<PAGE>   1
                                                                     EXHIBIT 13



                            THE TENERE GROUP, INC.
                       PROFESSIONAL LIABILITY INSURERS




               Intermed Insurance Co.    Interlex Insurance Co.


                           Insurance Services, Inc.



                                    [LOGO]






                              1996 ANNUAL REPORT


<PAGE>   2

                               CORPORATE PROFILE


The Tenere Group, Inc., a publicly held insurance holding company, was
organized on April 27, 1995, when the demutualization of RCA Mutual Insurance
Company was completed.  Policyholders of RCA Mutual on that date became
shareholders of The Tenere Group, Inc. in proportion to their premiums over the
previous five years.

The Tenere Group, Inc. is composed of Intermed Insurance Co. (formerly RCA
Mutual Insurance Company), which markets professional liability insurance to
physicians, surgeons, dentists, oral surgeons and ancillary healthcare
professionals in the States of Missouri and Kansas; Interlex Insurance Co.,
which markets professional liability insurance to lawyers and judges in
Missouri and Kansas; Insurance Services, Inc., a management company; and Trout
Insurance Services, Inc., a full-line property/casualty insurance agency.

The Tenere Group, Inc. had its origin in 1976 when three physicians in
Springfield, Missouri organized Risk Control Associates, Inc., an assessable
mutual insurance company, to provide defense for themselves and their
associates against claims of medical malpractice.  In 1991, the Company was
reorganized as a non-assessable mutual property and casualty insurance company,
RCA Mutual Insurance Company, and, in 1995, was reorganized as a stock property
and casualty insurance company known as Intermed Insurance Co.  Intermed is a
wholly-owned subsidiary of The Tenere Group, Inc.; Interlex Insurance Co.,
Insurance Services, Inc. and Trout Insurance Services, Inc. are wholly-owned
subsidiaries of Intermed.



FINANCIAL HIGHLIGHTS  *

<TABLE>
<CAPTION>
                                                 DECEMBER 31                                  CHANGE
                                                 -----------                                  ------
                                                                                      1995 TO        1994 TO
                                                                                      -------        -------
                                               1996         1995         1994          1996          1995
                                               ----         ----         ----          ----          ----
<S>                                          <C>           <C>          <C>           <C>           <C>
Cash and invested assets                     $46,306,000   $53,585,000  $49,185,000    -14%          +  9%
Total assets                                  62,570,000    62,614,000   61,119,000     -0-          +  2%
Total reserves, including unearned premiums   39,188,000    37,070,000   40,027,000     +6%          -  7%
Stockholders' (1995 & 1996)/Policyholders'
(1994) equity                                 21,390,000    24,537,000   19,369,000    -11%          + 27%
Net premiums written                           3,469,000     8,369,000   11,024,000    -54%          - 24%
Net premiums earned                            7,646,000    11,901,000   10,657,000    -32%          + 12%
Net investment income                          2,627,000     2,654,000    2,639,000     +2%          +  1%
Total revenues                                10,256,000    14,519,000   12,873,000    -26%          + 13%
Dividends to policyholders                      --------       617,000    1,289,000   -100%          - 52%
Net income  (loss)                            (2,934,000)    2,510,000      797,000   -202%          +215%
Net income (loss) per share                        (1.47)         1.26       N.A.     -202%           N.A.
Book value per share                               10.70         12.27       N.A.      -11%           N.A.
</TABLE>

*  Amounts rounded to nearest thousand, except per share items.

                                       1


<PAGE>   3


                               PRESIDENT'S REPORT

The year ended December 31, 1996 was one in which your Company encountered a
number of difficulties and a number of exciting opportunities in the
marketplace.  In my report, I will tell you how your Board of Directors and the
management team dealt with each.

MEDICAL MALPRACTICE

-    The conversion of claims-paid policyholders to claims-made coverages
     which commenced on September 1, 1995 was completed on August 31, 1996.
     During that twelve-month period, 323 claims-paid policyholders, more than
     90% of the total, chose to convert to a claims-made policy form upon
     expiration of their claims-paid policy.  I believe that this was a strong
     indication of the loyalty which exists among our policyholders who are
     now, since the demutualization, also the stockholders of Tenere.
     Claims-paid coverages insured against claims which were reported and paid
     during the period the policy was in effect.  The Company's obligation to
     defend and pay claims ended upon expiration of the policy.  Claims-paid
     losses were incurred at  time of payment, therefore no reserves were
     required on open claims.  However, when the Company chose to discontinue
     writing and renewing claims-paid policies, it became contractually liable
     for all open claims that had been reported during the claims-paid policy
     period.  This resulted in the establishment of reserves of $1,592,000 at
     December 31, 1995 and $2,575,000, net of reinsurance, at December 31,
     1996. The conversion of claims-paid policyholders to claims-made coverages
     is now complete and the cost is fully reflected in the accompanying
     financial statements.

-    1996 was the first full year in which Intermed granted claim-free
     discounts to policyholders. Discounts ranged from 5% for one claim-free
     year to a maximum of 25% for five claim-free years.  Claim-free discounts
     granted in 1996 totaled approximately 20% of gross premiums, an indication
     of the high practice standards of our insureds.  The claim-free discount
     program replaced the mutual company practice of paying dividends to
     policyholders.  Dividends generally totaled 12% of gross premiums, so a
     greater amount of each premium dollar is now being returned to
     policyholders.  The difference is that the dollars are now distributed on
     the basis of loss experience rather than across-the-board.

-    Extreme competitive conditions in Missouri required additional discounts
     from manual rates in 1996.  Market-driven discounts totaled approximately
     10% of gross premiums.  It appears that these unfavorable market
     conditions are continuing unabated, and, in response, Intermed will be
     required to continue granting discounts of this magnitude in 1997.

-    In mid 1996 Intermed was recognized as a surplus lines carrier in the
     State of Texas and began to write professional liability insurance on
     physicians through a physician-sponsored purchasing group, Intermedical of
     Texas, Inc.  In 1997, the Company will begin to write professional
     liability insurance on dentists through a second purchasing group, Dental
     Defense Specialists, Inc.  Premium projections for the State of Texas in
     1997 are $4,000,000.


LEGAL MALPRACTICE

-    1996 was the second full year of operations of Interlex, and the Company
     exceeded its sales goal of $600,000 for premiums written.  The sales goal
     for 1997 is $1,200,000.

-    The marketing staff of Interlex has been augmented by the addition of one
     new marketing representative in 1997, and marketing efforts will be
     expanded into the State of Kansas.  The Company is currently seeking
     admission to three additional states, Arkansas, Oklahoma and Texas.  It
     will also commence operations in the State of Illinois through a
     purchasing group, Lawyers' Liability Association, Inc.

                                       2


<PAGE>   4



FINANCIAL RESULTS

Primarily because of the conversion of claims-paid policyholders to claims-made
coverages there was a net loss of $2,934,000 or $1.47 per share in 1996.  The
Company decided to discontinue writing claims-paid coverages effective
September 1, 1995 because premium rates required for this maturing block of
business were equivalent to those charged for claims-made coverages which offer
superior protection for policyholders.  Operations in 1996 were also impacted
by indemnity and loss adjustment expense payments $3,708,000 higher than in the
prior year.  Management believes that 1996 was an aberration and that paid
losses in 1997 will return to the level experienced in prior years. We do not
believe that there has been a fundamental change in the historic profitability
of the Company's block of medical malpractice business.

PLAN OF OPERATION

Management will take the following steps in 1997 to return the Company to
growth and profitability:

1.   Medical malpractice marketing efforts will focus on Texas and Kansas
     where competitive conditions are not as extreme as in Missouri.

2.   A new class plan and rate manual for medical malpractice will be
     introduced in Missouri and Kansas which will make Intermed more
     competitive in those specialties in which the Company has had favorable
     loss experience.  Management believes that this will stabilize our current
     blocks of business in these states and premium income is projected at
     $8,000,000 in 1997.

3.   Legal malpractice marketing efforts will be expanded into Kansas and
     Illinois and Interlex will seek admission to the States of Arkansas,
     Oklahoma and Texas.  We will continue to augment the marketing staff as
     the Company is admitted in additional states.

                                       /s/ RAYMOND A. CHRISTY, M.D.


                                           Raymond A. Christy, M.D.
                                           President and Chief Executive Officer

Springfield, Missouri
March 27, 1997

                                       3


<PAGE>   5


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATION
                        PERIODS ENDED DECEMBER 31, 1996


FINANCIAL CONDITION

   ASSETS

   Total assets declined slightly in 1996, from $62,614,000 at December 31,
   1995 to $62,570,000 at December 31, 1996.  Investments increased from
   $22,404,000 at prior year end to $29,370,000 at the current year end due to
   the reinvestment of $13,689,000 in long-term bonds with an average yield of
   7.18%.  Bonds with a book value of $6,294,000 and an average yield of 4.26%
   were sold during the year.  All bonds owned at December 31, 1996 were U.S.
   Treasury, U.S. Agency or high-quality state obligations.  The market value
   of bonds exceeded amortized cost by $252,000 compared to an unrealized gain
   of $562,000 at the prior year end.  The maturity distribution of bonds held
   at December 31, 1996 was $1,451,000 (5%) with a maturity of less than one
   year, $6,552,000 (22%) with a maturity of over one through five years and
   $21,115,000 (73%) with a maturity of over five years through ten years.
   Future purchases will be concentrated in the one through five year range.

   Cash and cash equivalents totaled $16,935,000 at December 31, 1996 compared
   to $31,181,000 at the prior year end.  The decrease was primarily due to the
   net reinvestment of $7,395,000 in long-term bonds in 1996 as discussed above
   and a negative cash flow from operations of $6,211,000 discussed below under
   Liquidity and Capital Resources.  Approximately $14,000,000 currently held
   in cash equivalents will be reinvested long-term  when interest rates
   increase above our current target of 7.25%.

   Premiums receivable decreased from $3,720,000 at December 31, 1995 to
   $2,581,000 at the most recent year end due to the decline in net premiums
   written discussed below in Results of Operations.

   There was a significant increase in the reinsurance recoverable at December
   31, 1996 from $1,162,000 at the prior year end to $7,458,000.  The increase
   was primarily due to an additional reinsurance treaty that was effective
   January 1, 1996 under which $4,886,000 of losses and loss adjustment
   expenses were ceded.  The remainder of the increase was due to losses ceded
   under the Company's primary excess of loss treaty, currently in its fourth
   year.

   Deferred income taxes at December 31, 1996 were $2,099,000 compared to
   $1,772,000 at the prior year end.  The income tax recoverable of $1,680,000
   is taxes paid in early 1996 and prior profitable years that can be recouped
   because of losses subsequently  incurred.  Other assets of $1,085,000 at
   December 31, 1996 consist principally of computer software of $480,000,
   furniture and equipment of $191,000 and Company-owned automobiles of
   $94,000.

   LIABILITIES

   Reserves for losses and loss adjustment expenses increased from $26,623,000
   at December 31, 1995 to $32,887,000 at December 31, 1996, an increase of
   $6,264,000 or 24%.  Of the increase, $6,172,000 was attributable to reserves
   established for reported claims on policyholders who converted from
   claims-paid to claims-made coverages during 1996.  Claims-paid losses are
   incurred at the time of payment so no reserves are required on open claims.
   However, when the Company ceased renewing claims-paid policies effective
   September 1, 1995, it was required to establish reserves for all open,
   reported claims at the time of non-renewal.

   The unearned premium reserve (UPR) declined from $10,447,000 at the prior
   year end to $6,300,000 at December 31, 1996.  There was a decrease of
   $3,140,000 in the death, disability and retirement component (DD&R) of the
   UPR due to the conversion of 267 claims-paid policyholders to claims-made
   coverages

                                       4


<PAGE>   6
                     MANAGEMENT'S DISCUSSION AND ANALYSIS

   during 1996.  The remainder of the decline was attributable to the lower
   level of premiums written in 1996, discussed below in Results of Operations.

   Total liabilities increased from $38,077,000 at December 31, 1995 to
   $41,180,000 at the current year end due primarily to the increase in
   reserves discussed above.

   STOCKHOLDERS' EQUITY

   Stockholders' equity declined from $24,537,000 at December 31, 1995 to
   $21,390,000 at the current year end, a decline of $3,147,000.  The decline
   was attributable to the net loss of $2,934,000 discussed below in Results of
   Operations and a $213,000 decrease in the net unrealized gain on bonds at
   December 31, 1996 compared to prior year end.

RESULTS OF OPERATIONS

   Direct premiums written were $12,368,000 in 1994, $9,874,000 in 1995 and
   $8,124,000 in 1996.  The decline of $2,494,000 from 1994 to 1995 was due to
   a net loss of 96 insureds for Intermed, primarily due to individual
   practices being purchased by larger groups or self-insured hospitals and to
   the implementation of a claims-free discount program effective September 1,
   1995.  The decline of $1,750,000 from 1995 to 1996 was due to the full year
   impact of the claims-free discount program and to other market-driven
   discounts necessitated by competitive conditions in the medical malpractice
   market in Missouri.  In 1996, claims-free discounts approximated 20%  of
   gross premiums and market-driven discounts approximated another 10%.  The
   claims-free discount program will be continued in 1997 and it will be
   necessary to continue granting market-driven discounts at the same level
   experienced in 1996.  Because of extreme competitive conditions in Missouri,
   the Company will concentrate its marketing efforts for medical malpractice
   insurance in Kansas and Texas in 1997.  Intermed was recognized as a surplus
   lines carrier in Texas in 1996 and writes medical malpractice insurance on
   physicians through a physician-sponsored purchasing group, Intermedical of
   Texas, Inc.  In 1997 the Company will commence writing professional
   liability insurance on dentists in Texas through a second purchasing group,
   Dental Defense Specialists, Inc.

   Interlex increased its number of insureds from 196 to 428 in 1996 and plans
   to add another 400 insureds in 1997.  While there will be some expansion
   into Kansas during the year, the Company will concentrate its marketing
   efforts in Missouri.

   Premiums ceded to reinsurers increased from $1,344,000 in 1994 to $1,505,000
   in 1995 to $4,655,000 in 1996.  The significant increase of $3,150,000 in
   1996 was due to:

   1.   A new accident year aggregate excess of loss reinsurance treaty
        effective January 1, 1996 under which premiums of $2,050,000 were
        ceded.  This treaty covered losses incurred in calendar year 1996 in
        excess of $4,176,000 on claims-paid policies and losses incurred in
        1996 on occurrence and claims-made coverages in excess of 75% of
        premiums earned on those coverages.

   2.   Losses ceded to a reinsurer under the Company's experience rated
        primary excess of loss treaty resulted in $1,702,000 of ceded premiums.

   As a result of the significant increase in premiums ceded to reinsurers, net
   premiums written in 1996 were $3,469,000 compared to $8,369,000 in 1995 and
   $11,024,000 in 1994.

   There was an increase of $367,000 in the unearned premium reserve (UPR) in
   1994 due to the increase in premiums written that year.  The UPR decreased
   $3,532,000 in 1995 and $4,178,000 in 1996.  The primary reason for the large
   decreases in 1995 and 1996 was the conversion of claims-paid policyholders
   to claims-made coverages over the twelve-month period beginning September 1,
   1995 and ending August 31, 1996.  The death, disability and retirement
   (DD&R) component of the UPR required for claims-made coverages is
   substantially less than that required for claims-paid coverages, hence the
   large releases in 1995 and 1996.

                                       5


<PAGE>   7
                     MANAGEMENT'S DISCUSSION AND ANALYSIS


   Net investment income was  $2,627,000 in 1996 compared to $2,654,000 in 1995
   and $2,639,000 in 1994.

   Total revenues increased from $12,873,000 in 1994 to $14,519,000 in 1995 and
   decreased to $10,256,000 in 1996.  The reasons for these fluctuations have
   been discussed above.

   Sales and marketing expenses increased from $857,000 in 1994 to $955,000 in
   1995 and $1,758,000 in 1996.  The increase in 1995 was due to expansion of
   the Home Office marketing staff.  The significant increase in 1996 was due
   to continued expansion of the Home Office marketing staff and to start-up
   costs for a new sales office in Austin, Texas.  As discussed above, Intermed
   was recognized by Texas as an authorized surplus lines carrier in 1996 and
   the Company opened a sales office staffed by employees of Insurance
   Services, Inc.

   Losses and loss adjustment expenses (LAE) declined from $8,197,000 in 1994
   to $7,676,000 in 1995.  The loss ratios were 77% in 1994 and 65% in 1995.
   Calendar year 1995 benefited from a net release of $1,935,000 in loss
   reserves related to prior accident years.  Losses and LAE in 1996 totaled
   $11,226,000, producing a calendar year loss ratio of 140%.  The reasons for
   the unfavorable loss experience in 1996 were:

   1.   Medical malpractice indemnity and LAE payments totaled $10,768,000
        in 1996 compared with $7,060,000 in the prior year, an increase of
        $3,708,000.  Management believes that this significant increase was an
        aberration and that paid losses in 1997 will return to the level
        experienced in prior years.  There is no reason to believe that there
        has been a fundamental change in the historic profitability of the
        Company's block of medical malpractice business.  Because individual
        indemnity payments in 1996 on prior year claims exceeded the reserves
        established for those claims, there was a charge against current year
        operations of $1,446,000.

   2.   As discussed above in the comments related to Liabilities, it was
        necessary to establish reserves of $2,527,000, net of reinsurance, for
        reported claims on claims-paid policies that converted to claims-made
        coverages during 1996.

   Primarily because of the factors discussed above, there was a net loss
   before income taxes of $4,499,000 in 1996 compared with net income before
   taxes of $3,833,000 in 1995 and $899,000 in 1994.

   There was an income tax expense of $102,000 in 1994 and $1,323,000 in 1995
   due to profitable operations in those years.  There was an income tax
   benefit of $1,564,000 in 1996 due to the net loss incurred.

   Net income in 1994 was $797,000, increasing to $2,510,000 in 1995.  There
   was a net loss of $2,934,000 in 1996.

LIQUIDITY AND CAPITAL RESOURCES

   Due to the continued restructuring of the bond portfolio and to a negative
   cash flow from operations of $6,211,000, cash and cash equivalents totaled
   $16,935,000 at December 31, 1996 compared to $31,181,000 at the prior year.
   At December 31, 1996, approximately $14,000,000 invested short-term will be
   re-invested in long-term bonds when interest rates improve above the current
   level.

   Normal operations are financed by premium and investment income.  To provide
   a margin of safety against unexpected cash calls, the maturity distribution
   of the bond portfolio is carefully monitored to preclude forced liquidations
   which could result in realized losses.

                                       6


<PAGE>   8
                     MANAGEMENT'S DISCUSSION AND ANALYSIS


GENERAL

   In June 1995, the Company received a B+ (very good) rating from A.M. Best
   Company, the premier rating agency of insurance companies.  Best ratings are
   divided into two groups, "Secure" and "Vulnerable" and the B+ rating is
   classified as "Secure".

   In 1996, A.M. Best increased the Company's rating from B+ to B++.











                          INDEPENDENT AUDITORS' REPORT




The Board of Directors
The Tenere Group, Inc.:



We have audited the accompanying consolidated balance sheets of The Tenere
Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations and stockholders'/policyholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1996.  These consolidated financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Tenere Group,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles.


                                                /s/ KPMG PEAT MARWICK LLP


Houston, Texas
March 27, 1997

                                       7



<PAGE>   9
                          CONSOLIDATED BALANCE SHEETS

                           December 31, 1996 and 1995

<TABLE>
<CAPTION>
                                                          1996           1995
                                                          ----           ----
<S>                                                   <C>             <C>
                   ASSETS
Investments:
  Bonds held to maturity, at amortized cost
    (market - $1,854,359 in 1995)                     $    --          1,867,111
  Bonds held available for sale, at market value
    (amortized cost - $29,117,835 in 1996;
    $19,961,424 in 1995)                               29,370,067     20,536,518
  Common stock                                                340            340
                                                      -----------     ----------
        Total investments                              29,370,407     22,403,969

Other assets:
  Cash and cash equivalents, including interest-
    bearing deposits of $14,889,744 in 1996 and
    $29,614,311 in 1995                                16,935,122     31,180,925
  Premiums receivable                                   2,580,691      3,720,202
  Reinsurance recoverable                               7,458,298      1,162,495
  Prepaid reinsurance premiums                            750,000      1,175,252
  Accrued investment income                               527,139        567,306
  Deferred policy acquisition costs                        84,550        140,450
  Deferred income taxes                                 2,098,792      1,772,314
  Income taxes recoverable                              1,680,190         --
  Other                                                 1,084,992        491,101
                                                      -----------     ----------
        Total other assets                             33,199,774     40,210,045
                                                      -----------     ----------
                                                      $62,570,181     62,614,014
                                                      ===========     ==========

      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Reserves for losses and loss adjustment expenses    $32,887,407     26,623,138
  Unearned premium reserve                              6,300,111     10,447,006
  Reinsurance premium payable                           1,256,381        137,878
  Income taxes payable                                     --            214,444
  Other                                                   736,579        654,270
                                                      -----------     ----------
        Total liabilities                              41,180,478     38,076,736

Stockholders' equity:
  Common stock, $.01 par value; 7,000,000 shares
    authorized; 1,999,774 shares issued and
    outstanding                                            19,998         19,998
  Contributed capital                                  21,940,828     21,940,828
  Retained earnings (accumulated deficit)                (571,123)     2,576,452
  Commitments and contingencies (see note 9)
                                                      -----------     ----------
        Total stockholders' equity                     21,389,703     24,537,278
                                                      -----------     ----------
                                                      $62,570,181     62,614,014
                                                      ===========     ==========
</TABLE>

See notes to consolidated financial statements


                                       8
<PAGE>   10
                     CONSOLIDATED STATEMENTS OF OPERATIONS

                 YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

<TABLE>
<CAPTION>
                                            1996          1995          1994
                                            ----          ----          ----
<S>                                     <C>            <C>           <C>
REVENUES:
  Direct premiums written               $ 8,124,319     9,874,270    12,367,991
  Premiums ceded to reinsurers            4,655,382     1,505,427     1,343,902
                                        -----------    ----------    ----------
        Net premiums written              3,468,937     8,368,843    11,024,089
  (Increase) decrease in unearned
    premium reserve                       4,177,545     3,532,480      (367,216)
                                        -----------    ----------    ----------
        Net premiums earned               7,646,482    11,901,323    10,656,873

  Net investment income                   2,626,983     2,654,037     2,639,266
  Net realized investment losses            (17,135)      (36,263)     (423,264)
                                        -----------    ----------    ----------
        Total revenues                   10,256,330    14,519,097    12,872,875

LOSSES AND EXPENSES:
  Sales and marketing expenses            1,758,312       955,021       857,422
  Other underwriting expenses             1,784,324     1,437,718     1,631,124
  Losses and loss adjustment expenses    11,226,461     7,676,488     8,196,665
  Dividends to policyholders                (13,921)      616,948     1,288,641
                                        -----------    ----------    ----------
        Total losses and expenses        14,755,176    10,686,175    11,973,852
                                        -----------    ----------    ----------
        Income before income taxes       (4,498,846)    3,832,922       899,023
  Income tax (benefit) expense           (1,564,360)    1,323,066       101,997
                                        -----------    ----------    ----------
        Net income (loss)               $(2,934,486)    2,509,856       797,026
                                        -----------    ----------    ----------
        Net income (loss) per share          $(1.47)         1.26        N/A
                                        ===========    ==========    ==========
</TABLE>

See notes to consolidated financial statements




                                       9
<PAGE>   11
         CONSOLIDATED STATEMENTS OF STOCKHOLDERS'/POLICYHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                          RETAINED
                                                          EARNINGS/
                                COMMON    CONTRIBUTED   (ACCUMULATED    POLICYHOLDERS'
                                STOCK       CAPITAL       DEFICIT)          EQUITY         TOTAL
                                -------   -----------   ------------    --------------  ----------
<S>                             <C>        <C>          <C>              <C>            <C>
Balance at December 31, 1993    $    --            --           --        20,844,790    20,844,790
Change in unrealized
  investment gains (losses)          --            --           --        (2,273,260)   (2,273,260)
Net income                           --            --           --           797,026       797,026
                                -------    ----------   ----------       -----------    ----------
Balance at December 31, 1994         --            --           --        19,368,556    19,368,556
Demutualization (note 1)        $19,998    21,940,828   (2,592,270)      (19,368,556)           --
Change in unrealized
  investment gains (losses)          --            --    2,658,866                --     2,658,866
Net income                           --            --    2,509,856                --     2,509,856
                                -------    ----------   ----------       -----------    ----------
Balance at December 31, 1995     19,998    21,940,828    2,576,452                --    24,537,278
Change in unrealized
  investment gains (losses)          --            --     (213,089)               --      (213,089)
Net income                           --            --   (2,934,486)               --    (2,934,486)
                                -------    ----------   ----------       -----------    ----------
Balance at December 31, 1996    $19,998    21,940,828     (571,123)               --    21,389,703
                                =======    ==========   ==========       ===========    ==========
</TABLE>

See notes to consolidated financial statements.


                                       10

<PAGE>   12
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                     1996           1995          1994
                                                     ----           ----          ----
<S>                                              <C>              <C>          <C>
Net income (loss)                                $ (2,934,486)    2,509,856       797,026
Adjustments to reconcile net income
  (loss) to net cash from operating
  activities:
    Net realized investment losses                     17,135        36,263       423,264
    Depreciation and amortization expense             187,418       160,634       127,288
    Equity in loss of real estate partnership              --            --         2,225
    Net change in deferred acquisition costs           55,900       147,172       (26,167)
    Deferred income tax expense (benefit)            (216,705)      487,427      (324,346)
    Net amortization of discount on bonds             105,218       516,508       759,368
    Change in deferred tax valuation allowance             --            --         6,028
    Change in operating assets and liabilities:
      Premiums receivable                           1,139,511       423,063    (1,065,577)
      Reinsurance balances                         (4,752,048)   (1,308,346)     (717,802)
      Accrued investment income                        40,167       795,427      (429,753)
      Income taxes recoverable                     (1,894,634)      650,715       743,241
      Other assets                                   (158,515)        1,208       (24,620)
      Reserve for losses and loss adjustment
        expenses                                    6,244,114       245,816       824,064
      Unearned premium reserve                     (4,146,895)   (3,299,570)      367,216
      Policyholder dividends payable                 (152,042)     (277,596)       96,918
      Other liabilities                               254,507        86,240      (177,081)
                                                 ------------    ----------   -----------
        Net cash provided by (used in)
          operating activities                     (6,211,355)    1,174,817     1,381,292
                                                 ------------    ----------   -----------

Cash flows from investing activities:
  Maturity of bonds held to maturity or
    available for sale                              1,700,000     1,360,000            --
  Sale of bonds held to maturity                    1,826,094            --            --
  Sale of bonds available for sale                  2,750,826    27,246,304    24,697,159
  Purchase of bonds held to maturity or
    available for sale                            (13,688,573)           --   (25,576,587)
  Purchase of furniture and equipment                (622,795)     (250,255)     (270,167)
                                                 ------------    ----------   -----------
    Net cash provided by (used in)
      investing activities                         (8,034,448)   28,356,049    (1,149,595)
                                                 ------------    ----------   -----------
  Net increase (decrease) in cash and
    cash equivalents                              (14,245,803)   29,530,866       231,697

    Cash and cash equivalents at beginning
      of period                                    31,180,925     1,650,059     1,418,362
                                                 ------------    ----------   -----------
    Cash and cash equivalents at end of period   $ 16,935,122    31,180,925     1,650,059
                                                 ============    ==========   ===========
</TABLE>

See notes to consolidated financial statements.


                                       11

<PAGE>   13




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      This summary of significant accounting policies of The Tenere Group, Inc.
      (Tenere, the Company) and its wholly-owned subsidiaries, Intermed
      Insurance Company (Intermed), Interlex Insurance Company (Interlex) and
      Insurance Services, Inc. (ISI), is presented to assist in understanding
      the Company's financial statements.  The financial statements herein
      represent the operations of Intermed and its subsidiaries, Interlex and
      ISI.  Tenere, the holding company, currently has no operations other than
      ownership of Intermed.

      The consolidated financial statements and notes thereto are
      representations of the Company's management, which is responsible for
      their integrity and objectivity.  The consolidated financial statements
      have been prepared on the basis of generally accepted accounting
      principles which differ from the statutory basis of accounting followed
      in reporting to insurance regulatory authorities. All significant
      intercompany transactions and accounts have been eliminated in
      consolidation.

      DESCRIPTION OF COMPANY

      Effective April 27, 1995, RCA Mutual Insurance Company (RCA), a
      non-assessable mutual property and casualty insurance company, completed
      the demutualization process begun in 1993 and became a stock property and
      casualty insurance company.  The Company's name was changed from RCA
      Mutual Insurance Company to Intermed Insurance Company.  Also effective
      April 27, 1995, Intermed became a wholly-owned subsidiary of The Tenere
      Group, Inc., an insurance holding company organized under the laws of the
      State of Missouri, and the policyholders of RCA became the stockholders
      of Tenere.  This transaction was accounted for using policyholders'
      equity as of April 1, 1995.  Issued in exchange for $21,960,826 of
      membership interests were 1,999,774 shares of Tenere Group stock which
      approximated one share of $.01 par value Tenere Group stock for every
      $10.98 of policyholder surplus attributable to the policyholder.

      Intermed writes medical and dental professional liability insurance on
      occurrence and claims-made bases in the States of Missouri and  Kansas.
      Prior to September 1, 1995, the Company also wrote coverages on a
      claims-paid basis in the State of Missouri.  Effective August 1, 1996
      Intermed was recognized as a surplus lines carrier in the State of Texas
      and began writing professional liability insurance on physicians through
      a physician-sponsored purchasing group, Intermedical of Texas, Inc.  In
      1997, the Company will begin to write professional liability insurance on
      dentists in Texas through a second physician-sponsored purchasing group,
      Dental Defense Specialists, Inc.  Coverages in Texas are written on both
      occurrence and claims-made policy forms.  Interlex writes legal
      professional liability insurance on a claims-made basis in the States of
      Missouri and Kansas.  Since operations are currently conducted in only
      three states, they are subject to changes in the legal and economic
      climates of those states.

      Estimates of losses and loss adjustment expenses on occurrence coverages
      are charged to income as claims are incurred.  Estimates of losses and
      loss adjustment expenses on claims-made coverages are charged to income
      as claims are reported.  Claims-paid coverages insured against claims
      which were reported and paid during the period the policy was in effect.
      The Company's obligation to defend and pay claims ended upon expiration
      of a claims-paid policy.  Claims-paid losses were incurred at the time of
      payment so no reserves were required on open claims.  However, when the
      Company discontinued writing or renewing claims-paid policies effective
      September 1, 1995, it became liable for all open claims that had been
      reported during the claims-paid policy period.

                                       12


<PAGE>   14




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



      CASH AND CASH EQUIVALENTS

      Excess cash is invested on a short-term basis in an interest-bearing
      money market fund and under an interest-bearing repurchase agreement.
      For purposes of the statements of cash flows, the Company considers all
      highly liquid debt instruments purchased with original maturities of
      three months or less to be cash equivalents.

      INVESTMENTS

      Effective January 1, 1994, the Company adopted Statement of Financial
      Accounting Standards No. 115, Accounting for Certain Investments in Debt
      and Equity Securities (Statement 115).  Statement 115 required a change
      in accounting and reporting for investments in equity securities that
      have readily determinable fair values and for all investments in debt
      securities.  In general this statement requires that securities must be
      classified in three categories, with the accounting and reporting as
      follows:

            Held-to-maturity securities - Debt securities that
            management has the positive intent and ability to hold to
            maturity are classified as held to maturity and reported at
            amortized cost.

            Trading securities - Securities bought with the purpose of
            selling them in the near term are classified as trading
            securities.  Securities in this category are reported at
            fair market value, with unrealized gains and losses included
            in earnings.

            Available-for-sale securities - Securities which are not
            classified in one of the other categories are held as
            available-for-sale and are reported at fair market value.
            Unrealized gains and losses for this category are excluded
            from earnings and are reported as a separate component of
            stockholders' equity, net of income tax.

      The adoption of Statement 115 had no effect on the net income of the
      Company.  Gains and losses from the sale of investments are calculated
      using the specific identification method.

      PREMIUMS RECEIVABLE

      Premiums receivable represent unpaid premium balances due directly from
      the insured and are secured by the related unearned premiums.  The
      Company cancels all policies with receivable balances outstanding more
      than 90 days.

      PREMIUMS

      Premium income is recognized on a pro rata basis over the terms of the
      respective policy contracts.  The unearned premium reserve represents the
      portion of premiums written which are applicable to the unexpired terms
      of policies in force.  In addition, the unearned premium reserve includes
      the liability for death, disability and retirement waiver benefit (see
      note 5).

      POLICY ACQUISITION COSTS

      Policy acquistion costs, consisiting primarily of commissions, are
      deferred and amortized in proportion to the premium revenue recognized.


                                       13


<PAGE>   15
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

      Reserves for losses and loss adjustment expenses are estimated based on
      the Company's historical loss and loss adjustment expense experience
      supplemented by insurance industry loss data.  The reserves are reported
      on a present value basis discounted at the rate of 3% in 1996 and 4% in
      1995.  At the direction of the Missouri Department of Insurance, the
      discount will be eliminated ratably over the five year   period ending
      December 31, 1998.

      The reserve for losses and loss adjustment expenses is based on
      long-range projections subject to uncertainty.  Uncertainty regarding
      reserves of a given accident year are gradually reduced as new
      information emerges each succeeding year, allowing more reliable
      re-evaluations of such reserves.  While management believes the reserve
      for losses and loss adjustment expenses at December 31, 1996 makes a good
      and reasonable provision for claim liabilities, uncertainties inherent in
      the reserving process could cause such reserves to develop favorably or
      unfavorably.  Any adjustments to reserves are reflected in the operating
      results of the periods in which they are made.  Changes in reserves which
      are small relative to the total amount of such reserves could
      significantly impact future reported income.


      FEDERAL INCOME TAXES

      The Company and its subsidiaries file a consolidated Federal income tax
      return.  Current Federal income taxes are charged or credited to
      operations based upon amounts estimated to be payable or recoverable as a
      result of taxable operations for the current year.  Deferred income tax
      assets and liabilities are recognized based on the difference between
      financial statement carrying amounts and income tax bases of assets and
      liabilities using enacted income tax rates and laws.

      ESTIMATES AND ASSUMPTIONS

      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.  The reserves for losses and loss adjustment expenses
      represent the most significant estimate in the accompanying financial
      statements.


(2)  INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS

      The amortized cost and estimated market values of investments in bonds as
      of December 31, 1996 and December 31, 1995 are presented below.  The
      estimated market values presented in this footnote were determined using
      quoted market prices, where available, or independent pricing services.

                                       14


<PAGE>   16
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





<TABLE>
<CAPTION>
                                                     Gross           Gross
                                      Amortized    unrealized     unrealized           Market
Type of Investment                      cost         gains          losses             value
------------------                   ------------  ----------     -----------        ----------
<S>                                 <C>            <C>              <C>               <C>
December 31, 1996
Available-for-sale:
  United States government,
    government agencies and
    authorities                     $27,246,527      364,640         (136,238)        27,474,929
  States, municipalities and
    political subdivisions            1,871,308       23,830          -------          1,895,138
                                    -----------    ---------        ---------         ----------
      Total available-for-sale      $29,117,835      388,470         (136,238)        29,370,067
                                    ===========    =========        =========         ==========
December 31, 1995
Held-to-maturity:
  United States government,
    government agencies and
    authorities                     $ 1,867,111       ------          (12,752)         1,854,359
Available-for-sale:
  United States government,
    government agencies and
    authorities                      17,960,592      579,886          -------         18,540,478
  States, municipalities and
    political subdivisions            2,000,832       ------           (4,792)         1,996,040
                                    -----------    ---------        ---------         ----------
        Total available-for-sale     19,961,424      579,886           (4,792)        20,536,518
                                    -----------    ---------        ---------         ----------
        Total fixed maturities      $21,828,535      579,886          (17,544)        22,390,877
                                    ===========    =========        =========         ==========
</TABLE>

      The amortized cost and market value of investments in fixed maturities at
      December 31, 1996 by contractual maturity are shown below.  Expected
      maturities may differ from contractual maturities because borrowers may
      have the right to call or prepay obligations with or without call or
      prepayment penalties.

                                       15


<PAGE>   17
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                           Available-for-sale

                          Amortized     Market
                            cost        value
                         -----------  ----------
<S>                      <C>          <C>
Due in one year or less  $ 1,450,700   1,457,482
Due after one year
through five years         6,552,441   6,572,525
Due after five years
through ten years         21,114,694  21,340,060
                         -----------  ----------
                         $29,117,835  29,370,067
                         ===========  ==========
</TABLE>

      Proceeds from sales of available-for sale securities were $2,750,826 in
      1996, $28,606,304 in 1995, and $24,697,159 in 1994.  Gross gains and
      losses on those sales were: $2,120 and $9,130 in 1996; $383,816 and
      $420,079 in 1995; and $66,015 and $489,279 in 1994, respectively.

      In 1996, the Company continued the restructuring of  its investment
      portfolio which resulted in the sale of low-yielding bonds on deposit
      with the State of Missouri which were classified held to maturity.
      Proceeds from sales of held to maturity securities were $1,826,094  and
      realized losses were $10,125.

      Net investment income for the years ended December 31, 1996, 1995 and
      1994 is comprised of the following:


<TABLE>
<CAPTION>
                                            1996         1995        1994
                                            ----         ----        ----
<S>                                      <C>          <C>         <C>
Investment income:
       Interest on cash equivalents
           and repurchase agreements     $1,115,565     616,621      48,735
       Interest on federal
           income tax refund                  -----       -----     103,484
       Interest on bonds                  1,695,754   2,217,427   2,610,672
                                         ----------   ---------   ---------
           Gross investment income        2,811,319   2,834,048   2,762,891
           Investment expenses             (184,336)   (180,011)   (123,625)
                                         ----------   ---------   ---------
           Net investment income         $2,626,983   2,654,037   2,639,266
                                         ==========   =========   =========
</TABLE>

      Bonds with an amortized cost $1,790,138 at December 31, 1996 and
      $1,867,111 at December 31, 1995 were on deposit with the Department of
      Insurance of the State of Missouri.  The amortized cost of these bonds
      and the interest income thereon are included in the above amounts.

      The net changes in unrealized investment gains are as follows:


<TABLE>
<CAPTION>
                                          December 31,  December 31,  December 31,
                                              1996          1995          1994
                                              ----          ----          ----
<S>                                       <C>           <C>           <C>
Net unrealized investment gains (losses)    ($322,862)    4,028,585    (3,444,336)
Federal income (taxes) benefit                109,773    (1,369,719)    1,171,076
                                          -----------   -----------   -----------
                                            ($213,089)    2,658,866    (2,273,260)
                                          ===========   ===========   ===========
</TABLE>


                                       16

<PAGE>   18
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      The carrying values of cash and cash equivalents, premiums receivable and
      other liabilities approximate their fair values at December 31, 1996 and
      1995.

(3)  RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

      A summary of the reserves for losses and loss adjustment expenses
      follows:


<TABLE>
<CAPTION>
                                           December 31,  December 31,
                                               1996          1995
                                           ------------  ------------
<S>                                        <C>           <C>
Undiscounted reserves for losses and loss
        adjustment expenses                $35,051,777    29,555,760
Less discount (see note 1)                  (2,164,370)   (2,932,622)
                                           -----------    ----------
Discounted reserves for losses and loss
        adjustment expenses                $32,887,407    26,623,138
                                           ===========    ==========
</TABLE>

      Following is the activity in the reserves for losses and loss adjustment
      expenses:


<TABLE>
<CAPTION>
                                                 1996         1995         1994
                                                 ----         ----         ----
<S>                                          <C>           <C>          <C>
Balance at January 1                         $26,623,138   26,279,977   25,553,413
Less reinsurance recoverable on unpaid loss
        and loss adjustment expenses          (1,162,495)    (584,913)    (248,721)
                                             -----------   ----------   ----------
                                              25,460,643   25,695,064   25,304,692
                                             -----------   ----------   ----------
Incurred related to:
        Current year                           9,812,694    9,612,075    8,638,000
        Prior year                             1,413,767   (1,935,587)    (441,335)
                                             -----------   ----------   ----------
          Total incurred                      11,226,461    7,676,488    8,196,665
                                             -----------   ----------   ----------
Paid related to:
        Current year                           2,499,788    3,190,397    3,045,000
        Prior year                             8,399,372    4,720,512    4,761,293
                                             -----------   ----------   ----------
          Total paid                          10,899,160    7,910,909    7,806,293
                                             -----------   ----------   ----------
                                              25,787,944   25,460,643   25,695,064
Plus reinsurance recoverable on unpaid loss
        and loss adjustment expenses           7,099,463    1,162,495      584,913
                                             -----------   ----------   ----------
Balance at December 31:                      $32,887,407   26,623,138   26,279,977
                                             ===========   ==========   ==========
</TABLE>

      The reserves for losses and loss adjustment expenses are estimated based
      on development information available at each reporting date.  As a
      result of the nature of the risks underwritten, claims development may
      occur over an extended period of time.  The changes in the incurred
      amounts disclosed above related to prior years are the result of
      utilizing improved claim development information as that information
      becomes available.  In particular, the $1,413,767 increase in prior year
      incurred amounts for 1996 reflect adverse development on several large
      claims which were settled in 1996.

(4)   REINSURANCE

      As is customary in the insurance industry, the Company reinsures portions
      of certain insurance policies it writes, thereby providing a greater
      diversification of risk and minimizing exposure on larger risks.  The
      Company remains contingently at risk with respect to any reinsurance
      ceded and would incur an additional loss if an assuming company were
      unable to meet its obligation under the reinsurance treaty.

                                      17

<PAGE>   19
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The Company monitors the financial condition of its reinsurers to
      minimize its exposure to significant losses from reinsurer insolvencies.
      The Company believes that the failure of any single reinsuring syndicate
      or company to meet its obligations would not have a significant effect on
      the Company's financial position.  Amounts recoverable from one reinsurer
      at December 31, 1996 represent 69% of total reserves for losses and loss
      adjustment expenses ceded.

      Premiums and premium related reinsurance amounts for the years ended
      December 31, 1996, 1995 and 1994  are summarized as follows:


<TABLE>
<CAPTION>
                                                   1996       1995       1994
                                                ----------  ---------  ---------
<C>                                             <C>         <C>        <C>
Ceded premiums                                  $4,655,382  1,505,427  1,343,902
                                                ==========  =========  =========
Ceded losses and loss adjustment expenses       $6,560,538    577,582    336,192
                                                ==========  =========  =========
</TABLE>

      At December 31, 1996, the Company recorded reinsurance recoverable on
      unpaid loss and loss adjustment expenses of $7,099,463, reinsurance
      recoverable on paid loss adjustment expenses of $98,438 and reinsurance
      premium recoverable of $260,397.  At December 31, 1995, the Company
      recorded reinsurance recoverable on unpaid loss and loss adjustment
      expenses of $1,162,495.

(5)   UNEARNED PREMIUMS

      The  Company reserves for future utilization of the death, disability and
      retirement waiver benefit on a full funding basis. This reserve was
      estimated to be $1,628,000 at December 31, 1996 and $4,776,000 at
      December 31, 1995, and is reflected in the unearned premium reserve.

(6)   STOCKHOLDERS' EQUITY

      The NAIC requires a risk-based capital (RBC) calculation as part of the
      information to be filed with the annual statutory statement.  This
      risk-based capital calculation and analysis is an attempt to measure the
      theoretical capital and surplus needs of a company compared with its
      adjusted capital and surplus.  The capital and surplus of Intermed and
      Interlex substantially exceeds the NAIC's RBC requirements for Property
      and Casualty companies at the end of 1996 and 1995.

      In 1996 the shareholders of the Company adopted the 1996 Long Term
      Incentive Plan.  The Plan is to encourage certain employees, officers and
      directors of the Company and its subsidiaries to acquire Common Stock of
      the Company or to receive monetary payments based on the value of such
      stock or based upon achieving certain goals on a basis mutually
      advantageous to such employees and the Company.  The authorized number of
      shares of Common Stock reserved for issuance under the Plan is 350,000.
      The options and stock appreciation rights are generally granted at a
      price not less than 100% of the fair market value at the date of grant.
      No awards were made in 1996.

      On February 28, 1997, subsequent to year end, the compensation committee
      of the board of directors granted options to purchase 182,052 shares of
      stock to certain officers of the Company and non employee directors.  The
      exercise price is $5.45 per share and the options become fully
      exerciseable on July 31, 1997.

      Dividends paid to the Company by insurance subsidiaries are restricted by
      regulatory requirements of the subsidiaries' state of domicile.  The
      maximum amount of dividends which can be paid by insurance companies
      domiciled in the State of Missouri to stockholders without prior approval
      of the Insurance Director is limited to the lesser of (a) 10% of the
      Company's statutory capital and surplus as of December 31 of the
      preceding year or (b) net investment income for the twelve-month period
      ending December 31 of the preceding year.  At December 31, 1996 and 1995,
      statutory capital and surplus of In-


                                     18
<PAGE>   20
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      termed was $18,401,550 and $19,728,912 respectively.  For the years
      ended December 31, 1996 and 1995, net investment income of Intermed was
      $2,264,106 and $2,354,522, respectively.  The maximum dividend which can
      be paid in 1996 by Intermed without the prior approval of the Missouri
      Insurance Director is, therefore, $1,840,155.

(7)   FEDERAL INCOME TAXES

      The Company files a consolidated federal income tax return.  Income tax
      expense varies from the amount which would be provided by applying the
      federal income tax rates to income before income taxes.  The following
      reconciles the expected provision for income tax expense using the
      federal statutory tax rate of 34% to the provision for income tax expense
      reported herein for the years ended  December 31, 1996, 1995 and 1994:


<TABLE>
<CAPTION>
                                          1996         1995       1994
                                          ----         ----       ----
<S>                                   <C>            <C>        <C>
Expected tax (benefit) expense using
statutory rates                        ($1,529,607)  1,303,787   305,667
Other, net                                 (34,753)     19,279  (203,670)
                                       -----------   ---------  --------
                                       ($1,564,360)  1,323,066   101,997
                                       ===========   =========  ========
</TABLE>

Income taxes consist of the following at December 31:


<TABLE>
<CAPTION>
                                   1996        1995       1994
                                   ----        ----       ----
<S>                            <C>           <C>        <C>
Current  (benefit) expense     ($1,347,655)    835,639   420,315
Deferred (benefit) expense        (216,705)    487,427  (324,346)
Change in valuation allowance        -----       -----     6,028
                               -----------   ---------  --------
Income taxes                   ($1,564,360)  1,323,066   101,997
                               ===========   =========  ========
</TABLE>

Deferred income taxes arise from temporary differences resulting from income
and expense items reported for financial ac counting and tax  purposes in
different periods.  The sources of these differences and the tax effect of each
are as follows:


<TABLE>
<CAPTION>
                                             1996       1995      1994
                                         ----------  --------  ---------
<S>                                        <C>         <C>       <C>
Losses and loss adjustment expenses
        incurred for financial reporting
        purposes but not deductible for
        tax purposes                     ($348,223)    70,676  (153,537)
Unearned premiums not deductible for
        tax purposes                       284,074    240,209   (13,954)
Deferred compensation                      (88,400)     -----     -----
NOL Carryforward                           (86,660)     -----     -----
Other, net                                  22,504    176,542  (156,855)
                                         ---------   --------  --------
                                         ($216,705)   487,427  (324,346)
                                         =========   ========  ========
</TABLE>


                                       19


<PAGE>   21
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      The tax effects of temporary differences that give rise to significant
      portions of the deferred tax assets and deferred tax liabilities at
      December 31, 1996 and December 31, 1995 are presented below:


<TABLE>
<CAPTION>
                                                     1996         1995
                                                     ----         ----
<S>                                               <C>          <C>
Deferred tax assets:
   Discounted unpaid loss reserves                $1,853,219   1,504,996
   Discounted unearned premium reserves              410,485     694,558
   Deferred compensation payable                      88,400       -----
   Deferred commissions payable                       26,916      26,747
   Net operating loss carryforward                   246,571     201,592
                                                  ----------   ---------
          Total gross deferred tax assets          2,625,591   2,427,893
          Less valuation allowance                  (400,000)   (400,000)
                                                  ----------   ---------
          Net deferred tax assets                 $2,225,591   2,027,893
Deferred tax liabilities:
   Investments adjusted to market value              (85,758)   (195,532)
   Deferred acquisition costs                        (28,747)    (47,753)
   Other                                             (12,294)    (12,294)
                                                  ----------   ---------
          Total gross deferred liabilities          (126,799)   (255,579)
                                                  ----------   ---------
          Net deferred tax asset                  $2,098,792   1,772,314
                                                  ==========   =========
</TABLE>

      The valuation allowance for deferred tax assets at December 31, 1996 and
      1995 was $400,000.  Based on the Company's historical earnings, future
      expectations of adjusted taxable income, its ability to change its
      investment strategy, as well as reversing gross deferred tax liabilities,
      management believes it is more likely than not that the Company will
      fully realize the gross deferred tax assets less the valuation allowance.
      However, there can be no assurances that the Company will generate the
      necessary adjusted taxable income in any future period.

      Cash payments for Federal income taxes were $546,983, $184,925 and
      $322,926 in 1996, 1995 and 1994, respectively.

(8)   EMPLOYEE BENEFIT PLANS

      The Company sponsors a defined contribution pension plan that covers
      substantially all employees.  Contributions to the plan are
      discretionary, but may not exceed 15% of the participant's annual
      compensation.  Pension expense was approximately $178,068, $141,325 and
      $106,000 in 1996, 1995 and 1994, respectively.

(9)   COMMITMENTS AND CONTINGENCIES

      The Company has non-cancellable operating leases for office space which
      expire in June 2000.  Future minimum lease payments are $106,000 in 1997,
      $107,000 in 1998, $88,000 in 1999, $78,000 in 2000 and $89,000 in 2001.

      The Company is involved in claims and legal actions arising in the
      ordinary course of business. In the opinion of management, the ultimate
      disposition of these matters will not have a materially adverse effect on
      its financial condition or results of operations.

      The Company has entered into three year employment agreements with five
      executives and one key employee which include severance provisions
      granting the executives the right to receive certain benefits, including
      among others, their annual base salary and bonus if terminated. (As
      defined in the respective agreements) within the term of the agreements.
      As of December 31, 1996, the maximum contingent liability under the
      severance provisions of the agreements was approximately $2,200,000.


                                     20
<PAGE>   22
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      The agreements also contain a provision whereby the executives, in the
      event of termination due to a change in control, would receive severance
      payments in an amount 2.99 times their then current base salaries.

      The Company provides a retirement plan for the chief executive
      (executive) of the Company.  The agreement entitles the executive or the
      estate of the executive to receive an $80,000 annual annuity for ten
      years upon retirement and after attainment by the executive of 70 years
      of age.  The Company accrued $260,000 in 1996 and will accrue the
      remaining amount, approximately $300,000, in 1997.

(10)  RECONCILIATION TO STATUTORY ACCOUNTING

      Intermed and Interlex are required to file statutory financial statements
      with state regulatory authorities.  Accounting principles used to prepare
      the statutory financial statements differ from financial state
      ments prepared on the basis of generally accepted accounting principles.

      Reconciliations of statutory net income, as determined using statutory
      accounting principles, to the amounts included in the accompanying
      consolidated financial statements for the years ended December 31, 1996,
      1995 and 1994 are as follows:


<TABLE>
<CAPTION>
                                                  1996         1995       1994
                                              ------------  ----------  --------
<C>                                           <C>           <C>         <C>
Statutory net income (loss) of insurance      ($2,737,211)  2,968,644    420,581
Net income of non-insurance subsidiaries          (98,080)      -----      -----
                                              -----------   ---------   --------
Combined statutory net income                 ($2,835,291)  2,968,644    420,581
Increase (decrease):
        Deferred policy acquisition costs         (55,900)   (147,172)    26,167
        Deferred income taxes                     216,705    (487,427)   324,346
        Deferred compensation                    (260,000)      -----      -----
        Other adjustments, net                      -----     175,811     25,932
                                              -----------   ---------   --------
Net income (loss) as reported herein          ($2,934,486)  2,509,856    797,026
                                              ===========   =========   ========
</TABLE>

      Reconciliations of statutory capital and surplus, as determined using
      statutory accounting principles, to stockholders' equity included in the
      accompanying consolidated financial statements at December 31, 1996 and
      1995 are as follows:

<TABLE>
<CAPTION>
                                                                             1996         1995
                                                                         -----------  -----------
<C>                                                                      <C>          <C>
Statutory capital and surplus of insurance companies                     $24,305,304   25,558,424
Stockholder's equity in non-insurance subsidiary                             196,652          500
                                                                         -----------   ----------
Combined capital and surplus                                             $24,501,956   25,558,924
Increase (decrease):
        Deferred policy acquisition costs                                     84,550      140,450
        Deferred income taxes                                              2,098,792    1,772,314
        Net unrealized gain (loss) on securities available for sale          166,473      575,094
        Deferred compensation                                               (260,000)       -----
        Excess statutory reserve over statement reserve                        -----    1,760,000
        Non-admitted assets and other adjustments, net                       799,624      561,006
        Consolidating eliminations and adjustments                        (6,001,692)  (5,830,510)
                                                                         -----------   ----------
Stockholders' equity as reported herein                                  $21,389,703   24,537,278
                                                                         ===========   ==========
</TABLE>


                                       21


<PAGE>   23
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(11)  CLAIMS PAID POLICIES

      The Company discontinued writing claims-paid policies effective September
      1, 1995.  As these policies expired over the twelve-month period ending
      August 31, 1996, claims-paid policyholders were given the opportunity to
      convert to claims-made coverage.  Upon non-renewal or discontinuance of
      the claims-paid contract the Company became liable for reported claims.
      Reserves of $3,976,528, net of reinsurance, have been established as of
      December 31, 1996 for all reported and open claims on those claims-paid
      policies non-renewed or discontinued during the period September 1, 1995
      through August 31, 1996.






                    STATEMENT OF MANAGEMENT'S RESPONSIBILITY


The financial statements and related information of The Tenere Group, Inc. and
Subsidiaries presented in this Report were prepared by management, which has
sole responsibility for their integrity and objectivity.  The financial
statements have been prepared in conformity with generally accepted accounting
principles, applying certain estimates and judgments based upon the best
available information and management's view of current conditions and
circumstances.

Management has developed and maintains a system of internal accounting control
designed to provide reasonable assurance that the Company's assets are
protected from improper use and that accounting records provide a reliable
basis for the preparation of financial statements.  This system is continually
reviewed, improved and modified in response to changing business conditions and
operations and to recommendations made by the Company's independent auditors.
While no system of internal control can provide absolute assurance that
irregularities will not take place, management believes that Tenere's internal
control system provides reasonable assurance that assets are safeguarded and
financial information is reliable.

The Company's independent auditors, KPMG Peat Marwick LLP, are engaged to
express an opinion on the fairness of presentation of the Company's
consolidated financial statements, taken as a whole.  Their opinion is based on
procedures which they believe to be sufficient to provide reasonable, but not
absolute, assurance that the financial statements contain no material errors.
During the course of their examination, the independent auditors were given
unrestricted access to all financial records and related data.  Management
believes that all representations made to the independent auditors were
accurate and complete.


                                               /s/ J.D. WILLIAMS

                                                   Joseph D. Williams, CPA
                                                   Vice President-Finance
                                                   and Chief Financial Officer

Springfield, Missouri
March 27, 1997


                                       22


<PAGE>   24
                         SELECTED FINANCIAL INFORMATION
                                 (in thousands)



<TABLE>
<CAPTION>
                                                                     Year Ended December 31
CONSOLIDATED STATEMENTS OF                       1996          1995            1994        1993          1992
                                                 ----          ----            ----        ----          ----
<S>                                           <C>              <C>           <C>          <C>          <C>
OPERATIONS DATA:
Net premiums                                  $  7,646         $11,901       $10,657      $ 8,154      $  5,060
Net investment income                            2,627           2,654         2,639        2,754         2,944
Net realized investment
  gains (losses)                                   (17)            (36)         (423)       1,318           243
                                              --------         -------       -------      -------      --------
     Total revenues                             10,256          14,519        12,873       12,226         8,247
                                              --------         -------       -------      -------      --------
Losses and loss adjustment expenses             11,226           7,676         8,197        8,503         3,000
Dividends to policyholders                         (14)            617         1,289        1,091           378
Amortization of net assets acquired in
  excess of cost(2)                                 --              --            --       (1,484)       (1,484)
Other expenses                                   3,543           2,393         2,488        2,865         2,014
                                              --------         -------       -------      -------      --------
     Total expenses                             14,755          10,686        11,974       10,975         3,908
Income (loss) before income taxes               (4,499)          3,833           899        1,251         4,339
     Income tax expense (benefit)               (1,564)          1,323           102         (117)        1,002
     Cumulative effect of change in
       accounting for income taxes                  --              --            --           67            --
                                              --------         -------       -------      -------      --------
Net income  (loss)                             ($2,935)        $ 2,510       $   797      $ 1,435      $  3,337
                                              ========         =======       =======      =======      ========
Net income (loss) per  common share           $  (1.47)        $  1.26           N.A.        N.A.          N.A.
                                              ========         =======       =======      =======      ========
CONSOLIDATED BALANCE SHEETS DATA
Investments                                   $ 29,370         $22,404       $47,534      $51,284      $ 44,234
Cash and cash equivalents                       16,935          31,181         1,650        1,418         7,523
Premiums receivable                              2,581           3,720         4,143        3,078         2,951
Total assets                                    62,570          62,614        61,119       62,128        58,886
Reserve for losses and loss adjustment
  expenses                                      32,887          26,623        26,280       25,553        25,021
Unearned premium reserve                         6,300          10,447        13,747       13,379        12,082
Stockholders'/policyholders' equity             21,390         $24,537       $19,369      $20,845      $ 19,431
                                              ========         =======       =======      =======      ========
</TABLE>

(1)   On January 2, 1992, Intermed acquired all of the outstanding stock of
      Insurance Risks, Ltd. for $2,500,048 in cash.  The acquisition was
      recorded as a purchase and, accordingly, the purchase price was allocated
      to the estimated fair value of assets acquired and liabilities assumed as
      of the date of acquisition.  The fair value of the net assets acquired in
      excess of the purchase price was $2,967,008 calculated as follows:

<TABLE>
              <S>                                    <C>
              Fair value of assets acquired          $  14,833,461
              Liabilities assumed                      (12,973,636)
              Net cash from the purchase                 1,107,183
                                                     -------------
              Net assets acquired in excess of cost  $   2,967,008
                                                     =============
</TABLE>


      Net assets acquired in excess of cost were amortized over  the estimated
      period of benefit of two years.  The amortization caused a favorable
      non-recurring impact on net income for the years ended 1993 and 1992 in
      the amount of $1,483,500.  If these amounts are excluded from net income
      before income taxes, 1993 net income before income tax would decrease
      119% from $1,251,000 to ($232,500) and 1992 net income before income tax
      would decrease 34% from $4,339,000 to $2,856,000.

The selected consolidated financial data for each of the five years in the
period ended December 31, 1996 has been derived from audited consolidated
financial statements of Tenere as of and for the years ended December 31, 1996
and 1995 and of its predecessor, RCA Mutual Insurance Company, as of and for
the years ended December 31, 1994, 1993 and 1992.  These data include all
adjustments which are, in the opinion of  the management of Tenere, necessary
to present a fair statement of the financial condition and results of
operations of Tenere for these periods and are of a normal and recurring
nature.  The information should be read in conjunction with and is qualified by
reference to such statements and the related notes thereto.



                                       23
<PAGE>   25
                             DIRECTORS AND OFFICERS

                             THE TENERE GROUP, INC.
                             INTERMED INSURANCE CO.


<TABLE>
<S>                            <C>                             <C>
THOMAS E. ASHLEY, M.D.         GARY O. BAKER, D.D.S.           ALBERT J. BONEBRAKE,
VICE PRESIDENT                 Southwest Oral Surgery, Inc.    Woman's Clinic, Inc.
Springfield, Missouri          St. Louis, Missouri             Springfield, Missouri

RAYMOND A. CHRISTY, M.D.       HARRY O. COLE, M.D.             C. RICHARD GULICK, M.D.
PRESIDENT AND CHIEF            CHAIRMAN OF THE BOARD           OB/GYN Associates, Inc.
EXECUTIVE OFFICER              Neurosurgical Associates, Inc.  St. Louis, Missouri
Springfield, Missouri          St. Louis, Missouri

MICHAEL D. HOEMAN, M.D.        CHRISTOPHER H. JUNG, M.D.       CARROLL R. WETZEL, D.O.
SECRETARY AND TREASURER        Southeast Missouri  ENT         Wetzel Clinic, Inc.,
The Diagnostic Clinic, Inc.    Consultants                     Clinton, Missouri
Springfield, Missouri          Cape Girardeau, Missouri

                              INTERLEX INSURANCE CO.

ALBERT J. BONEBRAKE, M.D.      LLOYD J. CARMICHAEL             RAYMOND A. CHRISTY, M.D.
Woman's Clinic, Inc.,          Carmichael, Gardner & Clark     PRESIDENT AND CHIEF
Springfield, Missouri          Springfield, Missouri           EXECUTIVE OFFICER
                                                               Springfield, Missouri

B. H. CLAMPETT                 MARILYN P. DUNN                 MAX W. LILLEY
Springfield, Missouri          SECRETARY                       CHAIRMAN OF THE BOARD
                               Foley & Lardner                 Springfield, Missouri
                               Chicago, Illinois

PETER F. SPATARO               CARROLL R. WETZEL, D.O.         STEVEN W. WHITE
VICE PRESIDENT                 Wetzel Clinic, Inc.             White, Allinder & Graham
Moser & Marsalek               Clinton, Missouri               Independence, Missouri
St. Louis, Missouri

                                     OFFICERS

ANDREW K. BENNETT              SAM T. BRANHAM                  ANDREW C. FISCHER
VICE PRESIDENT-CLAIMS          VICE PRESIDENT-TEXAS            VICE PRESIDENT-
AND GENERAL COUNSEL                                            UNDERWRITING AND POLICY
                                                               SERVICES

CLIFTON R. STEPP               JOSEPH D. WILLIAMS, CPA         JULIE D. WROBLESKI
VICE PRESIDENT-MARKETING       VICE PRESIDENT-FINANCE          ASSISTANT SECRETARY
                               AND CHIEF FINANCIAL OFFICER
</TABLE>


                                       25


<PAGE>   26
                             CORPORATE INFORMATION


CORPORATE HEADQUARTERS:

1903 E. Battlefield
Springfield, MO 65804
Tel:  417-889-1010
      800-865-0650
      417-889-1099 (FAX)


INDEPENDENT ACCOUNTANTS:

KPMG Peat Marwick LLP
Houston, TX


CORPORATE COUNSEL:

Thompson  Coburn
St. Louis, MO


CONSULTING ACTUARIES:

Tillinghast - Towers Perrin
St. Louis, MO


INVESTMENT MANAGER:

Boatmen's Trust Company
St. Louis, MO


ADVERTISING AGENCY:

Schilling/Sellmeyer & Associates, Inc.
Springfield, MO


TRANSFER AGENT AND REGISTRAR:

Boatmen's Trust Company
P.O. Box 14737
St. Louis, MO 63178
Tel:  314-466-1357

MARKET INFORMATION:

The Company's Common Stock is not listed on any securities exchange or quoted
on any automated quotation system.  There has been no independent market
established for the stock.   As of March 18, 1997 there were 1143 holders of
Common Stock.   No dividends have been declared on Common Stock.


STOCKHOLDER INFORMATION:

The Tenere Group, Inc.'s  Annual Report on Form 10-K as filed with the
Securities and Exchange Commission  is available at no cost by writing to:

                            Chief Financial Officer
                             The Tenere Group, Inc.
                              1903 E. Battlefield
                             Springfield, MO 65804

ANNUAL MEETING:

The 1997 Annual Meeting will be held at the Company's Corporate Headquarters at
10 a.m. on Friday, May 16, 1997.


                                       26