L.L.C. and Chemical Trust Company of California, as Mortgagee.

  4.12*     Tunica County Security Agreement and Assignment thereof.

  4.13*     Master Vessel Trust Agreement, dated as of  October 10, 1995, between debis Financial  Services,
            Inc.,  Hanwa American  Corp.,  and  Yewdale Holdings  Limited,  as Lenders,  and Chemical  Trust
            Company of California, as Trustee.

  4.14*     Note Assignment,  dated as of  October 10, 1995, from Horseshoe Gaming,  L.L.C., in favor of the
            Holders of  Senior Secured  Credit Facility  Notes due  September 30, 1999, issued  by Horseshoe
            Gaming, L.L.C.  and United  States Trust  Company of  New York  for the  ratable benefit  of the
            Holders of 12.75% Senior Notes due September 30, 2000 issued by Horseshoe Gaming, L.L.C.

  4.15*     Intercompany Senior Secured Note due September 30, 2000, executed by  Horseshoe Entertainment in
            favor of Horseshoe Gaming, L.L.C.

  4.16*     Intercompany Senior Secured  Note due  September 30, 2000, executed  by Robinson Property  Group
            Limited Partnership in favor of Horseshoe Gaming, L.L.C.

  4.17*     Binion Partners Escrow Agreement,  dated as of October 10, 1995, by and among  Horseshoe Gaming,
            L.L.C., Robinson  Property  Group Limited  Partnership,  Jack  Binion, B&O  Development  Limited
            Partnership, JBB  Gaming Investments,  L.L.C. (formerly  Worldwide Gaming  Investments, L.L.C.),
            the  Purchasers named in the Senior  Secured Credit Facility Note Purchase Agreement, U.S. Trust
            Company of California, N.A., as Trustee, and Bank of America Nevada, as Escrow Agent.

  4.18*     Excess  Proceeds Escrow Agreement, dated as  of October 10, 1995, by and among Horseshoe Gaming,
            L.L.C., Robinson Property Group Limited Partnership, the Purchasers named in  the Senior Secured
            Credit Facility Note  Purchase Agreement, U.S.  Trust Company  of California,  N.A., as  Trustee
            under the Indenture, and Bank of America Nevada, as Escrow Agent.

  4.19*     Intercreditor Agreement,  dated as of  October 10, 1995, among  debis Financial Services,  Inc.,
            Yewdale Holdings Limited and Hanwa American Corp.

  4.20*     12.75% Senior  Notes due  2000 Senior  Note Purchase Agreement  by and  among Horseshoe  Gaming,
            L.L.C., Robinson Property Group Limited Partnership, as Guarantor, and the Purchasers thereof.

  4.21*     Form of Senior Note of Horseshoe Gaming, L.L.C. 12.75% Senior Notes due 2000.
</TABLE>





                                       2


<PAGE>   87

<TABLE>
<CAPTION>
                                                                                                             Sequentially
   Exhibit                                                                                                     Numbered
   Number                                              Description                                               Page
   ------                                              -----------                                               ----
  <S>       <C>
  4.22*     Indenture,  dated as  of October 10,  1995, by  and among Horseshoe  Gaming, L.L.C.,  U.S. Trust
            Company of  California, N.A., as  Trustee, and Robinson Property  Group Limited Partnership,  as
            Guarantor, with respect to the 12.75% Senior Notes due 2000.

  4.23*     Collateral  Agency Agreement,  dated  as  of October 6,  1995,  by and  among Horseshoe  Gaming,
            L.L.C., Robinson  Property Group Limited Partnership,  B&O Development  Limited Partnership, JBB
            Gaming Investments, L.L.C. (formerly  Worldwide Gaming Investments, L.L.C.), and Jack Binion, as
            Grantors, the Purchasers  of the 12.75% Senior Notes  due 2000, and United States Trust  Company
            of New York, as Collateral Agent.

  4.24*     Exchange  and  Registration  Rights Agreement,  dated  as  of  October 10,  1995,  by and  among
            Horseshoe Gaming,  L.L.C., Robinson  Property Group Limited  Partnership, as Guarantor,  and the
            Purchasers of the 12.75% Notes due 2000 issued under the Indenture.

  4.25*     Second  Pledge Agreement,  dated as  of  October 10,  1995, from  Jack Binion,  B&O  Development
            Limited Partnership, and JBB  Gaming Investments, L.L.C. (formerly Worldwide Gaming Investments,
            L.L.C.) in  favor of  United States  Trust  Company of  New York,  as Collateral  Agent for  the
            benefit  of the  Holders  of 12.75%  Senior  Notes due  September 30,  2100 issued  by Horseshoe
            Gaming, L.L.C.

  4.26*     Second Pledge  Agreement, dated as  of October 10, 1995, from Horseshoe  Gaming, L.L.C. in favor
            of United States  Trust Company of New York,  for the ratable  benefit of the Holders  of 12.75%
            Senior Notes due September 30, 2000 issued by Horseshoe Gaming, L.L.C.

  4.27*     Second Ship Mortgage on the  whole of the Queen of the Red by Horseshoe Entertainment  owner and
            mortgagor in favor of Horseshoe Gaming, L.L.C., as Mortgagee.

  4.28*     Bossier City Second Security Agreement and Assignment thereof.

  4.29*     Second Deed  of  Trust, Security  Agreement and  Assignment of  Leases and  Rents from  Robinson
            Property Group Limited  Partnership, as  Grantor, to  Rowan H.  Taylor, Jr.,  an individual,  as
            Trustee  for the  benefit of Horseshoe  Gaming, L.L.C.  and United  States Trust  Company of New
            York, as Collateral Agent for the Senior Note Holders, as beneficiaries.

  4.30*     Second  Ship  Mortgage on  the  whole of  the Horseshoe  Casino  and  Hotel, Tunica  executed by
            Robinson Property  Group Limited  Partnership, as  Owner and  Mortgagor, in  favor of  Horseshoe
            Gaming, L.L.C. and  United States Trust Company of New York, as Collateral Agent for the ratable
            benefit of the Senior Note Holders.

  4.31*     Tunica County Second Security Agreement and Assignment thereof.

  4.32*     Intercreditor Agreement,  dated as of  October 10, 1995,  among debis Financial  Services, Inc.,
            Yewdale Holdings Limited,  Hanwa American Corp.  and Chemical  Trust Company  of California,  as
            Trustee,  as Lien  Holders, and  U.S. Trust  Company of  California,  N.A., as  Trustee  for the
            Holders  of Horseshoe Gaming, L.L.C. 12.75%  Senior Notes due  2000 and Horseshoe Gaming, L.L.C.
            12.75% Exchange  Senior  Notes due  2000,  and  United States  Trust  Company of  New  York,  as
            Collateral Agent, as Junior Lien Holders.

  4.33*     Limited Guaranty  by Jack B. Binion  in favor of  debis Financial Services, Inc.,  as amended to
            date.

  4.34*     Intercompany Senior Secured  Note Due  September 30, 2000  dated October 20,  1995 by  Horseshoe
            Ventures, L.L.C. in favor of Horseshoe Gaming, L.L.C.
</TABLE>




                                       3
<PAGE>   88

<TABLE>
<CAPTION>
                                                                                                             Sequentially
   Exhibit                                                                                                     Numbered
   Number                                              Description                                               Page
   ------                                              -----------                                               ----
 <S>        <C>
  4.36**    Amendment to  Excess Proceeds Agreement, dated  as of February 9,  1996, by  and among Horseshoe
            Gaming, L.L.C., Robinson Property Group Limited Partnership, the Purchasers named  in the Senior
            Secured Credit Facility  Note Purchase Agreement,  U.S. Trust  Company of  California, N.A.,  as
            Trustee under the Indenture, and Bank of America Nevada, as Escrow Agent.

  4.37+++   Amendment No. 1 to Indenture,  dated as of July 19, 1996, by and among Horseshoe Gaming, L.L.C.,
            Robinson Property  Group Limited  Partnership and  U.S. Trust  Company of  California, N.A.,  as
            Trustee under the Indenture.

  4.38***   Amendment to Senior Secured Credit Facility Note Purchase Agreement  dated as of October 1, 1996
            by and  among Horseshoe  Gaming, L.L.C.,  Robinson Property Group  Limited Partnership,  Yewdale
            Holdings Limited, Hanwa American Corp. and debis Financial Services, Inc.

  4.39***   Second Amendment to  Excess Proceeds Escrow Agreement dated as  of October 1, 1996, by and among
            Horseshoe  Gaming,  L.L.C.,  Robinson  Property  Group  Limited  Partnership,  Yewdale  Holdings
            Limited,  Hanwa  American  Corp.,  debis   Financial  Services,  Inc.,  U.S.  Trust  Company  of
            California, N.A. as trustee under the Indenture and Bank of America Nevada.

  10.1*     Employment  Agreement dated  January 1,  1996  by and  between Horseshoe  Gaming, Inc.  and Paul
            Alanis.

  10.2**    Employment  Agreement dated  as of  October 1, 1995  by and  between Horseshoe  Gaming, Inc. and
            Walter J. Haybert.

  10.3**    Assignment Agreement dated as  of October  1, 1995 by and  between Horseshoe Gaming, L.L.C.  and
            Walter J. Haybert.

  10.4**    Employment Agreement dated  as of October 1, 1995 by and between Horseshoe Gaming, Inc. and John
            J. Schreiber.

  10.5**    Assignment Agreement dated as of October  1, 1995 by  and between Horseshoe Gaming,  L.L.C.  and
            John J. Schreiber.

  10.6**    Employment Agreement dated as of October 1, 1995  by and between Horseshoe Gaming, Inc. and John
            Michael Allen.

  10.7**    Assignment Agreement dated as  of October 1, 1995  by and between Horseshoe  Gaming, L.L.C.  and
            John Michael Allen.

  10.8*     Consulting  Agreement dated March 10,  1993 by  and between Jack Binion  and Koar International,
            Inc. (ultimately assigned to Horseshoe Gaming, Inc. and KII-Pasadena, Inc.)

  10.9*     Warrant to purchase 1,941,981 Horseshoe  Gaming Units, dated  as of October 10, 1995, issued  to
            Hanwa American Corp.

 10.10*     Warrant to purchase 1,941,980 Horseshoe  Gaming Units, dated  as of October 10, 1995, issued  to
            Yewdale Holdings Limited.

 10.11*     Warrant to purchase 1,566,629 Horseshoe  Gaming Units, dated  as of October 10, 1995, issued  to
            Hanwa American Corp.

 10.12*     Warrant to purchase 1,566,630 Horseshoe  Gaming Units, dated  as of October 10, 1995, issued  to
            Yewdale Holdings Limited.
</TABLE>




                                       4
<PAGE>   89

<TABLE>
<CAPTION>
                                                                                                             Sequentially
   Exhibit                                                                                                     Numbered
   Number                                              Description                                               Page
   ------                                              -----------                                               ----
 <S>        <C>
 10.13**    Registration  Rights Agreement  dated as of  October 10,  1995 by and  between Horseshoe Gaming,
            L.L.C., on the  one hand, and Yewdale Holdings  Limited, Post Balanced Fund, L.P., Capital  Fund
            Foundation, Raymond Zimmerman, as Trustee for the Charles N. Mathewson Charitable  Remainder Uni
            Trust,  Hanwa American  Corp.,  Onyx Partners,  Inc., Alpine  Associates, Janless  Corp., Andrew
            Astrachan, and Donald Schupak, on the other hand.

 10.14*     Assignment and Purchase Agreement dated as of  October 1, 1995 between Jack Binion and Horseshoe
            Gaming, L.L.C.

 10.15*     Promissory Note dated October 10, 1995  by Horseshoe Gaming,  L.L.C. in favor of Jack B.  Binion
            in the principal amount of $500,000.

 10.16*     Purchase Agreement  dated as of October 1,  1995 between B&O Development Limited Partnership and
            Horseshoe Gaming, L.L.C.

 10.17*     Assignment  Agreement dated  as  of October  1, 1995  between KR,  Inc. and  Horseshoe Ventures,
            L.L.C.

 10.18*     Promissory Note dated October 10, 1995  by Horseshoe Ventures,  L.L.C., in favor of KR, Inc.  in
            the principal amount of $4,769,016.47.

 10.19*     Option  Agreement dated as  of October  10, 1995  between Horseshoe  Gaming, L.L.C., on  the one
            hand, and Hanwa American Corp. and Yewdale Holdings Limited, on the other hand.

 10.20*     Letter Agreement  dated  as  of October  10, 1995  between  Horseshoe Gaming,  L.L.C. and  Hanwa
            American Corp.

 10.21*     Letter  Agreement dated  as of  October 10,  1995 between  Horseshoe Gaming, L.L.C.  and Yewdale
            Holdings Limited.

 10.22**    Purchase and Sale Agreement dated  as of November 15, 1995 by and between Frank Pernici  and New
            Gaming Capital Partnership, with Horseshoe Gaming, L.L.C., as Guarantor.

 10.23*     Employment Agreement dated January 1, 1996 by and between Horseshoe Gaming,  L.L.C. and Loren S.
            Ostrow.

 10.24*     401(k) Plan of Robinson Property Group Limited Partnership.

 10.25**    Limited  Partnership  Agreement  of Horseshoe  Entertainment,  a Louisiana  limited partnership,
            dated April 20th, 1993.

 10.26**    Second  and  Amended  and  Restated  Limited   Partnership  Agreement  of  New  Gaming   Capital
            Partnership, a Nevada limited partnership, dated as of October 1, 1995.

 10.27**    Limited Liability Company Agreement of Horseshoe Ventures, L.L.C., a  Delaware limited liability
            company, dated as of October 1, 1995.

 10.28+     Second Amended and Restated Operating Agreement  of Horseshoe Casinos (Indiana), LLC, an Indiana
            limited liability company, dated as of April 26, 1996.

 10.29**    Hanwa Co.,  Ltd. Commitment Letter, dated April 18,  1996, for Senior  Secured Financing for the
            Proposed Horseshoe Indiana Riverboat Gaming Facility.
</TABLE>



                                       5
<PAGE>   90

<TABLE>
<CAPTION>
                                                                                                             Sequentially
   Exhibit                                                                                                     Numbered
   Number                                              Description                                               Page
   ------                                              -----------                                               ----
 <S>        <C>
 10.30**    Amendment No. 1  to Option  Agreement, dated as  of April  15, 1996,  between Horseshoe  Gaming,
            L.L.C., on  the one hand, and  Hanwa American Corp.  and Yewdale Holdings Limited,  on the other
            hand.
 10.31**    Purchase Agreement,  dated March 26,  1996, by and between Kehl  River Boats, Inc. and Horseshoe
            Gaming, L.L.C.

 10.32**    Agreement to Purchase  and Sell Real Estate,  dated March 13, 1996,  by and between  Le Bossier,
            L.L.C., as Seller, and Horseshoe Entertainment, as Buyer.

 10.33***   Amended Employment  Agreement dated October 1,  1995 by  and between Horseshoe Gaming,  Inc. and
            John Michael Allen.
 10.34***   Employment Agreement dated July 1, 1996 by and between Horseshoe Gaming, Inc. and Gary Border.

 10.35***   Amended  Employment Agreement  dated October 1, 1995  by and between  Horseshoe Gaming, Inc. and
            Walter J. Haybert.
 10.36***   Amended  Employment Agreement  dated October 1, 1995  by and between  Horseshoe Gaming, Inc. and
            John J. Schreiber.

  21.1***   Subsidiaries of Horseshoe Gaming, L.L.C.

  27.1      Financial Data Schedule - Horseshoe Gaming L.L.C and Subsidiaries.

-----------
</TABLE>

*        Filed as an Exhibit to Registration Statement on Form S-4 (No.
         333-0214) filed on January 8, 1996.
**       Filed as an Exhibit to Amendment No. 1 to Registration Statement filed
         on April 26, 1996.
***      Filed herewith.
+        Filed as an Exhibit to Amendment No. 2 to Registration Statement filed
         on May 9, 1996.
++       Filed as an Exhibit to Amendment No. 3 to Registration Statement filed
         on May 13, 1996.
+++      Filed as an Exhibit to Form 10-Q for the Quarter Ended June 30, 1996,
         filed on August 13, 1996.


SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
TO SECTION 12 OF THE ACT.

         No annual report or proxy material has been sent to security holders
during the fiscal year ended December 31, 1996.



                                       6