CIT GROUP HOLDINGS INC /DE/, 10-K, 1996-03-22

CIT GROUP HOLDINGS INC /DE/
10-K, 1996-03-22
SHORT-TERM BUSINESS CREDIT INSTITUTIONS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
-----------
Form 10-K
-----------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1995

[ ] 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 1-1861

The CIT Group Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware 13-2994534
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

1211 Avenue of the Americas, New York, New York 10036
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (212) 536-1950
-----------
Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
------------------- ------------------------
8 3/4% Notes Due April 15, 1998.................... New York Stock Exchange
5 7/8% Notes Due October 15, 2008.................. New York Stock Exchange

-----------
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]

State the aggregate market value of the voting stock held by
non-affiliates of the Registrant.

None of the voting stock of the Registrant is held by non-affiliates
of the Registrant. 80% of the voting stock of the Registrant is owned
by The Dai-Ichi Kangyo Bank, Limited and 20% by CBC Holding
(Delaware) Inc., a wholly-owned subsidiary of Chemical Banking
Corporation.

Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.

March 1, 1996--Common Stock--1,000 Shares

List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.

None
================================================================================
<PAGE>

TABLE OF CONTENTS

Form 10-K
Item No. Name of Item Page
-------- ------------ ----

Part I

Item 1. Business ....................................................... 1
General ...................................................... 1
Business and Services ........................................ 1
Industry Concentration ....................................... 3
Competition .................................................. 3
Regulation ................................................... 3
Item 2. Properties ..................................................... 4
Item 3. Legal Proceedings .............................................. 4
Item 4. Submission of Matters to a Vote of Security Holders ............ 4

Part II

Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters .................................... 5
Item 6. Selected Financial Data ........................................ 6
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ..................................................... 11
Item 8. Financial Statements and Supplementary Data .................... 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ......................... 50

Part III

Item 10. Directors and Executive Officers of the Registrant ............. 51
Item 11. Executive Compensation ......................................... 53
Long-Term Incentive Plan ..................................... 54
Defined Benefit Plans ........................................ 54
Employment Agreements ........................................ 56
Termination and Change-in-Control Arrangements ............... 57
Item 12. Security Ownership of Certain Beneficial
Owners and Management .......................................... 58
Item 13. Certain Relationships and Related Transactions ................. 58

Part IV

Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K ............................................ 59
<PAGE>

PART I
Item 1. Business

GENERAL

The CIT Group Holdings, Inc. (the "Corporation"), a Delaware corporation,
is a successor to a company founded in St. Louis, Missouri on February 11, 1908.
It has its principal executive offices at 1211 Avenue of the Americas, New York,
New York 10036, and its telephone number is (212) 536-1950. The Corporation,
operating directly or through its subsidiaries primarily in the United States,
engages in financial services activities through a nationwide distribution
network. The Corporation provides financing primarily on a secured basis to
commercial borrowers, ranging from middle-market to larger companies, and to a
lesser extent to consumers. While these secured lending activities reduce the
risk of losses from extending credit, the Corporation's results of operations
can also be affected by other factors, including general economic conditions,
competitive conditions, the level and volatility of interest rates,
concentrations of credit risk, and government regulation and supervision. The
Corporation does not finance the development or construction of commercial real
estate. The Corporation has eight strategic business units which offer
commercial and consumer financing, and factoring products and services to
clients. The Corporation had 2,738 employees at December 31, 1995, up from 2,689
employees at December 31, 1994.

The Dai-Ichi Kangyo Bank, Limited ("DKB") owns eighty percent (80%) of the
issued and outstanding shares of common stock of the Corporation. DKB purchased
a sixty percent (60%) common stock interest in the Corporation from
Manufacturers Hanover Corporation ("MHC") at year-end 1989 and acquired an
additional twenty percent (20%) common stock interest in the Corporation on
December 15, 1995 from CBC Holding (Delaware) Inc. (formerly known as MHC
Holdings (Delaware) Inc.) ("CBC Holding"), a wholly owned subsidiary of Chemical
Banking Corporation ("CBC"). CBC acquired CBC Holding as part of the merger
between MHC and CBC on December 31, 1991 and continues to own the remaining
twenty percent (20%) common stock interest in the Corporation through CBC
Holding. DKB has a five-year option, expiring December 15, 2000, to purchase the
remaining twenty percent (20%) common stock interest from CBC.

In accordance with a stockholders agreement among DKB, CBC, as successor to
MHC, and the Corporation, dated as of December 29, 1989, as amended by an
Amendment to Stockholders' Agreement, dated December 15, 1995 (the "Stockholders
Agreement"), one nominee of the Board of Directors is designated by CBC. The
Stockholders Agreement also contains restrictions with respect to the transfer
of the stock of the Corporation to third parties.

BUSINESS AND SERVICES

Business Credit

The CIT Group/Business Credit offers revolving and term loans secured by
accounts receivable, inventories and fixed assets to medium and larger-sized
companies. Such loans are used by clients primarily for acquisitions,
refinancings, debtor-in-possession and turnaround financings. The CIT
Group/Business Credit sells participation interests in such loans to other
lenders and will occasionally purchase participation interests in such loans
originated by other lenders. Business is developed through direct calling
efforts and through other sources originated by new business development
officers. The CIT Group/Business Credit is headquartered in New York City, with
sales and customer service offices in New York, Chicago, Dallas, Los Angeles,
Atlanta and Charlotte.

Capital Equipment Financing

The CIT Group/Capital Equipment Financing specializes in customized
secured financing and leasing for medium-sized and large corporations in the
form of single investor leases, debt and equity portions of leveraged leases,
operating leases, direct loans, sale and leaseback arrangements, portfolio
acquisitions and project financings for major capital equipment and other income
producing assets. Such business is developed directly with large companies and
through third parties. A business group within The CIT Group/Capital Equipment

1
<PAGE>

Financing augments its marketing efforts and provides services relating to its
area of expertise. The CIT Group/Capital Investments is a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. and acts as an agent, broker, and advisor in financing and leasing
transactions. The CIT Group/Capital Equipment Financing is headquartered in New
York City, with sales offices in twenty cities, including New York, Chicago and
Los Angeles.

Credit Finance

The CIT Group/Credit Finance offers revolving and term loans to small and
medium-sized companies secured by accounts receivable, inventories, and fixed
assets. Such loans are used by clients for working capital, in refinancings,
acquisitions, leveraged buyouts and reorganizations, restructurings, turnarounds
and Chapter 11 situations. Business is developed through direct calling efforts
and through other sources developed by new business development officers. The
CIT Group/Credit Finance is headquartered in New York City, with sales and
customer service offices in New York, Chicago and Los Angeles and loan
production offices in seven other cities.

Industrial Financing

The CIT Group/Industrial Financing offers secured equipment financing and
leasing products, including direct secured loans, leases, revolving lines of
credit, sale and leaseback arrangements, vendor financing and specialized
wholesale and retail financing for distributors and manufacturers, portfolio
acquisition, business aircraft financing, third party financing and medical
equipment financing. The CIT Group/Industrial Financing is headquartered in
Livingston, New Jersey with a nationwide network of local offices and sales
offices in eighteen cities, including Berwyn, Pennsylvania, Tempe, Arizona and
Atlanta, Georgia, which also serve as regional and customer service offices.

Commercial Services

The CIT Group/Commercial Services offers a full range of domestic and
international customized credit protection and lending services. These services
include factoring, working capital and term loans, receivable management
outsourcing, bulk purchases of accounts receivable, import and export financing
and letter of credit programs. The CIT Group/Commercial Services is
headquartered in New York City, with full service offices in New York, Los
Angeles, Dallas and Charlotte and sales offices in Miami and Hong Kong.
Bookkeeping and collection functions are located in a service center in
Danville, Virginia.

Equity Investments and Venture Capital

The CIT Group/Equity Investments and its subsidiary The CIT Group/Venture
Capital originate and participate in merger and acquisition transactions,
purchasing private equity and equity-related securities, and arranging
transaction financing. These units also invest in emerging growth opportunities
in selected industries, including the life sciences, information technology,
communications and consumer products. Business is developed through direct
solicitation, or through referrals from investment banking firms, financial
intermediaries, or the Corporation's other business units. The CIT Group/Venture
Capital is a federal licensee under the Small Business Investment Act of 1958.
The CIT Group/Equity Investments and The CIT Group/Venture Capital are
headquartered in Livingston, New Jersey.

Consumer Finance

The CIT Group/Consumer Finance offers loans secured by first or second
mortgages on residential real estate and home equity lines of credit. The CIT
Group/Consumer Finance generates business through brokers and direct marketing
efforts and also acquires "home equity" portfolios originated by others. This
business unit is headquartered in Livingston, New Jersey with 20 branch offices
serving 35 states, three regional business centers, which originate mortgage
loans as well as purchase mortgage loans from third parties, and a national home
equity center, which engages in nationwide direct marketing. Servicing and
collection support is provided by the Sales Financing asset service center
located in Oklahoma City, Oklahoma.

2
<PAGE>

Sales Financing

The CIT Group/Sales Financing, working through dealers, manufacturers and
brokers provides retail secured financing on a nationwide basis for the purchase
of recreational vehicles, manufactured housing and recreational boats. The CIT
Group/Sales Financing also purchases portfolios of these assets from banks,
savings and loans, investment banks and others, offers to manufacturers retail
and wholesale "private label" financing programs, and provides servicing for
portfolios owned by other financial institutions, U.S. government agencies, and
securitization trusts. The CIT Group/Sales Financing is headquartered in
Livingston, New Jersey with an asset service center in Oklahoma City, Oklahoma,
and covers the United States from five regional business centers located in
Atlanta, Boston, Kansas City, Sacramento and Seattle.

Multi-National Marketing

Supplementing the Corporation's marketing efforts, the Corporation's
Multi-National Marketing Group promotes the services of the Corporation's
various business units to the U.S. subsidiaries of foreign corporations in need
of asset-based financing. Business is developed through referrals from DKB and
through direct calling efforts. The Multi-National Marketing Group is located in
New York City.

INDUSTRY CONCENTRATION

See the "Industry Composition" and "Commercial Airlines" sections of
"Financing and Leasing Assets Concentrations" in Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations.

COMPETITION

The business in which the Corporation engages is highly competitive, with
business developed primarily on the basis of customizing transaction structure,
client service and relationships, and payment terms. The Corporation is subject
to competition from many financial institutions, including finance companies,
banks, leasing companies and investment banks. The Corporation's Commercial
Services unit is one of the largest factoring operations in the United States.

The interest rates charged by the Corporation for the various classes of
financing and leasing assets vary depending upon the credit quality of the
borrower, the amount and maturity of the loan, the costs of servicing, the
income tax consequences of the transaction, the cost of borrowing to the
Corporation, and, to a lesser degree, state usury laws and other governmental
regulations, when applicable. The Corporation's finance receivables have both
variable rates and fixed rates of interest. Variable rate loans reprice in
accordance with various agreed upon indices, usually a published reference or
prime interest rate.

REGULATION

DKB is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 (the "Act"), and is registered as such with the Federal
Reserve Board. As a result, the Corporation is subject to certain provisions of
the Act. In general, the Act limits the activities in which a bank holding
company and its subsidiaries may engage to those of banking or managing or
controlling banks or performing services for their subsidiaries and to
continuing activities which the Federal Reserve Board has determined to be "so
closely related to banking or managing or controlling banks as to be a proper
incident thereto." The Corporation's current principal business activities
constitute permissible activities for a subsidiary of a bank holding company.

The operations of the Corporation and its subsidiaries are subject, in
certain instances, to supervision and regulation by governmental authorities and
may be subject to various laws and judicial and administrative decisions
imposing various requirements and restrictions, including among other things,
regulating credit granting activities, establishing maximum interest rates and
finance charges, regulating customers' insurance coverages, requiring
disclosures to customers, governing secured transactions, and setting
collection, repossession, and claims handling procedures and other trade
practices. In most states the consumer sales finance and loan business and the
consumer second mortgage and home equity line of credit businesses are subject
to licensing or regulation. In some states the industrial finance business is
subject to similar licensing or regulation. The consumer second mortgage, home
equity line of credit, sales finance, and loan businesses, including those
conducted by the Corporation, are also subject to a number of Federal statutes,
including the Federal Consumer Credit Protection Act, which requires, among
other things, disclosure of the finance charge in terms of an annual percentage
rate, as well as the total dollar cost.

3
<PAGE>

In the judgment of management, existing statutes and regulations have not
had a materially adverse effect on the business conducted by the Corporation and
its subsidiaries. However, it is not possible to forecast the nature of future
legislation, regulations, judicial decisions, orders, or interpretations, nor
their impact upon the future business, earnings or otherwise, of the Corporation
and its subsidiaries.

Item 2. Properties.

The operations of the Corporation and its subsidiaries are generally
conducted in leased office space located in numerous cities and towns throughout
the United States. Such leased office space is suitable and adequate for the
needs of the Corporation. The Corporation utilizes, or plans to utilize in the
foreseeable future, substantially all of its leased office space. For a summary
of the Corporation's past rental expense and future minimum rentals, see Item 8.
Financial Statements and Supplementary Data, "Note 13--Lease Commitments."

Item 3. Legal Proceedings.

Various claims and actions against the Corporation and its subsidiaries
arise from time to time in the normal course of business. A number of these
actions, some of which purport to be class actions, are now pending. While no
prediction can be made as to the ultimate outcome of any particular action,
management believes that meritorious defenses are generally available and the
aggregate liability, if any, likely to result therefrom will not materially
affect the consolidated financial condition of the Corporation.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the fourth
quarter of 1995.

4
<PAGE>

PART II

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

The outstanding common stock of the Corporation is owned 80% by DKB and 20%
by CBC Holding. There is no public trading market for the Corporation's common
stock.

The Corporation operates under a policy requiring the payment of dividends
by the Corporation equal to and not exceeding 50% of net operating earnings on a
quarterly basis. Such dividends are paid to DKB and CBC Holding based upon their
respective stock ownership in the Corporation. The Corporation intends to
continue to operate under the fifty-percent dividend policy.

Below is a listing of the dividends paid during the past two years:

Dividends Paid 1995 1994
-------------- ---- ----
Amounts in Millions
Regular Dividends
First Quarter............................. $ 26.2 $ 24.6
Second Quarter............................ 28.6 24.9
Third Quarter ............................ 29.0 26.4
Fourth Quarter ........................... 20.3 24.4
------ ------
Total ................................ $104.1 $100.3
====== ======

The fourth quarter dividend is usually paid on the basis of actual
operating earnings for October and November and an estimate of operating
earnings for December. However, the dividend for the fourth quarter of 1995 was
paid on the basis of actual operating earnings for October and November only, in
order to make payment prior to the sale by CBC to DKB of a twenty percent (20%)
common stock interest in the Corporation. During the first quarter of 1996, the
Corporation declared and paid a dividend of $8.9 million based on actual
earnings for December.

Stockholders' equity at December 31, 1995 was $1.9 billion. Under the most
restrictive provisions of agreements relating to outstanding debt, the
Corporation may not, without the consent of the holders of such debt, permit
stockholders' equity to be less than $300.0 million.

5
<PAGE>

Item 6. Selected Financial Data.

The following table sets forth selected consolidated financial information
regarding the Corporation's results of operations. This information should be
read in conjunction with Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Item 8. Financial Statements
and Supplementary Data.

Years Ended December 31,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Dollar Amounts in Millions

<S> <C> <C> <C> <C> <C>
Finance income ............................... $1,529.2 $1,263.8 $1,111.9 $1,091.5 $1,196.4
Interest expense ............................. 831.5 614.0 508.0 552.0 709.4
-------- -------- -------- -------- --------
Net finance income ......................... 697.7 649.8 603.9 539.5 487.0
Fees and other income ........................ 184.7 174.4 133.8 113.8 115.9
-------- -------- -------- -------- --------
Operating revenue .......................... 882.4 824.2 737.7 653.3 602.9
` -------- -------- -------- -------- --------
Salaries and employee benefits ............... 193.4 185.8 152.1 137.9 127.0
General operating expenses ................... 152.3 152.1 130.1 123.7 119.3
` -------- -------- -------- -------- --------
Salaries and general operating
expenses ................................... 345.7 337.9 282.2 261.6 246.3
` -------- -------- -------- -------- --------
Net credit losses ............................ 77.2 84.2 94.4 98.3 95.2
Provision for finance
receivables increase ....................... 14.7 12.7 10.5 4.9 1.9
` -------- -------- -------- -------- --------
Total provision for credit losses ............ 91.9 96.9 104.9 103.2 97.1
` -------- -------- -------- -------- --------
Depreciation on operating
lease equipment ............................ 79.7 64.4 39.8 16.7 8.1
` -------- -------- -------- -------- --------
Operating expenses ........................... 517.3 499.2 426.9 381.5 351.5
` -------- -------- -------- -------- --------
Income before provision for income
taxes and extraordinary item ............... 365.1 325.0 310.8 271.8 251.4
Provision for income taxes ................... 139.8 123.9 128.5 105.3 100.0
` -------- -------- -------- -------- --------
Income before extraordinary item ............. 225.3 201.1 182.3 166.5 151.4
Extraordinary item - loss on early
extinguishment of debt, net of
income tax benefit ......................... -- -- -- (4.2) (1.3)
` -------- -------- -------- -------- --------
Net income ................................... $ 225.3 $ 201.1 $ 182.3 $ 162.3 $ 150.1
======== ======== ======== ======== ========
Ratio of earnings to fixed charges ........... 1.44 1.52 1.60 1.49 1.35
</TABLE>

6
<PAGE>

Statistical Data

The following table presents the components of net income as a percentage
of average financing and leasing assets ("AEA").

Years Ended December 31,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Dollar Amounts in Millions

<S> <C> <C> <C> <C> <C>
Finance income (a) ............................ 9.90% 9.19% 8.93% 9.40% 10.46%
Interest expense (a) .......................... 5.36 4.42 4.00 4.67 6.06
--------- --------- --------- --------- ---------
Net finance income .......................... 4.54 4.77 4.93 4.73 4.40
Fees and other income ......................... 1.20 1.28 1.09 1.00 1.05
--------- --------- --------- --------- ---------
Operating revenue ........................... 5.74 6.05 6.02 5.73 5.45
--------- --------- --------- --------- ---------
Salaries and employee benefits ................ 1.26 1.36 1.24 1.21 1.15
General operating expenses .................... 0.99 1.12 1.06 1.09 1.08
--------- --------- --------- --------- ---------
Salaries and general operating
expenses .................................. 2.25 2.48 2.30 2.30 2.23
--------- --------- --------- --------- ---------
Net credit losses (b) ......................... 0.50 0.61 0.77 0.84 0.82
Provision for finance receivables
increase .................................... 0.10 0.09 0.09 0.04 0.02
--------- --------- --------- --------- ---------
Total provision for credit losses ........... 0.60 0.71 0.86 0.90 0.88
--------- --------- --------- --------- ---------
Depreciation on operating lease
equipment ................................... 0.52 0.47 0.32 0.15 0.07
--------- --------- --------- --------- ---------
Income before provision for income
taxes and extraordinary item ................ 2.37 2.39 2.54 2.38 2.27
Provision for income taxes .................... 0.91 0.91 1.05 0.92 0.90
--------- --------- --------- --------- ---------
Income before extraordinary item .............. 1.46 1.48 1.49 1.46 1.37
Extraordinary item - loss on early
extinguishment of debt, net of
income tax benefit .......................... -- -- -- (0.04) (0.01)
--------- --------- --------- --------- ---------
Net income .................................... 1.46% 1.48% 1.49% 1.42% 1.36%
========= ========= ========= ========= =========
Average financing and leasing
assets (c) .................................. $15,377.5 $13,630.3 $12,262.9 $11,401.7 $11,062.6
Average finance receivables ................... $15,397.8 $13,819.9 $12,266.1 $11,675.6 $11,540.1
Number of employees ........................... 2,738 2,689 2,424 2,355 2,346
</TABLE>

- -----------
(a) Excludes interest income and interest expense relating to short-term
interest-bearing deposits.

(b) Percentage to average finance receivables.

(c) Average financing and leasing assets is calculated by adding averages of
finance receivables, operating lease equipment, and investments included in
other assets in the Consolidated Balance Sheets and subtracting average
credit balances of factoring clients.

7
<PAGE>

The following table sets forth selected consolidated financial information
regarding the Corporation's financial position. This information should be read
in conjunction with Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Item 8. Financial Statements and
Supplementary Data.

At December 31,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
Dollar Amounts in Millions
<S> <C> <C> <C> <C> <C>
Finance receivables .......................... $15,795.5 $14,794.4 $12,624.1 $11,771.5 $11,521.6
Reserve for credit losses .................... (206.0) (192.4) (169.4) (158.5) (155.1)
Net finance receivables ...................... 15,589.5 14,602.0 12,454.7 11,613.0 11,366.5
Operating lease equipment .................... 1,113.0 867.9 751.9 462.8 148.0
Total assets ................................ 17,420.3 15,959.7 13,725.0 13,026.1 12,200.4

Capitalization:
Commercial paper ........................... 6,105.6 5,660.2 6,516.1 6,173.5 5,476.5
Variable rate senior notes ................. 3,827.5 3,812.5 1,686.5 1,477.8 1,305.0
Fixed rate senior notes .................... 3,337.0 2,619.4 2,389.0 2,476.6 2,406.4
Subordinated fixed rate notes .............. 300.0 300.0 200.0 200.0 353.9
Stockholders' equity ....................... 1,914.2 1,793.0 1,692.2 1,601.1 1,519.8
Dividends paid-regular ....................... 104.1 100.3 91.2 81.0 75.0
Dividends paid-special ....................... -- -- -- 150.0 --
Ratio of total debt to stockholders'
equity ..................................... 7.09-1 6.91-1 6.38-1 6.45-1 6.28-1
</TABLE>

8
<PAGE>

Reserve for Credit Losses and Nonperforming Assets

The following tables set forth information as of the dates shown concerning
the reserve for credit losses and the carrying value of nonaccrual finance
receivables and assets received in satisfaction of loans. This information
should be read in conjunction with the discussions of "Provision and Reserve for
Credit Losses" and "Past Due and Nonaccrual Finance Receivables and Assets
Received in Satisfaction of Loans" in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 8. Financial
Statements and Supplementary Data.
<TABLE>
<CAPTION>

1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Dollar Amounts in Millions
<S> <C> <C> <C> <C> <C>
Balance, January 1 ............................ $192.4 $169.4 $158.5 $155.1 $144.0
------ ------ ------ ------ ------
Finance receivables charged-off (96.9) (95.4) (105.6) (110.2) (105.7)
Recoveries on finance receivables
previously charged-off ...................... 19.7 11.2 11.2 11.9 10.6
------ ------ ------ ------ ------
Net credit losses ........................... (77.2) (84.2) (94.4) (98.3) (95.1)
------ ------ ------ ------ ------
Provision for credit losses ................... 91.9 96.9 104.9 103.2 97.0
Portfolio acquisitions (dispositions), net .... (1.1) 10.3 .4 (1.5) 9.2
------ ------ ------ ------ ------
Net addition to reserve for credit losses ... 90.8 107.2 105.3 101.7 106.2
------ ------ ------ ------ ------
Balance, December 31 .......................... $206.0 $192.4 $169.4 $158.5 $155.1
====== ====== ====== ====== ======
Reserve for credit losses as a percentage of:
Finance receivables ......................... 1.30% 1.30% 1.34% 1.35% 1.35%
====== ====== ====== ====== ======
Finance receivables past due 60 or
more days ................................ 78.1% 108.8% 78.4% 47.2% 44.2%
====== ====== ====== ====== ======
Finance receivables on nonaccrual
status ................................... 147.7% 174.6% 121.0% 67.7% 81.3%
====== ====== ====== ====== ======
<CAPTION>

December 31,
----------------------------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------ -------
Dollar Amounts in Millions
<S> <C> <C> <C> <C> <C>
Nonaccrual finance receivables ................ $139.5 $110.2 $139.9 $234.2 $190.7
Nonaccrual finance receivables as a
percentage of finance receivables ........... 0.88% 0.75% 1.11% 1.99% 1.66%
Assets received in satisfaction of loans ...... $ 42.0 $ 86.5 $ 87.0 $ 93.8 $140.2
Assets received in satisfaction of loans
as a percentage of finance receivables ...... 0.27% 0.58% 0.69% 0.80% 1.21%
Total nonperforming assets .................... $181.5 $ 196.7 $226.9 $328.0 $330.9
Total nonperforming assets as a
percentage of finance receivables ........... 1.15% 1.33% 1.80% 2.79% 2.87%
</TABLE>

9
<PAGE>

Analysis of Past Due Finance Receivables and Net Credit Losses

The following table sets forth information as of the dates shown concerning
finance receivables (net of unearned finance income), past due finance
receivables (including those on nonaccrual status) and net credit losses
incurred. This information should be read in conjunction with the discussion of
"Past Due and Nonaccrual Finance Receivables and Assets Received in Satisfaction
of Loans" in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.

Balance Past Due % to
60 Days or More Average
Finance ------------------------- Net Finance
Receivables Amount Percent Credit Losses Receivables
----------- ------ ------- ------------- -----------
Dollar Amounts in Millions
<S> <C> <C> <C> <C> <C>
December 31, 1995
Business Credit ............................. $ 1,471.0 $ 41.3 2.81% $ 29.1 1.82%
Capital Equipment Financing ................. 4,548.7 83.9 1.84 6.6 0.15
Credit Finance .............................. 758.7 .5 0.07 2.8 0.36
Industrial Financing ........................ 4,929.9 70.1 1.42 15.8 0.35
Commercial Services ......................... 1,743.3 32.9 1.89 12.8 0.72
Consumer Finance ............................ 1,039.0 16.8 1.61 1.4 0.18
Sales Financing ............................. 1,304.9 18.4 1.42 8.7 0.58
--------- ------ ---- ------- ----
Total ..................................... $15,795.5 $263.9 1.67% $ 77.2 0.50%
========= ====== ==== ======= ====
December 31, 1994
Business Credit ............................. $ 1,442.1 $ 79.7 5.53% $ 26.5 1.95%
Capital Equipment Financing ................. 4,493.5 -- -- 11.5 0.26
Credit Finance .............................. 719.6 3.3 0.46 3.3 0.46
Industrial Financing ........................ 4,269.7 56.8 1.33 18.5 0.46
Commercial Services ......................... 1,896.2 27.0 1.42 15.0 0.85
Consumer Finance ............................ 570.8 1.1 0.20 0.1 0.02
Sales Financing ............................. 1,402.5 9.0 0.64 9.3 0.68
--------- ------ ---- ------- ----
Total ................................... $14,794.4 $176.9 1.20% $ 84.2 0.61%
========= ====== ==== ======= ====
December 31, 1993
Business Credit ............................. $ 1,282.1 $ 36.9 2.88% 22.8 1.70%
Capital Equipment Financing ................. 4,394.5 18.4 0.42 15.9 0.36
Credit Finance .............................. 645.7 .8 0.12 1.9 0.32
Industrial Financing ........................ 3,881.0 96.2 2.48 16.2 0.48
Commercial Services ......................... 981.9 47.5 4.84 26.1 2.29
Consumer Finance ............................ 131.3 -- 0.02 0.1 0.11
Sales Financing ............................. 1,307.6 16.3 1.25 11.4 0.80
--------- ------ ---- ------- ----
Total ................................... $12,624.1 $216.1 1.71% $ 94.4 0.77%
========= ====== ==== ====== ====
December 31, 1992
Business Credit ............................. $ 1,281.3 $ 32.4 2.53% $ 13.2 1.00%
Capital Equipment Financing ................. 4,429.1 99.7 2.25 32.4 0.74
Credit Finance .............................. 545.0 -- -- -- --
Industrial Financing ........................ 3,094.1 125.3 4.05 16.6 0.56
Commercial Services ......................... 1,010.2 60.6 6.00 23.5 2.14
Consumer Finance(a) ......................... -- -- -- -- --
Sales Financing ............................. 1,411.8 17.8 1.26 12.6 0.91
--------- ------ ---- ------- ----
Total ................................... $11,771.5 $335.8 2.85% $ 98.3 0.84%
========= ====== ==== ======= ====
December 31, 1991
Business Credit ............................. $ 1,194.9 $ 54.5 4.56% $ 11.5 0.95%
Capital Equipment Financing ................. 4,390.0 72.9 1.66 32.0 0.71
Credit Finance(b) ........................... 493.8 .1 0.02 -- --
Industrial Financing ........................ 2,990.0 178.8 5.98 21.1 0.73
Commercial Services ......................... 1,027.9 23.2 2.26 12.6 1.18
Sales Financing ............................. 1,425.0 21.6 1.52 17.9 1.24
--------- ------ ---- ------- ----
Total ..................................... $11,521.6 $351.1 3.05% $ 95.1 0.82%
========= ====== ==== ====== ====
</TABLE>

- ------------
(a) Started de novo in December 1992.
(b) Acquired February 1991.

10
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

1995 vs. 1994

Highlights

For the year ended December 31,1995 net income totaled $225.3 million, an
increase of 12.0 percent from the $201.1 million for 1994, and represented the
eighth consecutive increase in annual earnings and the fifth consecutive year of
record earnings. The current results reflect finance income from a higher level
of financing and leasing assets, improved other income, and lower net credit
losses, offset by an increase in borrowing costs.

Financing and leasing assets, which include finance receivables and
operating lease equipment, totaled a record $16.91 billion, an increase of 8.0
percent over 1994. Manufactured housing and recreational vehicle receivables of
$723.2 million were securitized during 1995 compared to $198.7 million in 1994.

Net Finance Income

A comparison of the components of 1995 and 1994 net finance income is set
forth below.

Years Ended December 31, Increase
--------------------------------- ----------------------
1995 1994 Amount Percent
------------ ------------ ---------- ----
Dollar Amounts in Millions
<S> <C> <C> <C> <C>
Finance income .......................................... $ 1,529.2 $ 1,263.8 $ 265.4 21.0%
Interest expense ........................................ 831.5 614.0 217.5 35.4%
------------ ------------ ---------- ----
Net finance income ...................................... $ 697.7 $ 649.8 $ 47.9 7.4%
============ ============ ========== ====
Average financing & leasing assets (AEA) ................ $ 15,377.5 $ 13,630.3 $ 1,747.2 12.8%
============ ============ ========== ====
Net finance income as a % of AEA ........................ 4.54% 4.77%
============ ============
</TABLE>

Finance income totaled $1,529.2 million in 1995, up $265.4 million or 21.0%
over 1994. As a percentage of AEA, 1995 finance income increased to 9.90% from
9.19% in 1994. Interest expense totaled $831.5 million in 1995, up $217.5
million or 35.4% over 1994. As a percentage of AEA, 1995 interest expense
increased to 5.36% from 4.42% in 1994.

Net finance income (finance income less interest expense) increased $47.9
million or 7.4% in 1995, trailing the growth in AEA of 12.8% as higher 1995
market interest rates increased borrowing costs more rapidly than lending yields
due to heightened pricing competition, particularly from banks.

Fees and Other Income

Fees and other income improved $10.3 million to $184.7 million during 1995
due to higher gains from securitizations of manufactured housing and
recreational vehicle receivables, offset by lower factoring commissions due to
the weak retailing environment.

11
<PAGE>

Provision and Reserve for Credit Losses

Net credit losses were $77.2 million in 1995, down $7.0 million (8.3%) from
$84.2 million in 1994 reflecting a higher level of recoveries during 1995. As a
percentage of average finance receivables, net credit losses improved to 0.50%
in 1995 from 0.61% in 1994. Information concerning the provision and reserve for
credit losses is summarized in the following table.

Years ended December 31,
--------------------------
1995 1994
------- -------
Dollar Amounts in Millions

Net credit losses ........................... $ 77.2 $ 84.2
Provision for finance receivables increase .. 14.7 12.7
------- -------
Total provision for credit losses ........... $ 91.9 $ 96.9
======= =======
Net credit losses as a percentage of
average finance receivables .............. 0.50% 0.61%
======= =======
Reserve for credit losses ................... $ 206.0 $ 192.4
======= =======

The reserve for credit losses is periodically reviewed for adequacy based
on the nature and characteristics of the obligors, economic conditions and
trends, charge-off experience, delinquencies and value of underlying collateral
and guarantees (including recourse to dealers and manufacturers). It is
management's judgment that the reserve for credit losses is adequate to provide
for potential credit losses. The finance receivables are reviewed periodically
to determine the probability of loss on individual finance receivables.
Charge-offs are taken after considering such factors as the obligor's financial
condition and the value of underlying collateral and guarantees. Because the
reserve for credit losses is intended to provide for future events, which by
their nature are uncertain, changes in economic conditions or other discrete
events adversely affecting specific obligors or industries may necessitate
additions to the reserve for credit losses.

Salaries and General Operating Expenses

Salaries and general operating expenses increased $7.8 million or 2.3
percent to $345.7 million in 1995 from $337.9 million in 1994, reflecting
significant productivity achievements during a year of 8.0 percent financing and
leasing asset growth. Salaries and employee benefits rose $7.6 million (4.0%)
and general operating expenses increased $0.2 million during 1995. Personnel
increased to 2,738 at December 31, 1995 from 2,689 at December 31, 1994.

Management monitors productivity via the relationship of salaries and
general operating expenses to AEA, a measure of operating expense efficiency
based upon owned assets. Management also monitors the relationship of salaries
and general operating expense to average managed assets ("AMA"), which includes
both owned assets and receivables serviced for others, including those that have
been securitized by the Corporation. Productivity improved in 1995 under both
measures. Changes in the relationship of salaries and general operating expenses
to AEA and AMA are set forth below:
1995 1994
---- ----
Average earning assets .......................... 2.25% 2.48%
Average managed assets .......................... 2.13% 2.40%

The Corporation manages expenditures using a comprehensive budgetary
process. Expenses are monitored closely by business unit management and are
reviewed monthly with senior management of the Corporation. To ensure overall
project cost control, a review and approval procedure is in place for all major
capital expenditures, such as purchases of computer equipment, including a
post-implementation analysis of the actual project costs and the realization of
projected benefits.

12
<PAGE>

Income Taxes

The provision for Federal and state and local income taxes totaled $139.8
million in 1995 compared with $123.9 million in 1994. The effective income tax
rate for 1995 was 38.3% compared to 38.1% in 1994.

Financing and Leasing Assets

Financing and leasing assets (comprised of finance receivables and
operating lease equipment) rose $1.25 billion (8.0%) to $16.91 billion in 1995
as presented by business unit in the following table.

December 31, Increase (Decrease)
------------------------ ---------------------
1995 1994 Amount Percent
-------- ---------- --------- -------
Dollar Amounts in Millions
<S> <C> <C> <C> <C>
Finance Receivables
Business Credit ......................... $ 1,471.0 $ 1,442.1 $ 28.9 2.0%
Capital Equipment Financing ............. 4,548.7 4,493.5 55.2 1.2
Credit Finance .......................... 758.7 719.6 39.1 5.4
Industrial Financing .................... 4,929.9 4,269.7 660.2 15.4
Commercial Services ..................... 1,743.3 1,896.2 (152.9) (8.1)
Consumer Finance ........................ 1,039.0 570.8 468.2 82.0
Sales Financing ......................... 1,304.9 1,402.5 (97.6) (6.9)
--------- --------- --------- ----
Total Finance Receivables ............. 15,795.5 14,794.4 1,001.1 6.8
--------- --------- --------- ----
Operating Lease Equipment
Capital Equipment Financing ............. 750.0 648.7 101.3 15.6
Industrial Financing .................... 363.0 219.2 143.8 65.6
--------- --------- --------- ----
Total Operating Lease Equipment ....... 1,113.0 867.9 245.1 28.2
--------- --------- -------- ----
Total Financing and Leasing Assets .... $16,908.5 $15,662.3 $1,246.2 8.0%
========= ========= ======== ====
</TABLE>

The following table presents new business originations of financing and
leasing assets by business unit.

Years Ended December 31, Increase (Decrease)
------------------------- ---------------------
1995 1994 Amount Percent
---------- ---------- --------- -------
Dollar Amounts in Millions
<S> <C> <C> <C> <C>
Business Credit (a) ....................... $ 543.3 $ 422.7 $ 120.6 28.5%
Capital Equipment Financing ............... 1,151.3 1,148.9 2.4 --
Credit Finance (a) ........................ 180.2 196.5 (16.3) (8.3)
Industrial Financing ...................... 2,724.1 2,156.3 567.8 26.3
Consumer Finance .......................... 617.1 481.2 135.9 28.2
Sales Financing ........................... 964.4 681.1 283.3 41.5
--------- --------- -------- ----
$ 6,180.4 $ 5,086.7 1,093.7 21.5%
========= ========= ======== ====
Commercial Services(b) .................... $12,611.7 $12,853.0 $ (241.3) (1.9)%
========= ========= ======== ====
</TABLE>

- ------------------
(a) Initial borrowings under new lines of credit.

(b) Factored accounts receivable.

The changes in the two preceding tables are discussed below.

o Business Credit--Revolving and term loans, including debtor-in-possession
and workout financing, for medium and larger-sized companies secured by accounts
receivable, inventory and fixed assets. Record new business volume was largely
offset by high customer paydowns and terminations as customers access to
alternative financing sources increased, resulting in modest growth of 2.0% to
$1.47 billion at December 31, 1995.

o Capital Equipment Financing--Customized secured equipment financing and
leasing of major capital equipment for medium and larger-sized companies.
Finance receivables and volume rose modestly during 1995 due to heightened
pricing competition from other financial institutions. Growth in the operating
lease equipment portfolio is primarily in railcar and other transportation
equipment categories.

13
<PAGE>

o Credit Finance--Revolving and term loans, including restructurings, for
small and medium-sized companies secured by accounts receivable, inventory and
fixed assets. Finance receivables in this unit continued their steady growth,
rising 5.4% in 1995 to $758.7 million.

o Industrial Financing--Secured equipment financing and leasing for
medium-sized companies, including dealer and manufacturer financing. Another
record year of new business originations resulted in finance receivable growth
of 15.4%. Operating lease equipment grew $143.8 million with increases in
various collateral types including tractors, trailers and buses and business
aircraft.

o Commercial Services--Factoring of accounts receivables, including credit
protection, bookkeeping and collection activities and revolving and term loans.
Finance receivables decreased 8.1% to $1.74 billion at December 31, 1995 as
factoring volume declined 1.9% from 1994 on weakness in retail sales.

o Consumer Finance--Loans secured by first or second mortgages on
residential real estate and home equity lines of credit generated through
brokers and direct marketing. New business volume grew 28.2% to $617.1 million
in this unit's third full year of operations, increasing receivables to over
$1.0 billion.

o Sales Financing--Retail secured financing of recreational vehicles,
recreational boats, and manufactured housing through dealers and manufacturers.
Higher originations in recreational vehicle and manufactured housing resulted in
record new business volume of $964.4 million, up 41.5%, offset by finance
receivable securitizations of $723.2 million (of which $68.7 million was
classified as assets held for sale at December 31, 1994) and the
reclassification of an additional $112.0 million of recreational vehicle finance
receivables to assets held for sale at December 1995. In addition to its
portfolio of $1.30 billion, Sales Financing also provides servicing for
portfolios owned by other financial institutions and securitization trusts which
totaled $1.25 billion at December 31, 1995 ($498.1 million in 1994).

Financing and Leasing Assets Composition

Financing and leasing assets are composed of loans and direct financing and
leveraged leases with commercial and consumer customers located principally in
the United States and operating lease equipment, largely commercial aircraft
(44.9% of the operating lease portfolio), placed with lessees both domestically
and internationally.

Transaction Type

Financing and leasing assets by transaction type are set forth in the
following table.

1995 Percent 1994 Percent
-------- ------- --------- -------
Dollar Amounts in Millions
Commercial ................ 11,708.2 69.2% $10,925.0 69.8%
Consumer .................. 2,344.0 13.9 1,973.2 12.6
Factoring ................. 1,743.3 10.3 1,896.2 12.1
Operating lease equipment . 1,113.0 6.6 867.9 5.5
--------- ----- --------- -----
$16,908.5 100.0% $15,662.3 100.0%
========= ===== ========= =====

Business units included in commercial are Industrial Financing, Capital
Equipment Financing, Business Credit and Credit Finance. Business units included
in consumer are Sales Financing and Consumer Finance. Factoring represents
Commercial Services.

14
<PAGE>

Geographic Composition

The following table presents financing and leasing assets by customer
location.

At December 31, 1995 At December 31, 1994
---------------------- ---------------------
Amount Percent Amount Percent
--------- --------- ------- --------
Dollar Amounts in Millions
United States
Northeast ............. $ 4,094.2 24.2% $ 3,856.6 24.6%
West .................. 3,959.9 23.4 3,679.4 23.5
Midwest ............... 3,209.1 19.0 2,907.0 18.6
Southeast ............. 2,631.7 15.6 2,318.7 14.8
Southwest ............. 1,929.8 11.4 1,778.8 11.4
Foreign (principally
commercial aircraft) . 1,083.8 6.4 1,121.8 7.1
--------- ----- --------- -----
Total ............... $16,908.5 100.0% $15,662.3 100.0%
========= ===== ========= =====
Industry Composition

The following table presents financing and leasing assets by industry.
<TABLE>
<CAPTION>

At December 31, 1995 At December 31, 1994
------------------------- -----------------------
Amount Percent Amount Percent
---------- --------- ----------- --------
Dollar Amounts in Millions
<S> <C> <C> <C> <C>
Commercial airlines (a) ...................... $ 1,911.6 11.3 $ 1,899.3 12.1%
Construction equipment (b) ................... 1,463.9 8.7 1,337.4 8.5
Transportation (c) ........................... 1,043.1 6.1 744.9 4.7
Home equity .................................. 1,039.0 6.1 570.8 3.6
Manufactured housing (d) ..................... 618.6 3.7 458.3 2.9
Recreational vehicles (e) .................... 586.5 3.5 898.0 5.7
Manufacturers
Industrial machinery and equipment ........ 607.4 3.6 455.5 2.9
Steel and metal products .................. 530.6 3.1 485.6 3.1
Textile and mill products ................. 473.2 2.8 470.1 3.0
Apparel ................................... 403.3 2.4 328.0 2.1
Transportation equipment .................. 377.5 2.2 469.6 3.0
Printing and paper products ............... 343.1 2.0 400.2 2.6
Food and kindred products ................. 297.2 1.8 283.6 1.8
Electronic equipment ...................... 253.0 1.5 276.3 1.8
Other ..................................... 1,043.3 6.2 885.7 5.7
Retailers
Apparel ................................... 757.1 4.5 807.1 5.2
General merchandise ....................... 385.5 2.3 423.0 2.7
Other ..................................... 376.7 2.2 361.4 2.3
Printing and publishing ...................... 581.8 3.4 560.1 3.6
Wholesaling .................................. 529.7 3.1 528.8 3.4
Shipping ..................................... 512.0 3.0 536.6 3.4
Mining, oil and gas extraction ............... 400.0 2.4 300.1 1.9
Electrical generation ........................ 270.4 1.6 243.1 1.6
Service businesses ........................... 248.3 1.5 217.4 1.4
Financial institutions ....................... 235.6 1.4 183.2 1.2
Equipment leasing and rental ................. 137.3 0.8 130.3 0.8
Others (none greater than 1.1% of total)...... 1,482.8 8.8 1,407.9 9.0
--------- ----- --------- -----
Total ................................... $16,908.5 100.0% $15,662.3 100.0%
========= ===== ========= =====
</TABLE>

- ------------------
(a) Refer to the Commercial Airlines section of "Financing and Leasing Assets
Concentrations" for a discussion of the commercial airlines portfolio.

(b) Primarily relates to equipment. Does not include real estate development
and acquisition.

(d) Excludes securitized finance receivables of $470.8 million and $188.4
million at December 31, 1995 and 1994, respectively.

(e) Excludes securitized finance receivables of $445.7 million and $118.3
million at December 31, 1995 and 1994, respectively.

15
<PAGE>

Financing and Leasing Assets Concentrations

Commercial Airlines

Commercial airline finance receivables of $1.4 billion and operating lease
equipment of $499.4 million totaled $1.9 billion (11.3% of total financing and
leasing assets) at December 31, 1995 compared with $1.9 billion (12.1%) in 1994.
The portfolio is secured by commercial aircraft and related equipment.
Management continues to limit the growth in this portfolio relative to total
financing and leasing assets.

The following table presents information about the commercial airline
industry portfolio.

At December 31,
-------------------------------
1995 1994
--------- --------
Dollar Amounts in Millions
Finance receivables
Amount outstanding(a) ................ $1,412.2 $1,417.0
Number of obligors ................... 51 46
Operating lease equipment
Net carrying value ................... $ 499.4 $ 482.3
Number of obligors ................... 24 21
Total .............................. $1,911.6 $1,899.3
Number of obligors(b) .................. 68 62
Number of aircraft(c) .................. 266 282

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

(a) Includes accrued rents on operating leases which are classified as finance
receivables in the Consolidated Balance Sheets.

(b) Certain obligors have both finance receivable and operating lease
transactions.

(c) Regulations established by the Federal Aviation Administration (the "FAA")
limit the maximum permitted noise an aircraft may make. A Stage III
aircraft meets a more restrictive noise level requirement than a Stage II
aircraft. The FAA has issued rules which phase out the use of Stage II
aircraft in the United States through the year 2000. The International
Civil Aviation Organization has issued similar requirements for Europe. At
year-end 1995, the portfolio consisted of Stage III aircraft of $1,664.3
million (88.2%) and Stage II aircraft of $222.2 million (11.8%) versus
Stage III aircraft of $1,587.5 million (85.3%) and Stage II aircraft of
$273.6 million (14.7%) at year-end 1994. The decline in the number of
aircraft from December 1994 principally reflects the maturity of loans with
one obligor collateralized by 17 aircraft.

Foreign Outstandings

Financing and leasing assets to foreign obligors, primarily to the
commercial airline industry, are all U. S. dollar denominated and totaled $1.08
billion at December 31, 1995. The largest exposures at December 31, 1995 were in
the United Kingdom, $145.5 million (0.86% of financing and leasing assets),
France, $122.0 million (0.72%), and Mexico, $115.8 million (0.68%). The Mexican
exposure is principally operating and direct financing leases of commercial and
business aircraft all of which were current at December 31, 1995. The remaining
foreign exposure is geographically disbursed with no individual country
representing more than 0.57% of financing and leasing assets.

At December 31, 1994, financing and leasing assets to foreign obligors
totaled $1.12 billion. Outstandings totaled $177.2 million (1.13%) to obligors
in the United Kingdom and $140.0 million (0.89%) to obligors in Mexico. No other
countries had obligors with aggregate outstandings exceeding 0.75% of financing
and leasing assets.

Highly Leveraged Transactions

The Corporation uses the following criteria to classify a buyout financing
or recapitalization which equals or exceeds $20 million as a highly leveraged
transaction (HLT):

o The transaction at least doubles the borrower's liabilities and
results in a leverage ratio (as defined) higher than 50%, or

o The transaction results in a leverage ratio higher than 75%, or

o The transaction is designated as an HLT by a syndication agent.

A transaction originally reported as an HLT can be removed from this
classification ("delisted") if the leveraged company has demonstrated the
ability to operate successfully as a highly leveraged entity for at least two
years after the original financing and meets one of the following criteria:

o The original financing has been repaid using cash flow from
operations, planned asset sales, or a capital infusion, or

o The debt has been serviced without undue reliance on unplanned asset
sales, and certain leverage ratios (related to the original criteria
under which the financing qualified as an HLT) have been maintained.

16
<PAGE>

The Corporation, primarily through Business Credit, originates and
participates in HLTs, which totaled $412.6 million (2.4% of financing and
leasing assets) at December 31, 1995, down from $436.1 million (2.8%) at
December 31, 1994. The decline in HLT outstandings during 1995 was primarily due
to payoff of accounts as well as a company that met the aforementioned delisting
criteria, partially offset by new HLT fundings. The Corporation's HLT
outstandings are generally secured by collateral, as distinguished from HLTs
that rely primarily on cash flows from operations. Unfunded commitments to lend
in secured HLT situations were $220.4 million at December 31, 1995 compared with
$202.1 million at year-end 1994.

At December 31, 1995, the HLT portfolio consisted of 33 obligors in 11
different industry groups, with 34.3% of the outstandings located in the
Southeast region of the United States and 24.4% in the West. One account
totaling $20.1 million was classified as nonaccrual at December 31, 1995,
compared with four accounts totaling $57.7 million at year-end 1994.

Past Due and Nonaccrual Finance Receivables and Assets Received
in Satisfaction of Loans

Finance receivables past due 60 days or more increased to $263.9 million
(1.67% of finance receivables) at December 31, 1995, from $176.9 million (1.20%)
at December 31, 1994. Finance receivables of $42.9 million collateralized by
oceangoing carriers of a shipping company and $36.6 million of finance
receivables collateralized by two cruise line vessels were placed on nonaccrual
status during the third quarter of 1995. The shipping company ceased operations
during the third quarter and during the fourth quarter, the cruise line
discontinued its operations and filed for protection under Chapter 11 of the
Bankruptcy Code. The Corporation is in the process of repossessing and
remarketing the oceangoing carriers. The Corporation has repossessed the cruise
line vessels and is in the process of remarketing the vessels.

Finance receivables on nonaccrual status, included in past due finance
receivables, rose to $139.5 million (0.88% of finance receivables) at December
31, 1995, from $110.2 million (0.75%) at December 31, 1994, primarily due to the
loans discussed above.

Assets received in satisfaction of loans declined to $42.0 million at
December 31, 1995 from $86.5 million at December 31, 1994. The December 31, 1994
balance included two commercial aircraft which were placed on long term leases
during 1995.

The following table summarizes by type assets received in satisfaction of
loans.
At December 31,
-------------------------
1995 1994
------- -------
Amounts in Millions
Retail merchandise, property and
accounts receivable(a) ................. $ 24.1 $ 32.3
Transportation(b) ........................ 10.1 6.2
Property and equipment ................... 3.5 8.6
Commercial aircraft ...................... - 36.0
Other .................................... 4.3 3.4
------ ------
Total ................................. $ 42.0 $ 86.5
====== ======

- -------------
(a) Retail merchandise, property and accounts receivable includes an equity
interest in a building supply retailer.

(b) Transportation includes carriers and recreational vehicles in 1995, and
buses and recreational vehicles in 1994.

Credit Risk Management

Financing and leasing assets are evaluated for credit and collateral risk
both during the credit granting process and periodically after the advancement
of funds. Each business unit is responsible for developing and implementing a
formal credit management process in accordance with formal uniform guidelines
established by the Executive Credit Committee of the Corporation (ECC). These
guidelines set forth risk acceptance criteria for: (1) selected target markets
and products; (2) the creditworthiness of borrowers, including credit history,
financial condition, adequacy of cash flow and quality of management; and (3)
the type and value of underlying collateral and guarantees (including recourse
to dealers and manufacturers). As economic and market conditions change, credit
risk management practices are reviewed and modified, if necessary, to minimize
the risk of credit loss.

Commercial financing and leasing assets are periodically evaluated based
upon credit criteria developed under the Corporation's uniform credit grading
system. Concentrations are monitored and limits are changed by management as
conditions warrant to minimize the risk of credit loss. Periodically, the status
of loans greater than $500,000 to obligors with higher (riskier) credit grades

17
<PAGE>

is individually reviewed with the Asset Quality Review Committee, comprised of
members of senior management including the Vice Chairman, Executive Vice
President-Credit Adminstration and Chief Financial Officer.

For consumer loans, management has developed and implemented automated
credit scoring models for each loan type (eg. recreational vehicles,
manufactured housing, home equity and recreational marine), that include both
customer demographics and credit bureau characteristics. The Corporation's
credit criteria include reliance on scores combined with judgment. The credit
scoring models are reviewed for effectiveness monthly utilizing statistical
tools. Consumer loans are periodically evaluated using past due, vintage curve
and other statistical tools to analyze trends and credit performance by loan
type including analysis of specific credit characteristics and other selected
subsets of the portfolios.

Compliance with established corporate policies and procedures and the
credit management processes at each business unit is reviewed by an internal
credit audit group within the Corporation's internal audit department. Credit
audits examine adherence with established credit policies and procedures, and
test for inappropriate credit practices, including whether potential problem
accounts are being detected and reported on a timely basis.

Asset/Liability Management

Management strives to manage interest rate and liquidity risk and optimize
net finance income under formal policies established and monitored by the
Capital Committee, which is comprised of members of senior management, including
the Chief Executive Officer, the Vice Chairman, the Chief Financial Officer and
senior representatives of DKB and CBC. Four members of the Capital Committee are
also members of the Corporation's Board of Directors. The Capital Committee
establishes and regularly reviews interest rate sensitivity, funding needs,
liquidity, and asset-pricing to determine short-term and long-term funding
strategies, including the use of off-balance sheet derivative financial
instruments. The Corporation does not enter into derivative financial
instruments for trading or speculative purposes.

Derivative positions, all of which are entered into as hedges, are managed
in such a way that the exposure to interest rate, credit or foreign exchange
risk is in accordance with the overall operating goals established by the
Capital Committee. There is an approved, diversified list of creditworthy
counterparties used for derivative financial instruments, primarily interest
rate and currency swap agreements, each of whom has specific credit exposure
limits, which are based on market value. The Executive Credit Committee approves
each counterparty and its related market value and credit exposure limit
annually or more frequently if any changes are recommended. Market values are
calculated periodically for each swap contract, summarized by counterparty and
reported to the Capital Committee. For additional information regarding the
Corporation's derivative portfolio, refer to "Note 7--Derivative Financial
Instruments" in Item 8. Financial Statements and Supplementary Data.

Interest Rate Risk Management

Changes in market interest rates or in the relationships between short-term
and long-term market interest rates or different interest rate indices (basis
risk) create risks which can potentially affect net finance income. Such changes
can affect the interest rates charged on interest-earning assets differently
than the interest rates paid on interest-bearing liabilities.

The Capital Committee actively manages interest rate risk by changing the
proportion of fixed and floating rate debt and by utilizing interest rate swaps
and, to a lesser extent, caps to modify the repricing characteristics of
existing interest-bearing liabilities. Issuing new debt or hedging the interest
rate on existing debt through the use of interest rate swaps and caps are both
tools for managing interest rate risk. The decision to use one or the other or a
combination of both is driven by the relationship between the relative interest
rate costs and effectiveness of the alternatives, and liquidity needs of the
Corporation. For example, a fixed rate, fixed term loan transaction may
initially be funded by commercial paper, resulting in interest rate risk. To
reduce this risk, the Corporation may enter into a hedge that has an inverse
correlation to the interest rate sensitivity created, whereby the Corporation
would pay a fixed interest rate and receive a commercial paper interest rate.
Basis risk is similarly managed through the issuance of new debt or the
utilization of interest rate swaps or caps.

The Corporation's degree of interest rate sensitivity is continuously
monitored and simulated through computer modeling by measuring the repricing
characteristics of interest-sensitive assets, liabilities and off-balance sheet
derivatives. These characteristics include the dollar amounts, maturities,
estimated prepayments, interest rates, and reference rate or other market based
indices which are updated and reviewed periodically. The model is used to
project net interest income assuming stable interest rates as well as various

18
<PAGE>

other hypothetical interest rate scenarios and the results are reviewed monthly
by the Capital Committee. Utilizing the Corporation's computer modeling, if no
new fixed rate loans or leases were extended and no actions to alter the
existing interest rate sensitivity were taken subsequent to December 31, 1995,
an immediate hypothetical 1% parallel rise in the yield curve on January 1, 1996
would reduce net income by an estimated $5.0 million after-tax over the next
twelve months. Although management believes that this measure provides a
meaningful estimate of the Corporation's interest rate sensitivity, it does not
reflect changes in the credit quality, size and composition of the balance sheet
and other business developments that could affect net income. Further, it does
not necessarily represent management's current view of future market interest
rate movements.

The Corporation periodically enters into structured financings (involving
both the issuance of debt and an interest rate swap with corresponding notional
principal amount and maturity) that not only improve liquidity and reduce
interest rate risk, but result in a lower overall funding cost than could be
achieved by solely issuing debt. For example, in order to fund LIBOR interest
rate based assets, a medium-term variable rate note based upon the Federal Funds
rate can be issued and coupled with an interest rate swap exchanging the Federal
Funds rate for a LIBOR interest rate. This creates, in effect, a lower cost
LIBOR based medium-term obligation which also reduces the interest rate basis
risk of funding LIBOR based assets with commercial paper or Federal Funds rate
based debt.

Interest rate swaps with notional principal amounts of $5.27 billion at
December 31, 1995 and $5.46 billion at December 31, 1994 were designated as
hedges against outstanding debt and were principally used to effectively convert
the interest rate on variable rate debt to a fixed rate, which sets the
Corporation's fixed rate term debt borrowing cost over the life of the swap and
reduces the Corporation's exposure to rising interest rates but reduces the
Corporation's benefits from lower interest rates. Interest rate swaps and caps
are further discussed in "Note 7--Derivative Financial Instruments" in Item 8.
Financial Statements and Supplementary Data.

A comparative analysis of the weighted average principal outstanding and
interest rates paid on the Corporation's debt before and after the effect of
interest rate swaps is shown in the following table.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------------
1995 1994
----------------------------------------- ---------------------------------------------
Before Swaps After Swaps Before Swaps After Swaps
------------------- ------------------ ------------------ -------------------
Dollar Amounts in Millions
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial paper and
variable rate senior
notes ....................... $ 9,785.4 6.03% $ 7,226.0 6.02% $ 8,847.5 4.46% $ 6,865.7 4.41%
Fixed rate senior notes ...... 3,194.5 7.09% 5,753.9 6.78% 2,525.8 7.24% 4,507.6 6.70%
--------- --------- --------- ---------
Composite ..................... $12,979.9 6.29% $12,979.9 6.36% $11,373.3 5.07% $11,373.3 5.32%
========= ========= ========= =========
</TABLE>

The increases in the composite interest rates after the effect of hedging
activity reflect the greater proportion of debt effectively paying fixed
interest rates. The weighted average interest rates before the effect of hedging
activity do not reflect the interest expense that would have been incurred had
the Corporation chosen to manage interest rate risk without the use of
derivatives.

Liquidity Risk

The Capital Committee manages liquidity risk by monitoring the relative
maturities of assets and liabilities and by borrowing funds, primarily in the
United States money and capital markets. Such cash is used to fund asset growth
(including the bulk purchase of receivables and the acquisition of other
finance-related businesses) and to meet debt obligations and other commitments
on a timely and cost-effective basis. The primary source of funding is
commercial paper borrowings, proceeds from the sales of medium-term notes and
other debt securities and securitizations.

Liquidity

Commercial paper outstanding increased $445.4 million to $6.11 billion at
December 31, 1995, and represented 45.0% of total debt outstanding, while fixed
rate notes increased to $3.64 billion at December 31, 1995 (26.8% of total
debt), an increase of $717.7 million from December 31, 1994. Variable rate debt
totaled $3.83 billion (28.2% of total debt outstanding) at December 31, 1995.
These changes primarily reflect the increase in the level of financing and
leasing assets.

Commercial paper borrowings are supported by a variety of bank credit
facilities. At December 31, 1995, credit lines with 69 banks totaled $4.64

19
<PAGE>

billion and support the current commercial paper position as well as growth in
the foreseeable future. Credit line coverage decreased to 77.7% of operating
commercial paper outstanding (commercial paper outstanding less interest-bearing
deposits) at year-end 1995, as compared to 82.7% in 1994 due to the higher
balance of commercial paper outstanding at December 31, 1995. No borrowings have
been made under credit lines since 1970.

The Corporation also has accessed the asset backed securitization markets
as an additional liquidity source. During 1995, the Corporation securitized
manufactured housing and recreational vehicle receivables on four transactions
for a total of $723.2 million, an increase of $524.5 million over two
transactions totaling $198.7 in 1994.

Capitalization

The following table presents information regarding the Corporation's
capital structure.

At December 31,
----------------------------
1995 1994
--------- ---------
Dollar Amounts in Millions
Commercial paper ...................... $ 6,105.6 $ 5,660.2
Variable rate senior notes ............ 3,827.5 3,812.5
Fixed rate senior and
subordinated notes .................. 3,637.0 2,919.4
--------- ---------
Total debt ............................ $13,570.1 $12,392.1
Stockholders' equity .................. 1,914.2 1,793.0
--------- ---------
Total capitalization .................. $15,484.3 $14,185.1
========= =========
Debt-to-equity ratio .................. 7.09 to 1 6.91 to 1
========= =========

The Corporation operates under a dividend policy requiring the payment of
dividends by the Corporation, equal to and not exceeding 50% of net operating
earnings on a quarterly basis. Through November 30, 1995, regular cash dividends
of $104.1 million were paid to DKB and CBC Holding based upon their respective
stock ownership. During the first quarter of 1996, the Corporation declared and
paid a dividend of $8.9 million based on actual earnings for December 1995.

During the year, $2.55 billion of variable rate notes and $1.15 billion of
fixed rate notes were issued with individual terms ranging from one to ten
years. Repayments of debt during 1995 totaled $2.97 billion. At December 31,
1995, $5.26 billion of registered but unissued debt securities remained
available under shelf registration statements.

The Corporation's commercial paper, publicly issued variable rate and fixed
rate senior debt, and senior subordinated long-term notes and debentures are
rated by Moody's Investors Service, Duff & Phelps Credit Rating Company and
Standard & Poor's Corporation.

Recently Issued Accounting Pronouncements

During the first quarter of 1996, the Corporation adopted Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121") and
Statement of Financial Accounting Standard No. 122, "Accounting for Mortgage
Servicing Rights" ("SFAS 122").

SFAS 121 requires that a review for impairment be performed whenever events
or changes in circumstances indicate that the carrying amount of long-lived
assets may not be recoverable. In performing the review for recoverability, the
entity should estimate the future undiscounted cash flows expected to result
from the use of the asset and its eventual disposition. The adoption of SFAS 121
did not have a significant impact on the Corporation's consolidated financial
position or results of operation.

SFAS 122 requires an enterprise that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and then sells or
securitizes those loans with servicing rights retained to allocate the total
cost between the mortgage servicing rights and the loans based on their relative
fair values. The Statement requires that the enterprise assess its capitalized
mortgage servicing rights for impairment based on the fair value of those
rights. The adoption of SFAS 122 did not have a significant impact on the
Corporation's consolidated financial position or results of operations.

The Financial Accounting Standards Board also issued Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") which requires either a change in accounting or additional proforma
disclosures for stock-based compensation plans. Management has adopted the
disclosure election of the Standard during the first quarter of 1996 which did
not have a significant impact on the Corporation's consolidated financial
position or results of operations.

20
<PAGE>

1994 vs. 1993

Highlights

Net income for the year ended December 31, 1994 was a record $201.1
million, an increase of $18.8 million (10.3%) from the $182.3 million earned in
1993. The fourth consecutive year of record earnings reflects improved finance
income, increased factoring commissions and a lower provision for credit losses,
offset, in part, by increased operating expenses, including those of Barclays
Commercial Corporation (BCC) which was acquired in February 1994, and expanded
activity in Consumer Finance.

Total financing and leasing assets, which include finance receivables and
operating lease equipment, increased to a record $15.66 billion at December 31,
1994, a $2.29 billion (17.1%) improvement, compared to $13.38 billion at
December 31, 1993. All operating units experienced year-over-year growth.
Particularly noteworthy was Commercial Services which added $914.3 million of
finance receivables, including the BCC acquisition involving over $700 million
of factored receivables.

Net Finance Income

A comparison of 1994 and 1993 finance income and interest expense is set
forth below.

<TABLE>
<CAPTION>
Years Ended December 31, Increase
---------------------------------- ------------------------
1994 1993 Amount Percent
---------- ---------- --------- -------
Dollar Amounts in Millions
<S> <C> <C> <C> <C>
Finance income ............................... $ 1,263.8 $ 1,111.9 $ 151.9 13.7%
Interest expense ............................. 614.0 508.0 106.0 20.9
--------- --------- -------- ---
Net finance income ........................... $ 649.8 $ 603.9 $ 45.9 7.6%
========= ========= ======== ====
Average financing & leasing assets (AEA) ..... $13,630.3 $12,262.9 $1,367.4 11.2%
========= ========= ======== ====
Net finance income as a percent of AEA ....... 4.77% 4.93%
========= =========
</TABLE>

The increase of $151.9 million in finance income reflects earnings on the
$1.37 billion growth in AEA and the effect of rising market interest rates,
which enabled finance income, as a percentage of AEA, to improve to 9.19% in
1994 from 8.93% in 1993. These factors also impacted interest expense, which
totaled $614.0 million in 1994, an increase of $106.0 million (20.9%), compared
with $508.0 million in 1993. Net finance income totaled $649.8 million, an
increase of $45.9 million (7.6%) from 1993. However, the increased interest
expense and more aggressive competition in transaction pricing and structuring,
particularly from banks, resulted in a decline in net finance income as a
percentage of AEA to 4.77% compared with 4.93% in 1993.

Fees and Other Income

Fees and other income totaled $174.4 million in 1994, an increase of $40.6
million (30.3%), compared with $133.8 million in 1993. The improvement is
principally attributable to higher factoring commissions, reflecting additional
factored receivable volume from the acquisition of BCC and record new client
signings in 1994.

21
<PAGE>

Provision and Reserve for Credit Losses

A continued recovery in certain sectors of the U.S. economy contributed to
an improvement of $10.2 million (10.9%) in net credit losses for 1994. As a
percentage of average finance receivables, net credit losses fell to 0.61% in
1994 from 0.77% in 1993. Information concerning the provision and reserve for
credit losses is summarized in the following table.

Years ended December 31,
-----------------------------
1994 1993
-------- -------
Dollar Amounts in Millions
Net credit losses .......................... $ 84.2 $ 94.4
Provision for finance
receivables increase .................... 12.7 10.5
------- -------
Total provision for credit losses .......... $ 96.9 $ 104.9
======= =======
Net credit losses as a
percentage of average
finance receivables ..................... 0.61% 0.77%
======= =======
Reserve for credit losses .................. $ 192.4 $ 169.4
======= =======

Salaries and General Operating Expenses

Salaries and general operating expenses totaled $337.9 million in 1994, a
$55.7 million (19.8%) increase, compared to $282.2 million in 1993. This
increase includes a $33.7 million (22.2%) rise in salaries and employee
benefits, which totaled $185.8 million in 1994, compared with $152.1 million in
1993, and an additional $22.0 million (16.9%) of general operating expenses,
which totaled $152.1 million in 1994, compared with $130.1 million in 1993.
Employee headcount increased to 2,689 at December 31, 1994 from 2,424 in 1993.

These increases are largely attributable to the BCC acquisition and
expanded Consumer Finance activity. Since the BCC acquisition, Commercial
Services has had an integration plan in place designed to maintain business
momentum, provide uninterrupted levels of quality services, and generate
economies of scale. Significant progress has been made in integrating operating
systems, eliminating duplicate functions and consolidating offices and
departments. This process was substantially completed by year-end 1995. Salaries
and other employee benefits in 1994 also included the effect of improvements to
employee sales and incentive compensation plans.

Income Taxes

The provision for Federal and state and local income taxes totaled $123.9
million in 1994 compared with $128.5 million in 1993. The effective income tax
rate was 38.1% compared to 41.3% in 1993. The 1993 amounts reflect additional
provisions to the Corporation's current and deferred taxes to record the impact
of a 1% increase in the statutory Federal corporate income tax rate provided for
in the Revenue Reconciliation Act of 1993.

22
<PAGE>

Financing and Leasing Assets

Financing and leasing assets (finance receivables plus operating lease
equipment) increased $2.29 billion (17.1%) in 1994 to $15.66 billion as
presented in the following table.

<TABLE>
<CAPTION>
December 31, Increase
-------------------------------- -----------------------------
1994 1993 Amount Percent
--------- --------- ---------- -----------
Dollar Amounts in Millions
<S> <C> <C> <C> <C>
Finance Receivables
Business Credit ........................ $ 1,442.1 $ 1,282.1 $ 160.0 12.5%
Capital Equipment Financing ............ 4,493.5 4,394.5 99.0 2.3
Credit Finance ......................... 719.6 645.7 73.9 11.5
Industrial Financing ................... 4,269.7 3,881.0 388.7 10.0
Commercial Services .................... 1,896.2 981.9 914.3 93.1
Consumer Finance ....................... 570.8 131.3 439.5 334.7
Sales Financing ........................ 1,402.5 1,307.6 94.9 7.3
--------- --------- --------- ----
Total Finance Receivables ........... 14,794.4 12,624.1 2,170.3 17.2
--------- --------- --------- ----
Operating Lease Equipment
Capital Equipment Financing ............ 648.7 565.7 83.0 14.7
Industrial Financing ................... 219.2 186.2 33.0 17.7
--------- --------- --------- ----
Total Operating Lease Equipment ...... 867.9 751.9 116.0 15.4
--------- --------- --------- ----
Total Financing and Leasing Assets ... $15,662.3 $13,376.0 $ 2,286.3 17.1%
========= ========= ========= ====
</TABLE>

The following table presents the new business orginations of financing and
leasing assets including purchases of existing finance receivable portfolios.
<TABLE>
<CAPTION>

Years Ended December 31, Increase
------------------------------- -----------------------
1994 1993 Amount Percent
-------- ------- ------- -------
Dollar Amounts in Millions
<S> <C> <C> <C> <C>
Business Credit(a) ..................... $ 422.7 $ 451.1 $ (28.4) (6.3)%
Capital Equipment Financing ............ 1,148.9 1,029.1 119.8 11.7
Credit Finance(a) ...................... 196.5 175.7 20.8 11.8
Industrial Financing ................... 2,156.3 2,319.2 (162.9) (7.0)
Consumer Finance ....................... 481.2 153.9 327.3 212.7
Sales Financing ........................ 681.1 621.5 59.6 9.6
--------- --------- -------- -----
$ 5,086.7 $ 4,750.5 $ 336.2 7.1%
========= ========= ======== ====
Commercial Services(b) ................. $12,853.0 $ 7,667.4 $5,185.6 67.6%
========= ========= ======== ====
</TABLE>

- -----------
(a) Represents initial borrowings under new lines of credit

(b) Represents factored accounts receivable

The changes in the preceding tables are discussed below for each business
unit.

o Business Credit--Revolving and term loans, including debtor-in-possession
and workout financing, to medium and larger-sized companies secured by accounts
receivable, inventory and fixed assets. Finance receivables totaled $1.44
billion at December 31, 1994. New business volume and additional borrowings
under existing credit arrangements, coupled with a return to more historical
customer paydown levels, contributed to the 12.5% growth in finance receivables.

o Capital Equipment Financing--Customized secured equipment financing and
leasing of major capital equipment for medium and larger-sized companies.
Finance receivables rose modestly to $4.49 billion, reflecting improved new
business funding volume offset, in part, by higher than usual prepayments and
finance receivable sales for credit risk management purposes. The growth in
operating lease equipment resulted from the purchase of additional equipment for
lease, principally railcars and commercial and business aircraft, and the
leasing of a commercial aircraft included in assets received in satisfaction of
loans at December 31, 1993.

23
<PAGE>

o Credit Finance--Revolving and term loans, including restructurings, for
small and medium-sized companies secured by accounts receivable, inventory and
fixed assets. Finance receivables continued to grow, rising 11.5% in 1994 to
$719.6 million, largely due to record new business volume with various
middle-market manufacturing companies.

o Industrial Financing--Secured equipment financing and leasing for
medium-sized companies, including dealer and manufacturer financing. Finance
receivables rose 10.0% in 1994 to $4.27 billion reflecting another year of
record new business originations. Operating lease equipment increased 17.7% to
$219.2 million principally due to the purchase of tractors, trailers, business
aircraft and other equipment for lease.

o Commercial Services--Factoring of accounts receivable, including credit
protection, bookkeeping and collection activities and revolving and term loans.
Finance receivables totaled $1.90 billion at December 31, 1994. The increase of
$914.3 million from 1993 reflects the acquisition of BCC, which added over $700
million of factored receivables, and record new client signings in 1994.

o Consumer Finance--Loans secured by first or second mortgages on
residential real estate, and home equity lines of credit generated through
brokers and direct marketing. Finance receivables rose sharply to $570.8
million, reflecting the full year effect and continued development, in 1994, of
the marketing offices added late in 1993. This portfolio is expected to approach
$1.0 billion by the end of 1995.

o Sales Financing--Retail secured financing of recreational vehicles,
recreational boats, and manufactured housing through dealers and manufacturers.
The increase in finance receivables is the result of improved volume in
manufactured housing, partially offset by finance receivable sales and
securitizations of $162 million in 1994 and the reclassification of an
additional $69 million of manufactured housing finance receivables to assets
held for sale in December 1994. In addition to its own portfolio of $1.4
billion, Sales Financing also provides servicing for portfolios owned by other
financial institutions and securitization trusts which totaled $498.1 million at
December 31, 1994 ($415.0 million in 1993).

Financing and Leasing Assets Composition

Financing and leasing assets are principally composed of loans and direct
financing and leveraged leases with commercial and consumer customers located
principally in the United States and operating lease equipment, largely
commercial aircraft, placed with lessees both domestically and internationally.
The portfolio composition did not change significantly from year-end 1993.

24
<PAGE>

Financing and Leasing Assets Concentrations

Commercial Airlines

Commercial airline finance receivables of $1.42 billion and operating lease
equipment of $482.3 million totaled $1.90 billion (12.1% of total financing and
leasing assets) at December 31, 1994 compared with $1.89 billion (14.2%) in
1993. The portfolio is secured by commercial aircraft and related equipment.
Management continues to limit the growth in this portfolio relative to total
financing and leasing assets.

The following table presents information about the commercial airline
industry portfolio.

At December 31,
------------------------------
1994 1993
--------- ----------
Dollar Amounts in Millions
Finance receivables
Amount outstanding(a) .................. $1,417.0 $1,437.3
Number of obligors ..................... 46 43
-------- --------
Operating lease equipment
Net carrying value ..................... $ 482.3 $ 457.6
Number of obligors ..................... 21 21
-------- --------
Total ............................... $1,899.3 $1,894.9
-------- --------
Number of obligors(b) .................. 62 58
-------- --------
Number of aircraft(c) .................. 282 276
-------- --------

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

(a) Includes accrued rents on operating leases which are classified as finance
receivables in the Consolidated Balance Sheets.

(b) Certain obligors have both finance receivable and operating lease
transactions.

(c) Regulations established by the Federal Aviation Administration (the "FAA")
limit the maximum permitted noise an aircraft may make. A Stage III
aircraft meets a more restrictive noise level requirement than a Stage II
aircraft. The FAA has issued rules which phase out the use of Stage II
aircraft in the United States through the year 2000. The International
Civil Aviation Organization has issued similar requirements for Europe. At
year-end 1994, the portfolio consisted of 224 Stage III aircraft (79%) and
58 of Stage II aircraft (21%) versus 214 of Stage III aircraft (78%) and 62
of Stage II aircraft (22%) at year-end 1993.

No obligor included in the Corporation's commercial airline portfolio was
subject to bankruptcy proceedings at December 31, 1994. However, as of March 6,
1994, the Corporation has agreed to terms on a restructuring of its outstanding
loan and lease transactions with Trans World Airlines, Inc., which has publicly
announced that it may seek bankruptcy protection if a major debt reduction plan
is not approved. Management does not believe this restructuring will have a
significant effect on the Corporation's 1995 consolidated financial position or
results of operations.

Foreign Outstandings

Financing and leasing assets to foreign obligors, primarily to the
commercial airline industry, are all U. S. dollar denominated and totaled $1.12
billion at December 31, 1994, consisting of $920.3 million in finance
receivables and $201.5 million in operating lease equipment. The largest
exposures at December 31, 1994 were to England, $177.2 million (1.11% of total
assets) and Mexico, $140.0 million (.88%). The Mexican exposure is principally
operating and direct financing leases of commercial and business aircraft all of
which were current at December 31, 1994. The remaining foreign exposure is
geographically dispersed with no individual country representing more than .75%
of total assets.

At December 31, 1993, financing and leasing assets to foreign obligors
totaled $1.05 billion, consisting of $846.6 million in finance receivables and
$204.5 million in operating lease equipment. Outstandings totaled $167.4 million
(1.22% of total assets) to obligors in Mexico and $128.0 million (.93%) to
obligors in England. Obligors in no other country had aggregate outstandings
exceeding .75% of total assets.

25
<PAGE>

Highly Leveraged Transactions

The Corporation, primarily through Business Credit, originates and
participates in highly leveraged transactions (HLT), which totaled $436.1
million (2.8% of financing and leasing assets) at December 31, 1994, down from
$476.6 million (3.6%) at December 31, 1993. The decline in HLT outstandings
during 1994 was primarily due to delisting companies that met the delisting
criteria, partially offset by new HLT fundings. The Corporation's HLT
outstandings are generally secured by collateral, as distinguished from HLTs
that rely primarily on cash flow from operations. Unfunded commitments to lend
in secured HLT situations were $202.1 million at December 31, 1994, compared
with $123.1 million at year-end 1993.

At December 31, 1994, the HLT portfolio consisted of 32 obligors in 12
different industry groups, with 36.5% of the outstandings located in the
Southeast region of the United States and 33.1% in the West. Four accounts
totaling $57.7 million were classified as nonaccrual at December 31, 1994,
compared with three accounts totaling $34.7 million at year-end 1993.

Past Due and Nonaccrual Finance Receivables
and Assets Received in Satisfaction of Loans

Finance receivables past due 60 days or more improved to $176.9 million
(1.20% of finance receivables) at December 31, 1994, from $216.1 million (1.71%)
at December 31, 1993, reflecting a continued recovery in certain sectors of the
economy.

Finance receivables on nonaccrual status, included in past due finance
receivables, declined to $110.2 million (0.75% of finance receivables) at
December 31, 1994, from $139.9 million (1.11%) at December 31, 1993. The
decrease from December 31, 1993 includes final settlement with a manufacturer on
nonaccrual since 1992.

The balance of assets received in satisfaction of loans was relatively
unchanged from 1993 at $86.5 million. The December 31, 1994 balance includes two
commercial aircraft which are the subject of litigation with the subordinated
debt holders wherein the Corporation, as senior debt holder, is foreclosing on
the aircraft. An anticipated satisfactory conclusion of the litigation would
enable the Corporation to proceed with the foreclosure. These foreclosures were
offset by the sale of assets and the placing of a commercial aircraft on
operating lease that were included in the 1993 balance.

The following table presents the assets received in satisfaction of loans
including in-substance foreclosures.

At December 31,
-------------------------
1994 1993
------- -------
Amounts in Millions
Commercial aircraft ....................... $ 36.0 $ 17.2
Retail merchandise, property
and accounts receivable(a) ............. 32.3 29.2
Property and equipment .................... 8.6 13.5
Transportation(b) ......................... 6.2 15.3
Other ..................................... 3.4 11.8
------ ------
Total ................................... $ 86.5 $ 87.0
====== ======

- ---------------
(a) Retail merchandise, property and accounts receivable includes an equity
interest in a building supply retailer.

(b) Transportation includes buses and recreational vehicles in 1994, and
business aircraft, trailers, and recreational vehicles in 1993.

26
<PAGE>

Item 8. Financial Statements and Supplementary Data.

INDEPENDENT AUDITORS' REPORT

The Board of Directors
The CIT Group Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of The CIT
Group Holdings, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Corporation'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 from
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 CIT
Group Holdings, Inc. and subsidiaries at December 31, 1995 and 1994, and the
results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.

As discussed in Note 12 to the consolidated financial statements, the
Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," in 1993.

KPMG PEAT MARWICK LLP

Short Hills, New Jersey
January 18, 1996

27
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Assets

December 31,
-------------------
1995 1994
---- ----
Amounts in Millions
Financing and leasing assets
Loans
Commercial .................................. $ 10,356.3 $ 9,910.6
----------- -----------
Consumer .................................... 2,344.0 1,973.2
Lease receivables .............................. 3,095.2 2,910.6
----------- -----------
Finance receivables (Note 3) ............. 15,795.5 14,794.4

Reserve for credit losses (Note 4) ............. (206.0) (192.4)
----------- -----------
Net finance receivables .................. 15,589.5 14,602.0
Operating lease equipment (Note 5) ............. 1,113.0 867.9
Cash and cash equivalents ...................... 161.5 6.5
Other assets ................................... 556.3 483.3
----------- -----------
Total assets ............................. $ 17,420.3 $ 15,959.7
=========== ===========

Liabilities and Stockholders' Equity

Debt (Notes 6 and 7)
Commercial paper ............................... $ 6,105.6 $ 5,660.2
Variable rate senior notes ..................... 3,827.5 3,812.5
Fixed rate senior notes ........................ 3,337.0 2,619.4
Subordinated fixed rate notes .................. 300.0 300.0
----------- -----------
Total debt .................................. 13,570.1 12,392.1
Credit balances of factoring clients ........... 980.9 993.4
Accrued liabilities and payables ............... 485.9 354.7
Deferred Federal income taxes (Note 11) ........ 469.2 426.5
----------- -----------
Total liabilities .......................... 15,506.1 14,166.7
Stockholders' equity (Note 8)
Common stock -- authorized, issued and
outstanding -- 1,000 shares .................. 250.0 250.0
Paid-in capital ................................ 408.3 408.3
Retained earnings .............................. 1,255.9 1,134.7
----------- -----------
Total stockholders' equity ................. 1,914.2 1,793.0
----------- -----------
Total liabilities and stockholders' equity .. $ 17,420.3 $ 15,959.7
=========== ===========

See accompanying notes to consolidated financial statements.

28
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

Years Ended December 31,
------------------------------------------
1995 1994 1993
---- ---- ----
Amounts in Millions

<S> <C> <C> <C>
Finance income ........................................... $1,529.2 $1,263.8 $1,111.9
-------- -------- --------
Interest expense ......................................... 831.5 614.0 508.0
-------- -------- --------
Net finance income ..................................... 697.7 649.8 603.9
Fees and other income (Note 9) ........................... 184.7 174.4 133.8
-------- -------- --------
Operating revenue ...................................... 882.4 824.2 737.7
-------- -------- --------
Salaries and general operating expenses (Note 10) ........ 345.7 337.9 282.2
Provision for credit losses (Note 4) ..................... 91.9 96.9 104.9
Depreciation on operating lease equipment (Note 5) ....... 79.7 64.4 39.8
-------- -------- --------
Operating expenses ..................................... 517.3 499.2 426.9
-------- -------- --------
Income before provision for income taxes ................. 365.1 325.0 310.8
Provision for income taxes (Note 11) ..................... 139.8 123.9 128.5
-------- -------- --------
Net income ............................................. $ 225.3 $ 201.1 $ 182.3
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

29
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Years Ended December 31,
-----------------------------------------

1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Common stock
Balance, beginning and end of period ................................ $ 250.0 $ 250.0 $ 250.0
-------- -------- -------
Paid-in capital
Balance, beginning and end of period ................................ $ 408.3 $ 408.3 $ 408.3
-------- -------- -------
Retained earnings
Balance, beginning of period ........................................ $1,134.7 $1,033.9 $ 942.8
Net income .......................................................... 225.3 201.1 182.3

Dividends paid ...................................................... (104.1) (100.3) (91.2)
-------- -------- -------
Balance, end of period .............................................. 1,255.9 1,134.7 1,033.9
-------- -------- -------
Total stockholders' equity (Note 8) ............................. $1,914.2 $1,793.0 $1,692.2
======== ======== ========

</TABLE>

See accompanying notes to consolidated financial statements.

30
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1995 1994 1993
--------- -------- ---------
Amounts in Millions
<S> <C> <C> <C>
Cash flows from operations
Net income ........................................................ $ 225.3 $ 201.1 $ 182.3
Adjustments to reconcile net income to net cash
flows from operations:
Provision for credit losses ................................... 91.9 96.9 104.9
Depreciation and amortization ................................. 88.7 75.4 49.7
Provision for deferred Federal income taxes ................... 42.5 27.7 34.9
Gains on asset and receivable sales ........................... (36.8) (26.1) (23.9)
Increase in accrued liabilities and payables .................. 131.2 24.2 32.0
(Increase) decrease in other assets ........................... (17.7) (.1) 1.9
Other ......................................................... (22.7) (17.2) (27.6)
--------- --------- ---------
Net cash flows provided by operations ........................ 502.4 381.9 354.2
--------- --------- ---------
Cash flows from investing activities
Loans extended .................................................... (30,927.9) (23,610.9) (20,854.0)
Collections on loans .............................................. 28,750.8 22,394.0 20,081.9
Proceeds from asset and receivable sales .......................... 816.8 535.6 215.5
Purchases of equipment to be leased ............................... (719.5) (1,039.7) (940.9)
Collections on lease receivables .................................. 712.9 632.2 486.3
Net decrease (increase) in short-term
factoring receivables ........................................... 123.6 (207.4) 90.5
Proceeds from sales of assets received in
satisfaction of loans ........................................... 26.2 40.4 43.0
Purchases of finance receivables portfolios ....................... (22.7) (181.7) (477.4)
Acquisition of Barclays Commercial Corporation .................... -- (435.6) --
Other ............................................................. (55.5) (47.8) (16.9)
--------- --------- ---------
Net cash flows used for investing activities ................. (1,295.3) (1,920.9) (1,372.0)
--------- --------- ---------
Cash flows from financing activities
Proceeds from the issuance of variable and
fixed rate notes ................................................ 3,698.6 3,985.8 2,183.9
Repayments of variable and fixed rate notes ....................... (2,966.0) (1,529.6) (2,062.8)
Net increase (decrease) in commercial paper ....................... 445.4 (855.9) 342.7
Repayments of non-recourse leveraged lease debt ................... (135.7) (103.1) (71.5)
Proceeds from non-recourse leveraged lease debt ................... 9.7 47.0 118.5
Cash dividends paid ............................................... (104.1) (100.3) (91.2)
--------- --------- ---------
Net cash flows provided by financing activities ................... 947.9 1,443.9 419.6
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents ................................................ 155.0 (95.1) (598.2)
Cash and cash equivalents, beginning of year ...................... 6.5 101.6 699.8
--------- --------- ---------
Cash and cash equivalents, end of year ............................ $ 161.5 $ 6.5 $ 101.6
========= ========= =========
Supplemental disclosures
Interest paid ..................................................... $ 958.8 $ 616.8 $ 505.3
Federal and State and local income taxes paid ..................... $ 95.0 $ 98.9 $ 85.7
Noncash transfer of assets received in satisfaction
of loans to finance receivables ................................. $ 40.6 $ -- $ --
Noncash transfer of receivables to other assets (principally
securitizations) ................................................ $ 772.5 $ 117.1 $ 305.0
Noncash transfers of receivables to assets
received in satisfaction of loans ............................... $ 30.8 $ 80.5 $ 166.9
Noncash transfers of assets received in satisfaction
of loans to operating lease equipment ........................... $ -- $ 17.3 $ 85.2
Noncash transfer of receivables to operating lease equipment ...... $ -- $ -- $ 6.0
</TABLE>

See accompanying notes to consolidated financial statements.

31
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1--The Corporation

The CIT Group Holdings, Inc. (the "Corporation") engages in commercial and
consumer financial services activities through a nationwide distribution
network.

The Dai-Ichi Kangyo Bank, Limited ("DKB") owns 80% of the issued and
outstanding stock of the Corporation, 60% of which it purchased from
Manufacturers Hanover Corporation ("MHC") in 1989. DKB acquired an additional
20% of the Corporation from Chemical Banking Corporation ("CBC") in December
1995. The remaining 20% of the Corporation's issued and outstanding stock is
owned by CBC. DKB has a five year option, expiring December 15, 2000, to
purchase the remaining twenty percent (20%) common stock interest from CBC.

Note 2--Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements and accompanying notes include the
accounts of The CIT Group Holdings, Inc. and its subsidiaries. All significant
intercompany transactions have been eliminated. Prior period amounts,
principally loans and lease receivables by type in the Consolidated Balance
Sheets, have been reclassified to conform to the current presentation.

Financing and Leasing Assets

The Corporation provides funding for a variety of financing arrangements
including term loans, lease financing and operating leases. Lease receivables
include leveraged leases, for which a major portion of the funding is provided
by third party lenders, on a nonrecourse basis, with the Corporation providing
the balance and acquiring title to the property. The amounts outstanding on
loans and leases are referred to as finance receivables and, when combined with
the net book value of operating lease equipment, represent financing and leasing
assets.

Income Recognition

Finance income includes interest on loans, the accretion of income on
direct financing leases, and rents on operating leases. Related origination and
other nonrefundable fees and direct origination costs are deferred and amortized
as an adjustment of finance income over the contractual life of the
transactions. Income on finance receivables other than leveraged leases is
recognized on an accrual basis commencing in the month of origination using
methods that generally approximate the interest method. Leveraged lease income
is recognized on a basis calculated to achieve a constant after-tax rate of
return for periods in which the Corporation has a positive investment in the
transaction, net of related deferred tax liabilities. Rental income on operating
leases is recognized on an accrual basis.

Except for certain consumer loans, which are subject to automatic
charge-off procedures, the accrual of finance income is suspended and an account
is placed on nonaccrual status either when a payment is contractually delinquent
for 90 days or more and collateral is insufficient to cover both the outstanding
principal and accrued finance income or immediately if, in the opinion of
management, full collection of all principal and income is doubtful. Accrued but
uncollected income at the date an account is placed on nonaccrual status is
reversed and charged against income to the extent the estimated fair value of
collateral does not satisfy both the principal and accrued income outstanding.
Such accrued but uncollected income is immaterial. Subsequent income received is
applied to the outstanding principal balance until such time as the account is
collected, charged-off or returned to accrual status.

Fees and other income includes: (1) factoring commissions, (2) commitment,
facility, letters of credit and syndication fees, (3) servicing fees and (4)
gains and losses from sale of assets coming off lease, securitization of loans,
disposition of assets received in satisfaction of loans and sales of loans and
other investments.

Lease Financing

Direct financing leases are recorded at the aggregate future minimum lease
payments plus estimated residual values less unearned finance income. Operating
lease equipment is carried at cost less accumulated depreciation and is

32
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

depreciated to estimated residual value using the straight-line method over the
lease term or projected economic life of the asset. Equipment acquired in
satisfaction of loans and subsequently placed on operating lease is recorded at
the lower of carrying value or estimated fair value when acquired. Leveraged
leases are recorded at the aggregate value of future minimum lease payments plus
estimated residual value, less amounts due to non-recourse third-party lenders
and unearned finance income. Management performs periodic reviews of the
estimated residual values, with other than temporary impairment, if any, being
recognized in the current period.

Reserve for Credit Losses on Finance Receivables

The reserve for credit losses is established and periodically reviewed for
adequacy based on the nature and characteristics of the obligors, economic
conditions and trends, charge-off experience, delinquencies, and value of
underlying collateral and guarantees (including recourse to dealers and
manufacturers). It is management's judgment that the reserve for credit losses
is adequate to provide for potential credit losses.

Charge-off of Finance Receivables

Finance receivables are reviewed periodically to determine the probability
of loss on individual receivables. Charge-offs are taken after considering such
factors as the customer's financial condition and the value of underlying
collateral and guarantees (including recourse to dealers and manufacturers).
Such charge-offs are deducted from the carrying value of the related finance
receivables. To the extent that an unrecovered balance remains due, a final
charge-off is taken at the time collection efforts are no longer deemed useful.
Although certain consumer loans are reviewed individually for charge-offs, all
other consumer receivables have automatic charge-offs when no contractual
payments are received for 120 days, or at 180 days when partial payments have
been received.

Impaired Loans

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan", in May 1993 and amended it with Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures", issued in October 1994 (collectively referred to
hereafter as "SFAS 114"). SFAS 114 requires that the value of an impaired loan
be measured based upon 1) the present value of expected future cash flows
discounted at the loan's effective interest rate or, 2) at the fair value of the
collateral, if the loan is collateral dependent.

Impaired loans include any loan transaction on nonaccrual status or
troubled debt restructuring subject to periodic review by the Corporation's
Asset Quality Review Committee, comprised of members of senior management, which
covers finance receivables of $500,000 or more meeting certain credit risk
grading parameters. Excluded from impaired loans are: 1) certain individual
small dollar commercial nonaccrual loans (under $500,000) for which the
collateral value supports the outstanding balance, 2) consumer loans which are
subject to automatic charge-off procedures, and 3) short-term factoring customer
receivables, generally having terms of no more than 30 days. In general, the
impaired loans are collateral dependent. Any shortfall between the value and the
recorded investment in the loan is recognized by establishing a reserve for
credit losses.

Other Assets

At the time management decides to proceed with a securitization of loans,
such loans are considered available for sale and are reclassified to other
assets. Loans held for sale are carried at the lower of aggregate cost or market
value.

Certain consumer loans are originated and sold to trusts which, in turn,
issue asset-backed securities to investors. The Corporation retains the
servicing rights and participates in certain cash flows from the loans. The
present value of expected net cash flows which exceeds the estimated cost of
servicing is recorded at the time of sale as "excess servicing assets". In
determining expected net cash flows, the Corporation considers assumptions of

33
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

prepayment and loss experience and market interest rates. Excess servicing
assets are stated at the lower of amortized cost or fair value, which is
determined by adjusting the present value of the remaining cash flows for actual
prepayment and loss experience. Amortization is recognized on excess servicing
assets to the extent that the rate of return is not commensurate with the
discount rate.

The excess of purchase price over fair market value of assets acquired
(goodwill) in connection with business acquisitions is amortized on a straight
line basis over a period not to exceed 20 years.

Assets received in satisfaction of loans are carried at the lower of
carrying value or estimated fair value less selling costs, with write-downs at
the time of receipt charged to the reserve for credit losses. Subsequent
write-downs of such assets, which may be required due to a decline in estimated
fair market value after receipt, are reflected in general operating expenses.

Fixed assets are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed principally using the
straight-line method over the estimated useful lives of the related assets.

Derivative Financial Instruments

The Corporation enters into interest rate swap agreements as part of its
overall interest rate risk management. These transactions are entered into as
hedges against the effects of future interest rate fluctuations and,
accordingly, are not carried at fair market value. The Corporation does not
enter into derivative financial instruments for trading or speculative purposes.

The net interest differential, including premiums paid or received, if any,
on interest rate swaps is recognized on an accrual basis as an adjustment to
finance income or interest expense to correspond with the hedged asset or
liability position, respectively. In the infrequent event that early termination
of a derivative instrument occurs, the net proceeds paid or received are
deferred and amortized over the shorter of the remaining original contract life
of the interest rate swap or the maturity of the hedged asset or liability
position.

On occasion, the Corporation will also purchase a short term forward
interest rate agreement or option to hedge the expected interest rate used to
price the anticipated securitization of loans. Such transactions are designated
as hedges against a securitization that is probable and for which the
significant characteristics and terms have been identified but for which there
is no legally binding obligation. The loans to be securitized are considered
held for sale and reclassified to other assets. The net interest differential on
the derivative instrument, including premium paid or received, if any, is
recognized as an adjustment to the basis of the corresponding assets at the time
of sale. In the unlikely event the anticipated securitization does not occur,
the related hedge position would be liquidated with any gain or loss recognized
at such time, and the related assets are reclassified to loans.

Income Taxes

On January 1, 1993, the Corporation adopted, on a prospective basis,
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under the asset and liability method of SFAS 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are determined using enacted tax rates
expected to apply in the year in which those temporary differences are expected
to be recovered or settled. Under SFAS 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income at the time of
enactment. The adoption of SFAS 109 did not have a significant impact on the
Corporation's consolidated results of operations in 1993 due to the prior
adoption of Statement of Financial Accounting Standards No. 96, "Accounting for
Income Taxes".

Federal investment tax credits realized for income tax purposes on lease
financing transactions have been deferred for financial statement purposes and
are included in deferred Federal income taxes on the Consolidated Balance
Sheets. Such credits are amortized as a reduction of the provision for income
taxes using an actuarial method over the related lease term.

34
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Consolidated Statements of Cash Flows

Cash and cash equivalents includes cash and interest-bearing deposits,
which generally represent overnight money market investments of excess cash
borrowed in the commercial paper market and maintained for liquidity purposes.
Cash inflows and outflows from commercial paper borrowings and most factoring
receivables are presented on a net basis in the Statements of Cash Flows as
their term is generally less than 90 days.

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 income and expenses during the reporting
period. Actual results could differ from those estimates.

Note 3--Finance Receivables

Included in lease receivables at December 31, 1995 and 1994 are leveraged
lease receivables of $576.7 million and $541.6 million, respectively. Leveraged
lease receivables exclude the portion of lease receivables offset by related
non-recourse debt payable to third-party lenders of $2.14 billion and $2.22
billion at December 31, 1995 and 1994, respectively, including amounts owed to
affiliates of DKB which totaled $501.3 million at year-end 1995, and $525.7
million at year-end 1994. Also excluded from finance receivables are $1.25
billion of finance receivables at December 31, 1995 ($498.1 million in 1994)
owned by other financial institutions or securitization trusts which are
serviced by the Corporation.

Commercial and consumer loans and lease receivables are presented net of
unearned income of $569.9 million, $1.3 million and $978.9 million at December
31, 1995 and $479.3 million, $20.7 million and $973.1 million at December 31,
1994, respectively.

The following table sets forth the contractual maturities of finance
receivables.
<TABLE>
<CAPTION>

December 31, 1995 December 31, 1994
------------------------- -------------------------
Amount Percent Amount Percent
-------- -------- --------- -------
Dollar Amounts in Millions
<S> <C> <C> <C> <C>
Due Within One Year .................... $ 5,523.6 34.97% $ 5,278.6 35.68%
Due Within One to Two Years ............ 2,488.8 15.76 2,464.8 16.66
Due Within Two to Four Years ........... 3,288.7 20.82 3,095.5 20.92
Due After Four Years ................... 4,494.4 28.45 3,955.5 26.74
--------- ----- --------- -----
$15,795.5 100.00% $14,794.4 100.00%
========= ====== ========= ======
</TABLE>

The following table sets forth information regarding finance receivables on
nonaccrual status and assets received in satisfaction of loans.

<TABLE>
<CAPTION>
At December 31,
---------------------------
1995 1994
------- -------
Amounts in Millions
<S> <C> <C>
Nonaccrual finance receivables ................................................. $139.5 $ 110.2
Assets received in satisfaction of loans ....................................... 42.0 86.5
------ -------
Total nonperforming assets ................................................. $181.5 $ 196.7
====== =======
Percent to finance receivables ................................................. 1.15% 1.33%
====== =======
</TABLE>

The amount of finance income recognized on year-end nonaccrual finance
receivables totaled $8.0 million, $6.2 million and $3.9 million in 1995, 1994
and 1993, respectively. The amount of finance income which would have been
recorded under contractual terms for such nonaccrual receivables totaled $29.3
million, $20.7 million, and $21.2 million in 1995, 1994 and 1993, respectively.

35
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

At December 31, 1995, and 1994, the Corporation had $30.0 million and $14.0
million, respectively, of finance receivables that met the criteria of troubled
debt restructurings, which were not included in the preceding table. With the
1995 adoption of SFAS 114, the definition of a troubled debt restructuring was
modified. Finance income recognized on troubled debt restructurings totaled $2.8
million, $0.8 million and $0.8 million in 1995, 1994 and 1993, respectively.
Finance income on these restructured receivables would have been $3.3 million,
$2.1 million and $2.3 million for 1995, 1994 and 1993, respectively, based on
original contractual terms.

At December 31, 1995, the recorded investment in impaired loans, which are
generally collateral dependent, totaled $159.3 million. The fair value of the
collateral or the present value of expected future cash flows equaled or
exceeded the recorded investment for the impaired loans and, as such, there was
no related SFAS 114 allowance for credit losses. The average monthly recorded
investment in the impaired loans was $116.9 million for the year ended December
31, 1995. During 1995, finance income of $1.0 million was recognized on these
loans after being classified as impaired loans. The adoption of SFAS 114 as at
January 1, 1995 had no material effect on the Corporation's 1995 financial
condition or results of operations.

Note 4--Reserve for Credit Losses

The following table presents changes in the reserve for credit losses.
<TABLE>
<CAPTION>

1995 1994 1993
------ ------ ------
Amounts in Millions
<S> <C> <C> <C>
Balance, January 1 ........................................................ $192.4 $169.4 $158.5
------ ------ ------
Finance receivables charged-off ........................................... (96.9) (95.4) (105.6)
------ ------ ------
Recoveries on finance receivables previously charged-off .................. 19.7 11.2 11.2
Net credit losses ...................................................... (77.2) (84.2) (94.4)
------ ------ ------
Provision for credit losses ............................................... 91.9 96.9 104.9
Portfolio acquisitions (dispositions), net ................................ (1.1) 10.3 .4
------ ------ ------
Net addition to the reserve for credit losses ............................. 90.8 107.2 105.3
------ ------ ------
Balance, December 31 ...................................................... $206.0 $192.4 $169.4
====== ====== ======
Reserve for credit losses as a percentage of finance
receivables ............................................................ 1.30% 1.30% 1.34%
====== ====== ======
</TABLE>

36
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 5--Operating Lease Equipment

The following table provides an analysis of operating lease equipment by
equipment type, net of accumulated depreciation of $198.1 million in 1995 and
$129.7 million in 1994.

At December 31,
-------------------------
1995 1994
------- -------

Amounts in Millions
Commercial aircraft .............................. $ 499.4 $482.3
Trucks, trailers and buses ....................... 163.2 94.3
Railroad and other transportation equipment ...... 153.4 69.1
Business aircraft ................................ 141.2 97.8
Oil refinery ..................................... 80.2 83.1
Construction and mining equipment ................ 21.8 18.5
Manufacturing equipment .......................... 20.6 10.8
Other ............................................ 33.2 12.0
-------- ------
Total ........................................ $1,113.0 $867.9
======== ======

Included in the preceding table is equipment not currently subject to lease
agreements (off-lease equipment) of $24.4 million and $35.3 million at December
31, 1995 and 1994, respectively.

Rental income on operating leases, included in finance income, totaled
$128.8 million in 1995, $97.2 million in 1994 and $67.2 million in 1993. The
following table presents future minimum lease rentals on noncancellable
operating leases as of December 31, 1995. Excluded from this table are variable
rentals calculated on the level of asset usage, re-leasing rentals, and expected
sales proceeds from remarketing operating lease equipment at lease expiration,
all of which are important components of operating lease profitability.

Years Ended December 31, Amounts in Millions
- ----------------------- -------------------
1996 .............................................. $143.8
1997 .............................................. 118.3
1998 .............................................. 103.1
1999 .............................................. 76.0
2000 .............................................. 58.0
Thereafter ........................................ 85.4
------
Total ......................................... $584.6
======

Note 6--Debt

The following table presents data on commercial paper borrowings.
<TABLE>
<CAPTION>

1995 1994 1993
---------- ---------- ---------
Dollar Amounts in Millions
<S> <C> <C> <C>
At December 31,
Borrowings outstanding ................................................... $6,105.6 $5,660.2 $6,516.1
Weighted average interest rate ........................................... 5.75% 5.65% 3.35%
Weighted average maturity ................................................ 45 days 22 days 55 days

Year ended December 31,
Daily average borrowings ................................................. $5,800.1 $6,532.5 $6,080.5
Maximum amount outstanding ............................................... $6,672.1 $7,207.3 $6,709.4
Weighted average interest rate (excluding amounts related
to interest bearing deposits) ......................................... 5.95% 4.31% 3.29%
</TABLE>

37
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table presents the contractual maturities of total debt at
December 31, 1995 and 1994.
<TABLE>
<CAPTION>

Commercial Variable rate 1995 1994
paper senior notes Total Total
---------- ------------ ----- -----
Amounts in Millions
<S> <C> <C> <C> <C>
Due in 1995 (rates ranging from 4.81% to 6.36%) ............. $ -- $ -- $ -- $8,195.2
Due in 1996 (rates ranging from 5.55% to 5.95%) ............. 6,105.6 2,400.0 8,505.6 250.0
Due in 1997 (rates ranging from 5.04% to 6.14%) ............. -- 806.0 806.0 556.0
Due in 1998 (rates ranging from 5.79% to 6.03%) ............. -- 241.5 241.5 91.5
Due in 1999 (rates ranging from 5.04% to 6.06%) ............. -- 380.0 380.0 380.0
-------- -------- -------- --------
Total ................................................... $6,105.6 $3,827.5 $9,933.1 $9,472.7
======== ======== ======== ========
</TABLE>

Fixed Rate Notes 1995 1994
Senior Subordinated Total Total
---------- ------------ ----- -----
Amounts in Millions
<S> <C> <C> <C> <C>
Due in 1995 (rates ranging from 5.02% to 6.00%) ............. $ -- $ -- $ -- $ 430.0
Due in 1996 (rates ranging from 4.75% to 8.88%) ............. 1,030.0 -- 1,030.0 930.0
Due in 1997 (rates ranging from 5.50% to 8.75%) ............. 702.0 -- 702.0 603.0
Due in 1998 (rates ranging from 5.63% to 8.75%) (1) ......... 800.0 -- 800.0 250.0
Due in 1999 (rate of 5.92%) ................................. 20.0 -- 20.0 20.0
Due in 2000 (rate of 6.15%) ................................. 20.0 -- 20.0 20.0
Due after 2000 (rates ranging from 5.37% to 9.25%)(2) ....... 770.2 300.0 1,070.2 670.2
-------- ------ -------- --------
Face amount of maturities ................................... 3,342.2 300.0 3,642.2 2,923.2
Issue discount .............................................. (5.2) -- (5.2) (3.8)
-------- ------ -------- --------
Total ................................................... $3,337.0 $300.0 $3,637.0 $2,919.4
======== ====== ======== ========
</TABLE>

- -----------
(1) $61.5 million may be repaid at the option of the holder upon 30 days'
notice.

(2) $100.0 million may be repaid at the option of the holder upon 30 days'
notice.

Fixed rate debt outstanding at December 31, 1995 matures at various dates
through 2008 at interest rates ranging from 4.75% to 9.25%. The consolidated
weighted average interest rates on fixed rate debt at December 31, 1995 and 1994
were 7.00% and 6.96%, respectively. Variable rate senior notes outstanding at
December 31, 1995 with interest rates ranging from 5.04% to 6.14% mature at
various dates through 1999. The consolidated weighted average interest rates on
variable rate senior notes at December 31, 1995 and 1994 were 5.64% and 5.91%,
respectively.

The following table represents information on unsecured revolving lines of
credit with 69 banks at December 31, 1995.

Maturity Amount
-------- --------
Amounts in Millions
May 1996 ....................... $1,250.0
August 1996 .................... 210.0
September 1997 ................. 325.0
August 1998 .................... 210.0
June 1999 ...................... 770.0
March 2000 ..................... 1,250.0
May 2000 ....................... 625.0
--------
Total Credit Lines ......... $4,640.0
========

38
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The credit line agreements contain clauses which allow the Corporation to
extend the termination dates upon written consent from the participating banks.
Credit lines with DKB in the preceding table totaled $240.0 million at December
31, 1995 and $245.0 million at December 31, 1994. There have been no borrowings
under the lines of credit since 1970.

Note 7--Derivative Financial Instruments

As part of managing the exposure to changes in market interest rates, the
Corporation, as an end-user, enters into various interest rate swap
transactions, all of which are transacted in over-the-counter (OTC) markets,
with other financial institutions acting as principal counterparties, including
subsidiaries of DKB and CBC. The Corporation's objectives and strategies
regarding the management of interest rate risk, including the use of derivative
instruments, are discussed in the Interest Rate Risk Management section of
"Asset/Liability Management" in Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. In 1994, the Corporation adopted
Statement of Financial Accounting Standards No. 119, "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments", which
requires disclosure about amounts, nature and terms of certain financial
instruments.

The following table presents the notional principal amounts, weighted
average interest rates expected to be received or paid and the contractual
maturities of interest rate swaps at December 31, 1995.
<TABLE>
<CAPTION>

Years ending Floating to Fixed to Floating to
December 31, Fixed Rate Floating Rate Floating Rate
- ------------ ------------------------------- ---------------------------- ------------------------------
Notional Amounts in Millions
Notional Receive Pay Notional Receive Pay Notional Receive Pay
Amount Rate Rate Amount Rate Rate Amount Rate Rate
-------- ------- ---- -------- ------- ---- ------- ------ ----

<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 ............. $ 350.0 5.85% 8.05% $130.0 6.89% 5.80% $100.0 5.88% 5.99%
1997 ............. 1,425.0 5.70% 5.99% 252.0 6.94% 5.79% 456.0 5.50% 5.73%
1998 ............. 450.0 5.79% 6.90% -- -- -- 30.0 5.35% 5.53%
1999 ............. 925.0 5.72% 6.14% -- -- -- 130.0 5.40% 5.82%
2000 ............. 400.0 5.73% 7.47% 20.0 6.15% 5.64% -- -- --
2001-2008 ........ 200.0 5.65% 7.45% 400.0 5.87% 5.57% -- -- --
-------- ---- ---- ------ ---- ---- ------ ---- ----
$3,750.0 $802.0 $716.0
======== ====== ======
Weighted
average rate 5.73% 6.57% 6.38% 5.68% 5.53% 5.78%
==== ==== ==== ==== ==== ====
</TABLE>

All rates were those in effect at December 31, 1995. Variable rates are
based on the reference rate or other market rate indices and may change
significantly, affecting future cash flows.

The following table presents the notional principal amounts of interest
rate swaps by class and the corresponding hedged liability position.

39
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
Notional Amounts
Interest Rate Swaps in Millions Comments
- ----------------- ---------------- ---------
<S> <C> <C>
Floating to fixed rate swaps
Hedging commercial paper $2,750.0 Effectively converts the interest rate on an
equivalent amount of commercial paper to a fixed rate.
Hedging variable rate notes 1,000.0 Effectively converts the interest rate on an
equivalent amount of variable rate notes with matched
terms to a fixed rate.
-------- ---------------------------------------------------
Total floating to fixed rate swaps 3,750.0
--------
Fixed to floating rate swaps
Hedging fixed rate notes 802.0 Effectively converts the interest rate on an
equivalent amount of fixed rate notes to a variable
rate.
---------------------------------------------------
Basis swaps
Hedging variable rate debt 716.0 Effectively fixes the spread between the rates
on an equivalent amount of variable rate
notes and various market interest rate indices.
-------- ---------------------------------------------------
Total interest rate swaps $5,268.0
========
</TABLE>

The Corporation's hedging activity increased interest expense by $7.8
million, $27.3 million and $36.4 million in 1995, 1994 and 1993, respectively
over the interest expense that would have been incurred with an identical debt
structure but without the Corporation's hedging activity. However this
calculation of interest expense does not take into account any actions the
Corporation could have taken to reduce interest rate risk in the absence of
hedging activity, such as issuing more fixed rate debt which would also tend to
increase interest expense.

Basis swap agreements involve the exchange of two different floating rate
interest payment obligations and are used to manage the basis risk between
floating rate indices.

Additionally, there were cross-currency interest rate swaps with a notional
principal amount of $190.2 million on which the Corporation was paying interest
at a weighted average rate of 5.66% at December 31, 1995 that effectively
converted yen denominated fixed rate debt into variable rate U.S. dollar
obligations. These swaps have maturities ranging from 1999 to 2004 to correspond
with the terms of the debt.

In connection with an anticipated securitization of finance receivables,
the Corporation entered into a series of forward interest rate agreements with
notional principal amounts of $100.0 million maturing in February 1996 which
hedge the interest rate used to price the sale of an equivalent amount of
finance receivables from interest rate fluctuations.

The Corporation is exposed to credit risk to the extent a counterparty
fails to perform under the terms of an interest rate swap. This risk is measured
as the market value of interest rate swaps with a positive fair value at
December 31, 1995, reduced by the effects of master netting agreements as
presented in Footnote 16--Fair Values of Financial Instruments. However, due to
the investment grade credit ratings of all counterparties and limits on the
exposure with any individual counterparty, the Corporation's actual counterparty
credit risk is not considered significant.

Note 8--Stockholders' Equity

Under the most restrictive provisions of agreements relating to outstanding
debt, the Corporation may not, without the consent of the holders of such debt,
permit stockholders' equity to be less than $300.0 million.

40
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 9--Fees and Other Income

The following table sets forth the components of fees and other income.
<TABLE>
<CAPTION>

Years ended December 31,
------------------------------------
1995 1994 1993
------- ------- -------
Amounts in Millions
<S> <C> <C> <C>
Commissions, fees and other ............................. $147.9 $148.3 $109.9
Gains on sales of finance receivables ................... 26.3 16.0 15.8
Gains on asset sales .................................... 10.5 10.1 8.1
------ ------ ------
$184.7 $174.4 $133.8
====== ====== ======
</TABLE>

Note 10--Salaries and General Operating Expenses

The following table sets forth the components of salaries and general
operating expenses.
<TABLE>
<CAPTION>

Years ended December 31,
----------------------------------
1995 1994 1993
------- --------- ------
Amounts in Millions
<S> <C> <C> <C>
Salaries and employee benefits .......................... $193.4 $185.8 $152.1
General operating expenses .............................. 152.3 152.1 130.1
------ ------ ------
$345.7 $337.9 $282.2
====== ====== ======
</TABLE>

Note 11--Income Taxes

The effective tax rate of the Corporation varied from the statutory Federal
corporate income tax rate as follows:
<TABLE>
<CAPTION>

Years ended December 31,
------------------------------------
1995 1994 1993
------- ------- -------
Percentage of Pretax Income
<S> <C> <C> <C>
Federal income tax rate ................................. 35.0% 35.0% 35.0%
Increase (decrease) due to:
State and local income taxes, net
of Federal income tax benefit ....................... 5.1 5.3 5.2
Investment tax credits ................................ (0.3) (0.3) (0.7)
Other ................................................. (1.5) (1.9) (1.0)
Effect of 1% tax rate increase on
Federal deferred tax balances ....................... -- -- 2.8
---- ---- ----
Effective tax rate ...................................... 38.3% 38.1% 41.3%
==== ==== ====
</TABLE>

The Revenue Reconciliation Act of 1993 (the "Act"), which became effective
in August 1993, provided for a 1% increase in the statutory Federal corporate
income tax rate. The rate change resulted in a 1993 increase of $8.2 million to
deferred tax balances, primarily related to the lease portfolio. In addition, as
required by Statement of Financial Accounting Standards No. 13, "Accounting for
Leases" ("SFAS 13"), the after-tax rate of return and the allocation of income
was recalculated from inception for the leveraged lease portfolio to reflect the
impact of the change in rate, the net effect of which was not significant.

The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1995 1994 1993
------- --------- --------
Amounts in Millions
<S> <C> <C> <C>
Current Federal income tax provision .................... $ 68.5 $ 69.5 $ 68.7
Deferred Federal income tax provision ................... 42.5 27.7 34.9
------ ------- -------
Total Federal income taxes .............................. 111.0 97.2 103.6
State and local income taxes ............................ 28.8 26.7 24.9
------ ------- -------
Total provision for income taxes ........................ $139.8 $ 123.9 $ 128.5
====== ======= =======
</TABLE>

41
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The tax effects of temporary differences that give rise to significant
portions of the deferred Federal income tax assets and liabilities are presented
below.

Years ended December 31,
------------------------------
1995 1994
--------- ---------
Amounts in Millions
Assets
Provision for credit losses ............... $ (73.8) $ (61.3)
Loan origination fees ..................... (9.1) (7.2)
Market discount income .................... (2.5) (4.1)
Other ..................................... (17.7) (9.0)
------- -------
Total deferred tax assets ............. (103.1) (81.6)
------- -------
Liabilities
Leasing transactions ...................... 549.5 490.8
Amortization of intangibles ............... 11.2 7.2
Prepaid pension costs ..................... 2.3 .6
Depreciation of fixed assets .............. .3 1.2
Other ..................................... 2.7 1.1
------- -------
Total deferred tax liabilities ........ 566.0 500.9
------- -------
Net deferred tax liability ............ $ 462.9 $ 419.3
======= =======

Also, included in deferred Federal income taxes on the Consolidated Balance
Sheets are unamortized investment tax credits of $6.3 million and $7.2 million
at December 31, 1995 and December 31, 1994, respectively. Included in the
accrued liabilities and payables caption in the Consolidated Balance Sheets are
state and local deferred tax liabilities of $86.4 million and $77.5 million at
December 31, 1995 and December 31, 1994, respectively, arising from the
temporary differences shown in the above tables.

Note 12--Postretirement and Other Benefit Plans

Retirement Plan

Substantially all employees of the Corporation who have completed one year
of service and are 21 years of age participate in The CIT Group Holdings, Inc.
Retirement Plan (the "Plan"). The retirement benefits under the Plan are based
on the employee's age, years of benefit service, and a percentage of qualifying
compensation during the final years of employment. Plan assets consist of
marketable securities, including common stock and government and corporate debt
securities. The Corporation funds the plan by the amount charged to salaries and
employee benefits expense to the extent it qualifies for an income tax
deduction.

42
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The accompanying table sets forth the funded status of the Plan and the
amounts recognized in the Consolidated Balance Sheets.

<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1995 1994 1993
------ ------- ------
Amounts in Millions
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including vested
benefits of $54.0 in 1995, $36.2 in 1994,
and $34.9 in 1993 ............................................ $ 58.1 $39.7 $43.0
====== ===== =====
Plan assets at fair market value ................................. $101.2 $81.5 $86.8
Projected benefit obligation ..................................... (79.9) (55.8) (60.1)
------ ----- -----
Excess plan assets ............................................... 21.3 25.7 26.7
Unrecognized prior service cost .................................. 1.9 2.1 2.0
Unrecognized net gain ............................................ 10.5 13.8 14.7
------ ----- -----
Prepaid pension cost ............................................. $ 8.9 $ 9.8 $10.0
====== ===== =====
Pension cost (benefit) included the following components:
Service cost-benefits earned during the period ................... $ 3.8 $ 4.0 $ 3.3
Interest cost on projected benefit obligation .................... 4.9 4.5 4.1
Actual (return)/loss on plan assets .............................. (21.9) 2.7 (12.4)
Net amortization and deferral .................................... 14.1 (11.0) 4.8
------ ----- -----
Pension cost (benefit) ........................................... $ .9 $ .2 $ (.2)
====== ===== =====
</TABLE>

The following assumptions were used for calculating the projected benefit
obligations shown in the preceding table.

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate .................................................... 7.25% 8.75% 7.50%
Rate of increase in compensation ................................. 4.50% 5.00% 5.00%
Expected long-term rate of return on plan assets ................. 10.00% 9.00% 9.00%
</TABLE>

Postretirement Medical and Life Insurance Benefits

The Corporation provides certain health care and life insurance benefits to
eligible retired employees. In 1995, salaried participants generally become
eligible for retiree health care benefits after reaching age 55 with 10 years of
benefit service and 11 years of medical plan participation, increasing to 12
years in 1996. Generally, the medical plans pay a stated percentage of most
medical expenses reduced by a deductible as well as by payments made by
government programs and other group coverage. The plans are unfunded.

The Corporation adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting of Postretirement Benefits Other Than Pensions"
("SFAS 106") as of January 1, 1993. SFAS 106 requires the accrual, during the
active service period of the employee, of the cost of providing postretirement
benefits, including medical and life insurance coverage. The Corporation elected
to amortize the SFAS 106 transition obligation over a twenty-year period.

43
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The postretirement benefit liability at December 31, 1995 and December 31,
1994 is set forth in the following table.
1995 1994
------- -------
Amounts in Millions
Accumulated postretirement benefit
obligation ("APBO"):
Retirees .................................... $21.8 $23.5
Fully eligible, active plan participants .... 4.8 3.7
Other active plan participants .............. 13.8 11.0
----- -----
Unfunded postretirement obligation .............. 40.4 38.2
Unrecognized prior service cost ................. (.5) --
Unrecognized net gain ........................... (.8) (1.1)
Unrecognized transition obligation .............. 28.3 30.0
----- -----
Accrued postretirement benefit obligation ....... $13.4 $ 9.3
===== =====

The components of net periodic postretirement benefit cost were as follows.

Years ended December 31,
--------------------------------------
1995 1994 1993
----- ----- ----
Amounts in Millions
Service cost, benefits
earned during the period ............ $1.1 $1.2 $1.1
Interest cost on accumulated
postretirement benefit obligation ... 3.2 2.8 2.9
Amortization of unrecognized
transition obligation ............... 1.7 1.7 1.7
Amortization of unrecognized
prior service cost .................. (0.1) -- --
---- ---- ----
Net periodic postretirement
benefit cost ........................ $5.9 $5.7 $5.7
==== ==== ====

The following assumptions were used for calculating the APBO shown in the
preceding tables.

1995 1994 1993
------- ------- -------
Discount Rate ......................... 7.25% 8.75% 7.50%
Rate of increase in compensation ...... 4.50% 5.00% 5.00%
Assumed Health Care Cost Trend Rate:
Retirees prior to reaching age 65 ... 10.00% 11.00% 12.00%
Retirees older than 65 .............. 7.00% 8.00% 9.00%

The assumed health care cost trend rates decline to an ultimate level of
4.75% in 2003 for retirees prior to reaching age 65 and 2000 for retirees older
than 65 for 1995, 6.25% in 2001 for all retirees for 1994 and 5.5% in 2000 for
all retirees for 1993.

If the health care cost trend rate were increased by 1%, the APBO as of
December 31, 1995, would be increased by $4.7 million (11.6%), and the sum of
the service cost and interest cost components of net periodic postretirement
benefit cost for 1995 would be increased by $0.6 million (14.1%).

Savings Incentive Plan

Certain employees of the Corporation participate in The CIT Group
Holdings, Inc. Savings Incentive Plan. This plan qualifies under section 401(k)
of the Internal Revenue Code. The Corporation's expense is based on specific
percentages of employee contributions and plan administrative costs and
aggregated $8.2 million, $8.0 million and $6.8 million for 1995, 1994 and 1993,
respectively.

44
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 13--Lease Commitments

The Corporation has entered into noncancellable long-term lease agreements
for premises and equipment. The following table presents future minimum rentals
under such noncancellable leases that have initial or remaining terms in excess
of one year at December 31, 1995.

At December 31, Amounts in Millions
- ---------------
1996 ................................................. $ 22.1
1997 ................................................. 19.3
1998 ................................................. 18.4
1999 ................................................. 15.5
2000 ................................................. 13.8
Thereafter ........................................... 75.1
------
Total $164.2
======

In addition to fixed lease rentals, leases require payment of maintenance
expenses and real estate taxes, both of which are subject to escalation
provisions. Minimum payments have not been reduced by minimum sublease rentals
of $22.7 million due in the future under noncancellable subleases.

Rental expense, net of sublease income on premises and equipment, was as
follows.

Years ended December 31,
-----------------------------------------
1995 1994 1993
------- -------- -------
Amounts in Millions

Premises ......................... $18.0 $18.3 $17.3
Equipment ........................ 5.7 5.2 6.7
Less sublease income ............. (1.3) (1.3) (1.3)
------ ------ ------
Total ............................. $22.4 $22.2 $22.7
====== ====== ======

Rental expense paid to CBC totaled $0.6 million, $1.6 million and $2.1
million in 1995, 1994 and 1993, respectively.

Note 14--Legal Proceedings

In the ordinary course of business, there are various legal proceedings
pending against the Corporation. Management believes that the aggregate
liabilities, if any, arising from such actions will not have a material adverse
effect on the consolidated financial position or results of operations of the
Corporation.

Note 15--Credit-Related Commitments

In the normal course of meeting the financing needs of its customers, the
Corporation enters into various credit-related commitments. These financial
instruments generate fees and involve, to varying degrees, elements of credit
risk in excess of the amounts recognized in the Consolidated Balance Sheets. To
minimize potential credit risk, the Corporation generally requires collateral
and other credit-related terms and conditions from the customer. At the time
credit-related commitments are granted, management believes the fair value of
the underlying collateral and guarantees approximates or exceeds the contractual
amount of the commitment. In the event a customer defaults on the underlying
transaction, the maximum potential loss to the Corporation represents the
contractual amount outstanding less the value of all underlying collateral and
guarantees.

45
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The accompanying table summarizes the contractual amounts of credit-related
commitments.

Due to expire
---------------------- Total Total
Within After outstanding outstanding
At December 31, one year one year 1995 1994
- -------------- -------- -------- ---------- ----------
Amounts in Millions
<S> <C> <C> <C> <C>
Unused commitments to extend credit
Loans ........................................ $1,244.0 $ -- $1,244.0 $1,373.0
Leases ....................................... 61.6 -- 61.6 41.2
Letters of credit and acceptances
Standby letters of credit .................... 170.0 6.9 176.9 167.9
Other letters of credit ...................... 190.1 7.1 197.2 230.7
Acceptances .................................. 3.9 -- 3.9 2.1
Guarantees ..................................... 79.7 21.5 101.2 88.7
Foreign exchange contracts ..................... .1 -- .1 1.6
</TABLE>

Note 16--Fair Values of Financial Instruments

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS 107") requires disclosure of the
estimated fair value of the Corporation's financial instruments, excluding
leasing transactions accounted for under SFAS 13. The fair value estimates are
made at a discrete point in time based on relevant market information and
information about the financial instrument. Since no established trading market
exists for a significant portion of the Corporation's financial instruments,
fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective in
nature, involving uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions or
estimation methods may significantly affect the estimated fair values. Because
of these limitations, management provides no assurance that the estimated fair
values presented would necessarily be realized upon disposition or sale.

Actual fair values in the marketplace are affected by other significant
factors, such as supply and demand, investment trends and the motivations of
buyers and sellers, which are not considered in the methodology used to
determine the estimated fair values presented. In addition, fair value estimates
are based on existing on-and off-balance sheet financial instruments without
attempting to estimate the value of future business transactions and the value
of assets and liabilities that are part of the Corporation's overall value but
are not considered financial instruments. Significant assets and liabilities
that are not considered financial instruments include customer base, operating
lease equipment, premises and equipment, assets received in satisfaction of
loans, and deferred tax balances. In addition, tax effects relating to the
unrealized gains and losses (differences in estimated fair values and carrying
values) have not been considered in these estimates and can have a significant
effect on fair value estimates. The carrying amounts for cash and cash
equivalents approximate fair value because they have short maturities and do not
present significant credit risks. Credit-related commitments, as disclosed in
Note 15, are primarily short term floating rate contracts whose terms and
conditions are individually negotiated, taking into account the creditworthiness
of the customer and the nature, accessibility and quality of the collateral and
guarantees. Therefore, the fair value of credit-related commitments, if
exercised, would approximate their contractual amounts.

46
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Estimated fair values, recorded carrying values and various assumptions
used in valuing the Corporation's financial instruments at December 31, 1995 and
1994 are set forth below.

1995 1994
-------------------------- -------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------- --------- ---------- ---------
Asset Asset Asset Asset
(Liability) (Liability) (Liability) (Liability)
---------- --------- ---------- ---------
Amounts in Millions
<S> <C> <C> <C> <C>
Finance Receivables--Loans(a) ......................... $12,563.4 $12,844.1 $11,868.7 $11,905.3
Other Assets(b) ....................................... $ 300.9 $ 328.6 $ 183.5 $ 205.1
Commercial Paper(c) ................................... $(6,105.6) $(6,105.6) $(5,660.2) $(5,660.2)
Fixed rate senior notes and
subordinated fixed rate notes(d) .................... $(3,637.0) $(3,762.2) $(2,919.4) $(2,854.8)
Variable rate senior notes(d) ......................... $(3,827.5) $(3,827.5) $(3,812.5) $(3,807.4)
Credit balances of factoring clients &
Accrued liabilities and payables(e) ................. $(1,333.3) $(1,333.3) $(1,231.9) $(1,231.9)
Derivative Financial Instruments(f)
Interest Rate Swaps
Off-balance sheet assets .......................... $ 2.3 $ 2.8 $ (.2) $ 92.7
Off-balance sheet liabilities ..................... $ (9.1) $ (107.8) $ (5.5) $ (60.3)
Cross currency interest rate swaps ................ $ -- $ 36.8 $ -- $ 21.0
Forward interest rate agreement ................... $ -- $ (.5) $ -- $ (.6)
</TABLE>

- --------------
a) The fair value of performing fixed-rate loans was estimated based upon a
present value discounted cash flow analysis, using interest rates that were
being offered at the end of the year for loans with similar terms to
borrowers of similar credit quality. Discount rates used in the present
value calculation range from 8.46% to 9.99% for 1995 and 9.42% to 10.65%
for 1994. The maturities used represent the average contractual maturities
adjusted for prepayments. For floating rate loans that reprice frequently
and have no significant change in credit quality, fair values approximate
carrying value. The net carrying value of lease finance receivables not
subject to fair value disclosure totaled $3.0 billion in 1995 and $2.7
billion in 1994.

(b) Other assets subject to fair value disclosure include accrued interest
receivable and investment securities. The carrying amount of accrued
interest receivable approximates fair value. Investment securities actively
traded in a secondary market were valued using quoted available market
prices. Investments not actively traded in a secondary market were valued
based upon recent selling price or present value discounted cash flow
analysis. The carrying value of other assets not subject to fair value
disclosure totaled $250.8 million in 1995 and $297.8 million in 1994.
Accrued interest receivable related to swap agreements totaled $4.6 million
in 1995 and $5.8 million in 1994 and is included in the carrying value of
interest rate swaps.

(d) Fixed rate notes were valued using a present value discounted cash flow
analysis with a discount rate approximating current market rates for
issuances by the Corporation of similar term debt at the end of the year.
Discount rates used in the present value calculation ranged from 5.30% to
6.25% in 1995 and 6.50% to 8.60% in 1994. The estimated fair value for
variable rate notes (except for approximately $130.0 million of structured
notes with imbedded caps at December 31, 1994) approximates carrying value
because the debt reprices to market terms within 90 days.

(e) The estimated fair value of credit balances of factoring clients
approximates carrying value due to their short settlement terms. Accrued
liabilities and payables with no stated maturities have an estimated fair
value which approximates carrying value. The carrying value of other
liabilities not subject to fair value disclosure totaled $591.2 million in
1995 and $531.2 million in 1994. Accrued interest payable related to swap
agreements totaled $11.5 million in 1995 and in 1994 and is included in the
carrying value of interest rate swaps.

(f) As previously disclosed in Note 7-Derivative Financial Instruments, the
notional principal amount of interest rate swaps designated as hedges
against the Corporation's debt totaled $5.27 billion at December 31, 1995
($0.7 billion of which related to interest rate swaps whose fair market
value represented an asset and $4.6 billion related to interest rate swaps
whose fair market value represented a liability, after adjusting for master
netting agreements) and $5.4 billion at December 31, 1994 ($3.9 billion of
assets and $1.5 billion of liabilities). The notional principal amount of
cross currency interest rate swaps totaled $190.2 million at December 31,
1995 and December 31, 1994. Forward interest rate agreements with a
notional principal amount of $100.0 million hedge the interest rate used to
price the sale of an equivalent amount of finance receivables. The
estimated fair values of derivative financial instruments are obtained from
dealer quotes and represent the net amount receivable or payable to
terminate the agreement, taking into account current market interest rates
and counterparty credit risk. The amounts shown under carrying value
represent the net interest receivable or payable, or the unamortized cost
of these agreements.

47
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 17--Investments in Debt and Equity Securities

Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115) which addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. At December 31, 1995 and 1994, the book
value of the Corporation's investments in debt and equity securities subject to
the provision of SFAS 115 totaled $22.3 million and $20.3 million, respectively,
all of which was designated as available for sale. Unrealized gains and losses,
representing the difference between amortized cost and current fair market value
were immaterial.

Note 18--Recently Issued Accounting Pronouncements

SFAS 122 requires an enterprise that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and then sells or
securitizes those loans with servicing rights retained to allocate the total
cost between the mortgage servicing rights and the loans based on their relative
fair values. The Statement requires that the enterprise assess its capitalized
mortgage servicing rights for impairment based on the fair value of those
rights.The adoption of SFAS 122 did not have a significant impact on the
Corporation's consolidated financial position or results of operations.

Note 19--Acquisition of Barclays Commercial Corporation

On February 28, 1994, the Corporation acquired, for cash, Barclays
Commercial Corporation ("BCC"), a company of the Barclays Group. BCC had total
assets of approximately $700.0 million at December 31, 1993 and total factoring
volume of approximately $5.0 billion for the year then ended.

Note 20--Certain Relationships and Related Transactions

The Corporation's interest-bearing deposits generally represent overnight
money market investments of excess cash that are maintained for liquidity
purposes. At December 31, 1995, the Corporation had $135.0 million of
interest-bearing deposits with DKB. From time to time, the Corporation may
maintain such deposits with DKB or CBC.

48
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

At December 31, 1995, the Corporation's credit line coverage with 69 banks
totaled $4.64 billion of committed facilities. Additional information regarding
these credit lines can be found in Note 6-Debt. At December 31, 1995, DKB was a
committed bank under a $1.25 billion Revolving Credit Facility, a $770.0 million
revolving credit facility, and a $325.0 million revolving credit facility, with
commitments of $55.0 million, $80.0 million and $105.0 million, respectively.
DKB is a Co-Agent under the $1.25 billion and $770.0 million Revolving Credit
Facilities and the Agent under the $325.0 million facility.

The Corporation has entered into interest rate swap and cross currency
interest rate swap agreements with financial institutions acting as principal
counterparties, including affiliates of DKB and CBC. At December 31, 1995, the
notional principal amount outstanding on interest rate swap agreements with DKB
and CBC totaled $270.0 million and $300.0 million, respectively. The notional
principal amount outstanding on foreign currency swaps totaled $140.2 million
with DKB at year-end 1995.

The Corporation has entered into leveraged leasing arrangements with third
party loan participants, including affiliates of DKB. Amounts owed to affiliates
of DKB are discussed in Note 3-Finance Receivables.

The Corporation holds a $9.0 million letter of credit from CBC as
additional collateral on a $23.1 million business aircraft loan to a third
party. CBC is also indebted to the Corporation in the amount of $7.7 million for
financing relating to the purchase of a business aircraft by CBC.

The Corporation has also entered into various noncancellable long-term
facility lease agreements with CBC. Future minimum rentals under these leases
are $0.5 million in 1996, $0.5 million in 1997, $0.5 million in 1998, $0.4
million in 1999 and $0.1 million in 2000.

At December 31, 1995, the Corporation had entered into credit-related
commitments with DKB in the form of letters of credit totaling $21.7 million
equal to the amount of the single lump sum premium necessary to provide group
life insurance coverage to certain eligible retired employees and an amount to
fund certain overseas finance receivables.

The Corporation has issued a Prospectus, dated August 8, 1994, relating to
certain debt securities of the Corporation that are currently issued and
outstanding with respect to which offers and sales relating to market-making
transactions may be made by Chemical Securities, Inc. and/or its affiliates.
Chemical Securities, Inc. is a wholly-owned subsidiary of CBC. Chemical
Securities, Inc. paid all expenses of the Corporation of preparing the
Prospectus.

A subsidiary of the Corporation has entered into cash collateral loan
agreements with DKB pursuant to which DKB made loans to two separate cash
collateral trusts in order to provide additional security for payments on the
certificates of the contracts trusts. These contracts trusts were formed for the
purpose of securitizing certain recreational vehicle finance receivables that
were acquired from another subsidiary of the Corporation. At December 31, 1995,
the principal amount outstanding on the cash collateral loans was $12.3 million.

49
<PAGE>

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 21--Selected Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
1995
-------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------- -------- ------- --------- ------
Amounts in Millions

<S> <C> <C> <C> <C> <C>
Net finance income ..................................... $ 164.5 $ 171.5 $ 178.8 $ 182.9 $ 697.7
Fees and other income .................................. 43.4 41.9 47.8 51.6 184.7
Salaries and general
operating expenses ................................... 84.8 82.3 85.9 92.7 345.7
Net credit losses ...................................... 17.5 17.2 21.9 20.6 77.2
Provision for finance
receivables increase ................................. 3.5 5.0 2.1 4.1 14.7
Depreciation on operating
lease equipment ...................................... 17.6 17.2 21.4 23.5 79.7
Provision for income taxes ............................. 31.7 35.2 36.8 36.1 139.8
Net income ............................................. $ 52.8 $ 56.5 $ 58.5 $ 57.5 $ 225.3
-------------------------------------------------------------------

1994
-------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------- -------- ------- --------- ------
Amounts in Millions
Net finance income ..................................... $ 157.1 $ 168.3 $ 160.8 $ 163.6 $ 649.8
Fees and other income .................................. 39.9 44.9 47.0 42.6 174.4
Salaries and general
operating expenses ................................... 80.5 86.4 85.2 85.8 337.9
Net credit losses ...................................... 25.9 23.1 18.2 17.0 84.2
Provision for finance receivables
increase (decrease) .................................. (.9) 4.3 1.8 7.5 12.7
Depreciation on operating
lease equipment ...................................... 14.3 16.6 16.4 17.1 64.4
Provision for income taxes ............................. 29.2 31.8 33.6 29.3 123.9
Net income ............................................. $ 48.0 $ 51.0 $ 52.6 $ 49.5 $ 201.1
-------------------------------------------------------------------
</TABLE>

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.

50
<PAGE>

THE CIT GROUP HOLDINGS, INC. AN SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

PART III

Item 10. Directors and Executive Officers of the Registrant.

The names and ages of all directors, executive officers and certain
significant employees of the Corporation as of February 1, 1996, and a
biographical summary of each such person, appear on the following pages. No
family relationship exists among these persons. The executive officers were
appointed by and hold office at the will of the Board of Directors.

Other Positions/Offices
Current Positions/Offices Held During the Past Five Years
Name and Age and Date of Appointment and Date of Appointment
- ---------------------------- ----------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
DIRECTORS

Hisao Kobayashi 60 Senior Advisor, DKB 5/95 Senior Managing Director, The Dai-Ichi 5/93
Chairman, The CIT Group 7/92 Kangyo Bank, Limited ("DKB")
Holdings, Inc. ("CIT") Managing Director, DKB 6/91
Director, CIT 12/89 Director & General Manager, 9/88
International Planning & Coordination
Division, DKB

Albert R. Gamper Jr. 53 President & Chief Executive Officer, 12/89 Not applicable
CIT
Director, CIT 5/84

Takasuke Kaneko 53 Director CIT 6/95 Director and General Manager 8/94
Managing Director, DKB 5/95 International Planning and Coordination
Division, DKB
Director and General Manager 6/94
International Planning Division, DKB
General Manager International 5/94
Planning Division, DKB
General Manager International Finance 5/93
Division, DKB
Senior Executive Vice President, CIT 1/90
Director, CIT 12/89

Michio Murata 48 Senior Executive Vice President, CIT 5/93 Executive Vice President, CIT 5/92
Director, CIT 5/92 General Manager, Gaien-Mae Branch, DKB 4/90

Kenji Nakamura 52 Director, CIT 6/95 General Manager 5/95
Director and General Manager 6/95 New York Branch and Cayman
New York Branch, DKB Branch, DKB
General Manager 10/93
Otemnchi, Branch DKB
Deputy General Manager 5/92
Personnel Division, DKB
Deputy General Manager 6/91
Personnel Planning
Division, DKB
Deputy General Manager 2/91
Credit Supervision Division III DKB

Joseph A. Pollicino 56 Vice Chairman, CIT 12/89 Not applicable
Director, CIT 8/86

Paul N. Roth 56 Director, CIT 12/89 Not applicable
Partner, Schulte Roth & Zabel 8/69

Peter J. Tobin 51 Chief Financial Officer, Chemical 1/92 Executive Vice President & Chief 12/85
Bank & Chemical Banking Financial Officer, Manufacturers Hanover
Corporation Trust Company & Manufacturers Hanover
Director, CIT 5/84 Corporation

Keiji Torii 48 Executive Vice President, CIT 5/93 Chief Inspector, 2/93
Director, CIT 5/93 Inspecting Division, DKB
Assistant General Manager, 6/90
Securities Division, DKB
</TABLE>

51
<PAGE>

<TABLE>
<CAPTION>
Other Positions/Offices
Current Positions/Offices Held During the Past Five Years
Name and Age and Date of Appointment and Date of Appointment
- ---------------------------- ----------------------------------------------- -----------------------------------------------
EXECUTIVE OFFICERS (1)

<S> <C> <C> <C> <C>
Thomas L. Abbate 50 Executive Vice President, Chief 8/90 Not applicable
Credit Officer, The CIT Group/
Industrial Financing & Executive Vice
President, Credit Administration,
The CIT Group

Thomas C. Bloch 51 President and CEO, The CIT Group/ 2/96 Executive Vice President, The CIT Group/ 4/95
Business Credit Business Credit
Senior Vice President, The CIT Group/ 4/85
Capital Equipment Financing

James J. Egan Jr. 56 President & CEO, The CIT 9/87 Not applicable
Group/Sales Financing

George J. Finguerra 55 Senior Executive Vice President, 4/91 President & CEO, The CIT 6/87
The CIT Group/Capital Group/Equipment & Project Financing
Equipment Financing

Thomas B. Hallman 43 President and CEO, The CIT Group/ 5/95 President & Director, National Product 6/94
Consumer Finance Division, Globe Mortgage Company
Director, National Residential Lending 3/93
First Nationwide Bank
Director, National Mortgage Origination, 8/85
Citibank, N.A. & Citicorp

Thomas A. Johnson 49 General Auditor, CIT 1/90 Not applicable

Joseph M. Leone 42 Executive Vice President & 7/95 Executive Vice President, The CIT 6/91
Chief Financial Officer, CIT Group/Sales Financing
Senior Vice President & Controller, 3/87
The CIT Group

Lawrence A. Marsiello 46 President & CEO, The CIT 1/92 President, The CIT Group/Factoring 8/90
Group/Commercial Services

Robert J. Merritt 54 President & CEO, The CIT 12/86 Not applicable
Group/Industrial Financing

Drew Neidorf 42 President & CEO, The CIT 2/91 Not applicable
Group/Credit Finance

William M. O'Grady 56 Executive Vice President, 1/86 Not applicable
Administration, The CIT Group

Thomas J. O'Rourke 57 Senior Vice President, Marketing, 10/84 Not applicable
The CIT Group

Ernest D. Stein 55 Executive Vice President, 2/94 Senior Vice President & Deputy General 4/93
General Counsel & Secretary, CIT Counsel, CIT
Senior Vice President & Assistant 3/92
General Counsel, CIT
Executive Vice President & General 12/85
Counsel, Manufacturers Hanover Corp.

Nikita Zdanow 58 President & CEO, The CIT Group/ 4/91 President & CEO, The CIT 4/85
Capital Equipment Financing Group/Capital Financing
</TABLE>

- -----------
(1) Messrs. Gamper, Murata, Torii, and Pollicino, whose biographical summaries
are listed on the preceding page, are also Executive Officers of the
Corporation.

Stockholders Agreement

The Corporation entered into a Stockholders Agreement simultaneously with
the acquisition of a sixty percent (60%) interest in the Corporation by DKB,
which agreement was amended on December 15, 1995 simultaneously with the
acquisition of an additional twenty percent (20%) common stock interest in the
Corporation by DKB from CBC Holding. The agreement, as amended, provides for a
Board of Directors consisting of ten directors. CBC Holding, as minority
stockholder, has the right to designate one nominee for director. DKB agreed to
vote for the nominees for director of CBC Holding. Regular meetings of the Board
of Directors are held quarterly. See Item 1 "Business--General".

Outside Directorships

As indicated in the table, some of the Directors of the Corporation
concurrently hold positions as directors or executive officers of DKB or CBC or
of subsidiaries or other affiliates of the Corporation, DKB, or CBC. Mr.
Kobayashi is a director of AFLAC, Inc., a life insurance company, which is not
affiliated with the Corporation and which is listed on the New York Stock
Exchange. A number of the Executive Officers are also directors of privately
held and not-for-profit organizations not affiliated with the Corporation.

52
<PAGE>

Item 11. Executive Compensation.

The table below sets forth the annual and long-term compensation, including
bonuses and deferred compensation, of the President and Chief Executive Officer,
the Vice Chairman, and the other three most highly compensated executive
officers of the Corporation for services rendered in all capacities to the
Corporation and its subsidiaries during the fiscal years ended December 31,
1995, 1994, and 1993.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long-Term
Compensation
-----------
Annual Compensation Payouts
---------------------------------------- ----------
(a) (b) (c) (d) (e) (f) (g)
Name and Other Annual LTIP All Other
Principal Position Year Salary Bonus(1) Compensation(2) Payouts(3) Compensation(4)
--------------- ---- ------ ----- ------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Albert R. Gamper, Jr. .......... 1995 $542,302 $675,000 $87,626 $722,369 $30,692
President and Chief ............ 1994 $530,379 $600,000 $46,092 $295,748 $30,215
Executive Officer .............. 1993 $489,996 $500,000 $48,919 $295,748 $28,594

Joseph A. Pollicino ............ 1995 $401,523 $475,000 $51,205 $433,400 $25,061
Vice Chairman .................. 1994 $392,294 $425,000 $28,340 $177,440 $24,692
1993 $359,996 $355,000 $29,220 $177,440 $23,394

Nikita Zdanow .................. 1995 $270,054 $250,000 $22,224 $198,606 $19,802
President and Chief ............ 1994 $261,404 $250,000 $14,637 $ 96,128 $19,456
Executive Officer .............. 1993 $242,654 $210,000 $15,779 $ 96,128 $18,700
Capital Equipment Financing

Robert J. Merritt .............. 1995 $268,064 $240,000 $22,726 $198,606 $19,723
President and Chief ............ 1994 $257,115 $210,000 $13,359 $ 81,312 $19,285
Executive Officer .............. 1993 $245,000 $160,000 $14,009 $ 81,312 $18,794
Industrial Financing

Lawrence A. Marsiello .......... 1995 $237,000 $220,000 $19,490 $173,360 $18,480
President and Chief ............ 1994 $227,308 $200,000 $12,035 $ 73,948 $18,092
Executive Officer .............. 1993 $216,000 $140,000 $12,766 $ 73,948 $15,889
Commercial Services
</TABLE>

- ------
(1) Under The CIT Group Bonus Plan, cash awards for each calendar year may be
paid in amounts determined by the Executive Committee of the Board of
Directors in its discretion. Senior Officer awards are reviewed and
approved by the Board of Directors. The amount of awards depends on a
variety of factors, including corporate performance and individual
performance during the calendar year for which awards are made. All or a
part of a cash award for a particular year may be paid currently or
deferred and paid upon retirement in up to 5 annual installments at the
option of the participant. All awards are subject to appropriate taxes and
deferred amounts are credited annually with interest.

(2) The payments set forth under Other Annual Compensation represent the
dividends paid under the CIT Career Incentive Plan. For the performance
period 1990-1992 under the CIT Career Incentive Plan, Mr. Gamper held
6,666 phantom shares of stock, Mr. Pollicino 4,000 phantom shares, Mr.
Marsiello 1,666 phantom shares, Mr. Merritt 1,833 phantom shares and Mr.
Zdanow 2,166 phantom shares, all of which were vested and paid out
pursuant to the scheduled payout as of December 31, 1994. For the
performance period 1993-1995, Mr. Gamper was initially awarded 12,000
phantom shares of stock, which was later increased to 20,000 phantom
shares, Mr. Pollicino was initially awarded 7,500 phantom shares, which
was later increased to 12,000 phantom shares, Mr. Marsiello was initially
awarded 3,225 phantom shares, which was later increased to 4,800 phantom
shares, Mr. Merritt was initially awarded 3,600 phantom shares, which was
later increased to 5,500 phantom shares, and Mr. Zdanow was initially
awarded 3,750 phantom shares, which was later increased to 5,500 phantom
shares. The shares awarded for the performance period 1993-1995 are vested
in one-third increments commencing January 1996.

(3) The payments set forth under LTIP Payouts represent the payout of shares
vested under the CIT Career Incentive Plan. The payout in 1995 is for
shares awarded for the performance period 1993-1995. The payouts in 1994
and 1993 were for shares awarded for the performance period 1990-1992.
Dividends received under this Plan are set forth under Other Annual
Compensation. (The CIT Career Incentive Plan is described in "Long Term
Incentive Plan".)

(4) The payments set forth under All Other Compensation represent the matching
employer contribution to each participant's account and an employer
flexible retirement contribution to each participant's flexible retirement
account under The CIT Group Holdings, Inc. Savings Incentive Plan (the
"CIT Savings Plan"). The matching employer contribution is made pursuant
to a compensation deferral feature of the CIT Savings Plan under Section
401(k) of the Internal Revenue Code of 1986. The payments set forth under
All Other Compensation also represent contributions to each participant's
account under the Supplemental Savings Plan of CIT (the "CIT Supplemental
Savings Plan"), which is an unfunded, non-qualified plan.

53
<PAGE>

LONG-TERM INCENTIVE PLAN

Under The CIT Group Holdings, Inc. Career Incentive Plan (the "CIT Career
Incentive Plan"), awards are granted in the form of phantom shares of stock by
the Executive Committee of the Board of Directors in its discretion.
Participants in the CIT Career Incentive Plan are selected by the Executive
Committee from among the executives of the Corporation and its subsidiaries who
are in a position to make a substantial contribution to the long-term financial
success of the Corporation or its subsidiaries. Grants to the members of the
Executive Committee are made by the Board of Directors. The amount of phantom
shares eligible for allocation during a Performance Period is determined by the
Committee. The Performance Period is at least three consecutive calendar years.
The Committee determines the Performance Goals for each Performance Period,
which are tied to net income growth targets and return on equity performance.
The value of the phantom shares is determined at the end of each Performance
Period and compared against the pre-established Performance Goals. Following the
end of a Performance Period, one-third vest immediately and one-third vest at
the end of each of the next two years. Cash dividends on individual shares are
paid quarterly during the performance period and the vesting period based on the
number of phantom shares granted to a participant. The basis of the dividend is
the quarterly return on equity of the Corporation.

All or a part of the value of a vested award may either be paid currently
in cash or deferred in up to five annual installments. Deferred amounts are
credited with interest at a rate determined annually by the Committee.

LONG-TERM INCENTIVE PLANS
AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price-Based Plans
----------------------------------------------------
(a) (b) (c) (d) (e) (f)

Number of Shares, Performance or
Units or Other Other Period Until Threshold Target Maximum
Name Rights (#) Maturation or Payout ($ per share) ($ per share) ($ per share)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Albert R. Gamper, Jr. .............. 8,000 1993-1995 -- 69.15 151.15
President and Chief
Executive Officer

Joseph A. Pollicino ................ 4,500 1993-1995 -- 69.15 151.15
Vice Chairman

Nikita Zdanow ...................... 1,750 1993-1995 -- 69.15 151.15
President and Chief
Executive Officer
Capital Equipment
Financing

Robert J. Merritt .................. 1,900 1993-1995 -- 69.15 151.15
President and Chief
Executive Officer
Industrial Financing

Lawrence A. Marsiello .............. 1,575 1993-1995 -- 69.15 151.15
President and Chief
Executive Officer
Commercial Services
</TABLE>

DEFINED BENEFIT PLANS

Retirement Plans

Effective January 1, 1990, The CIT Group Holdings, Inc. Retirement Plan
(the "CIT Retirement Plan") was established. Assets necessary to fund the CIT
Retirement Plan were transferred from the MHC Retirement Plan, Inc., the
predecessor plan in which the Corporation's employees participated. Accumulated
years of benefit service under the MHC Retirement Plan are included in the
benefit formula of the CIT Retirement Plan, which covers officers and salaried
employees who have one year of service and have attained age 21.

54
<PAGE>

Subject to certain exceptions, at the normal retirement age of 65, an
employee's pension is 1.25% of final average salary, as defined below, for each
of the first 20 years of benefit service as a participant and .75% of such
salary for each year of the next 20 years of benefit service. In general, an
employee who was a participant in the MHC Retirement Plan before 1985 will not
receive a pension of less than 2% of final average salary for each of the first
20 years of benefit service as a participant and 1% of such salary for each of
the next 20 years of benefit service, reduced by .4% of the participant's
covered compensation for each year of such benefit service up to a maximum of 35
years and further reduced by the value of certain benefits under the CIT Savings
Plan. An employee who was a participant in the former CIT Retirement Plan on
June 30, 1986, will not receive a pension of less than 1.1% of final average
salary up to certain Social Security limits plus 1.5 % of final average salary
in excess of the Social Security limits, for each year of benefit service to a
maximum of 35 years, reduced by certain benefits under the CIT Savings Plan.
"Final average salary" is the highest average annual salary received in any five
consecutive years in the last ten years. "Salary" includes all wages paid by the
Corporation, including before-tax contributions made to the CIT Savings Plan and
salary reduction contributions to any Section 125 Plan, but excluding
commissions, bonuses, incentive compensation, overtime, reimbursement of
expenses, directors' fees, severance pay, and deferred compensation. This salary
is comparable to the "Salary" shown in the Summary Compensation Table. After
completing 5 years of service, an employee whose employment with the
participating company has terminated is entitled to a benefit, as of the
employee's normal retirement date, equal to the benefit earned to the date of
termination of employment, or an actuarially reduced benefit commencing at any
time after age 55 if the participant is eligible for early retirement under the
CIT Retirement Plan. Certain death benefits are available to eligible surviving
spouses of participants.

Since various laws and regulations set limits on the amounts allocable to a
participant under the CIT Savings Plan and benefits under the CIT Retirement
Plan, the Corporation has a supplemental retirement plan (the "CIT Supplemental
Retirement Plan"). The CIT Supplemental Retirement Plan provides retirement
benefits on an unfunded basis to participants who retire from the Corporation
(whose benefits under the CIT Retirement Plan would be restricted by the limits)
of an amount equal to the difference between the annual retirement benefits
permitted and the amount that would have been paid but for the limitations
imposed.

The amounts set forth in the table are the amounts which would be paid to
employees hired before 1985 pursuant to the CIT Retirement Plan and the CIT
Supplemental Retirement Plan at a participant's normal retirement age assuming
the indicated final average salary and the indicated years of benefit service
and assuming that the straight life annuity form of benefit will be elected and
that CIT Supplemental Retirement Plan benefits will be paid in the form of an
annuity. The amounts may be overstated to the extent that they do not reflect
the reduction for any benefits under the CIT Savings Plan.

PENSION PLAN TABLE

Final
Average Annual Benefits Based on Years of Credited Service (1)
Salary of --------------------------------------------------------------------------------------------
Employee 15 20 25 30 35 40
---------- --- ---- ---- ------ ---- ------

- -----------------
(1) At December 31, 1995, Messrs. Gamper, Pollicino, Marsiello, Merritt, and
Zdanow had 28, 31, 20, 21 and 28 years of benefit service, respectively.

55
<PAGE>

Executive Retirement Plan

Executive officers of the Corporation, including Mr. Gamper, Mr. Pollicino,
Mr. Marsiello, Mr. Merritt and Mr. Zdanow, are participants under the Executive
Retirement Plan. The benefit provided is life insurance equal to approximately
three times salary during such participants employment, with a life annuity
option payable monthly by the Corporation upon retirement. The Participant pays
a portion of the annual premium and the Corporation pays the balance on behalf
of the participant. The Corporation is entitled to recoup its payments from the
proceeds of the policy. Upon the participant's retirement a life annuity will be
payable out of the current income of the Corporation and the Corporation
anticipates recovering the cost of the life annuity out of the proceeds of the
life insurance policy payable upon the death of the employee.

In addition to the table of pension benefits shown on the preceding page,
the Corporation is conditionally obligated to make annual payments under the
Executive Retirement Plan in the amounts indicated to the following persons at
retirement: Mr. Gamper, $319,130, Mr. Pollicino, $201,642, Mr. Marsiello,
$153,608, Mr. Merritt, $169,983 and Mr. Zdanow, $112,116.

Compensation Committee Interlocks and Insider Participation

The Executive Committee of the Board of Directors functions as the
compensation committee and sets the compensation for all executives except
Messrs. Gamper, Pollicino, Murata and Torii. The members of the Executive
Committee are as follows:

Albert R. Gamper, Jr.
Michio Murata
Joseph A. Pollicino
Peter J. Tobin
Keiji Torii

The Board of Directors, except for Messrs. Gamper and Pollicino, who are
absent from any portion of meetings when their compensation is discussed,
deliberates over the compensation of Messrs. Gamper and Pollicino. DKB
determines the compensation for Messrs. Murata and Torii. Mr. Tobin is an
executive of CBC.

EMPLOYMENT AGREEMENTS

Mr. Gamper has an employment agreement with the Corporation which provides
that he will serve as the Chief Executive Officer, President, Chairman of the
Executive Committee and member of the Board of Directors of the Corporation. His
employment agreement initially ran for five years from December 29, 1989, and
subsequently was extended until December 1997. The agreement provides for the
payment of an annual base salary of $400,000, to be reviewed at least annually
by the Board of Directors of the Corporation, subject to increases but not to
decreases. Mr. Gamper's employment agreement also provides for executive
incentive compensation under Incentive Plans which will be designed to be no
less favorable to him than the Incentive Plans in effect prior to the purchase
by DKB of 60% of the Corporation's shares.

Mr. Pollicino has an employment agreement with the Corporation which
provides that he shall serve as the Vice Chairman and member of the Board of
Directors of the Corporation. Mr. Pollicino's employment agreement initially ran
for five years from December 29, 1989, and subsequently was extended until
December 1997. The agreement provides for the payment of an annual base salary
of $300,000, to be reviewed at least annually by the Board of Directors of the
Corporation, subject to increases but not to decreases. Mr. Pollicino's
employment agreement also provides for executive incentive compensation under
Incentive Plans which will be designed to be no less favorable to him than the
Incentive Plans in effect prior to the purchase by DKB of 60% of the
Corporation's shares.

In addition to Mr. Gamper and Mr. Pollicino, Mr. Marsiello, Mr. Merritt and
Mr. Zdanow have employment agreements with the Corporation, each of which
initially ran for three years from December 29, 1989 through December 31, 1992,
and subsequently were extended until December 1996. Their agreements provide for
the payment of an annual base salary of not less than the amount received prior
to the purchase by DKB of 60% of the Corporations's shares, to be reviewed at
least annually by the Chief Executive Officer, subject to increases but not to

56
<PAGE>

decreases. Their employment agreements also provide for executive incentive
compensation under Incentive Plans which will be designed to be no less
favorable to him than the Incentive Plans in effect prior to the purchase by DKB
of 60% of the Corporation's shares.

TERMINATION AND CHANGE-IN-CONTROL ARRANGEMENTS

Mr. Gamper's and Mr. Pollicino's employment agreements with the Corporation
provide that if their employment is terminated without cause (as defined in the
agreement) or if they resign for good reason (as defined in the agreement) they
will be entitled to receive severance payments equal to their base salary for
the greater of thirty-six months or the remainder of the term, provided that
they do not violate the non-competition or confidentiality provisions of the
agreement, in which case the Corporation would have no obligation to make any
remaining payments. Further, if Mr. Gamper's and Mr. Pollicino's employment is
terminated without cause or if they resign for good reason, they will be
entitled to receive, among other things, full employee welfare benefit coverage
as if they had retired with the Corporation's consent at age 55, a pension
benefit commencing at age 55 in an amount equal to their accrued benefit under
the Corporation's Retirement Plan as of the date of their termination of
employment as if they had attained age 55 and had retired on such date with the
Corporation's consent, a lump sum equal to the then full value of their
restricted stock award under the Long Term Incentive Program of Manufacturers
Hanover Corporation and its subsidiaries (the "MHC Long Term Incentive Plan")
and any vested award under any similar plan as may have been adopted by the
Corporation, and a single life annuity equivalent to the single life annuity
they would have normally been entitled to receive under the Corporation's
Executive Retirement Plan.

The employment agreements of Mr. Marsiello, Mr. Merritt and Mr. Zdanow
provide that if their employment is terminated without cause (as defined in the
agreement) or if they resign for good reason (as defined in the agreement), they
will be entitled to receive severance payments equal to their base salary for
the greater of twenty-four months or the remainder of the term, provided that
they do not violate the non-competition or confidentiality provisions of the
agreement, in which case the Corporation would have no obligation to make any
remaining payments. Further, if the employment of such executive officer is
terminated without cause or if he resigns for good reason, he will be entitled
to continued participation in employee welfare benefit coverage for eighteen
months, a lump sum equal to the then full value of his restricted stock award
under the MHC Long Term Incentive Program and any vested award under any similar
plan as may have been adopted by the Corporation, and if age 55 or older on the
date of termination, the benefits payable under the Corporation's Executive
Retirement Plan or if under age 55 a lump sum payment which represents the
equivalent of the net after-tax present value of the single life annuity that
would have been payable to the individual executive officer at age 55.

If, during the Term of their respective employment agreements, a "Change of
Control" occurs, Mr. Gamper, Mr. Pollicino, Mr. Marsiello, Mr. Merritt and Mr.
Zdanow will be entitled to receive a "Special Payment." The amount of such
Special Payment shall equal, with respect to Mr. Gamper, the sum of his prior
four years annual bonuses under the CIT Bonus Plan, with respect to Mr.
Pollicino, the sum of his prior three years annual bonuses under the CIT Bonus
Plan, and with respect to Mr. Marsiello, Mr. Merritt and Mr. Zdanow, the sum of
their prior two years annual bonuses under The CIT Bonus Plan. The Special
Payment will be payable over a two year period as follows: 1/3 of the payment
shall be paid within 30 days after the Change of Control; 1/3 shall be paid on
or before the first anniversary of such Change of Control; and 1/3 shall be paid
on or before the second anniversary date of such Change of Control. If during
the two year period commencing on the date of such Change of Control and ending
on the second anniversary of such date, their employment is involuntarily
terminated by the Company for cause or they voluntarily terminate employment for
any reason other than "Good Reason" as defined in their respective employment
agreements or they breach the non-compete or confidentiality provisions of their
agreements, they shall not receive any remaining unpaid installments of this
"Special Payment."

57
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the ownership of all of the issued and
outstanding common stock of the Corporation, as of March 1, 1996.

Name and Address of Owner Shares Owned Percentage
------------------------- ------------ ----------
The Dai-Ichi Kangyo Bank, Limited 800 80%
1-5, Uchisaiwaicho 1-chome
Chiyoda-ku, Tokyo 100

CBC Holding (Delaware) Inc. 200 20%
270 Park Avenue
New York, NY 10017

No officer or director of the Corporation owns any common stock of the
Corporation. In addition, the voting securities of any class of securities of
DKB and CBC, the parent of CBC Holding, owned by each officer and director of
the Corporation individually, and all officers and directors as a group, does
not exceed one percent of the issued and outstanding securities comprising any
such class of stock so owned.

Item 13. Certain Relationships and Related Transactions.
Transactions with Management and Others

The Corporation has in the past and may in the future enter into certain
transactions with affiliates of the Corporation. It is anticipated that such
transactions will be entered into at a fair market value for the transaction.
Additional information regarding these transactions can be found in Item 8.
Financial Statements and Supplementary Data, "Note 20--Certain Relationships and
Related Transactions".

Schulte Roth & Zabel, of which Mr. Roth is a partner, provides legal
services to the Corporation. Schulte Roth & Zabel has been retained in the past
and will continue in the future to serve as outside counsel for DKB.

58
<PAGE>

PART IV

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

(a) The following documents are filed with the Securities and Exchange
Commission as part of this report:

1. The financial statements of The CIT Group Holdings, Inc. and
Subsidiaries as set forth on pages 28-53.

2. All schedules are omitted because they are not applicable or
because the required information appears in the consolidated
financial statements or the notes thereto.

3. The following is an index of the Exhibits required by Item 601 of
Regulation S-K filed with the Securities and Exchange Commission as
part of this report:

3(a) Restated Certificate of Incorporation of The CIT Group
Holdings, Inc., amended as of December 29, 1989
(incorporated by reference to Exhibit 3(a) to Form 10-K
filed by the Corporation for the fiscal year ended
December 31, 1989).

3(b) By-Laws of The CIT Group Holdings, Inc., amended as of
December 29, 1989 (incorporated by reference to Exhibit
3(b) to Form 10-K filed by the Corporation for the fiscal
year ended December 31, 1989).

4(a) Upon the request of the Securities and Exchange
Commission, the Registrant will furnish a copy of all
instruments defining the rights of holders of long-term
debt of the Registrant.

10(a)(1) Stockholders Agreement (incorporated by reference to
Exhibit 10(a) to Form 10-K filed by the Corporation for
the fiscal year ended December 31, 1989).

10(a)(2) Amendment, dated December 15, 1995, to the Stockholders
Agreement, dated December 29, 1989 (incorporated by
reference to Exhibit 10(a) to Form 8-K dated December 15,
1995).

10(a)(3) Registration Rights Agreement, dated December 15, 1995
(incorporated by reference to Exhibit 10(b) to Form 8-K
dated December 15, 1995).

10(b)(1) Employment Agreement of Albert R. Gamper, Jr.
(incorporated by reference to Exhibit 10(b) to Form 10-K
filed by the Corporation for the fiscal year ended
December 31, 1989).

10(b)(2) Extension of Employment Agreement of Albert R. Gamper,
Jr. (incorporated by reference to Exhibit 10 (b)(2) to
Form 10-K filed by the Corporation for the fiscal year
ended December 31, 1992).

10(b)(3) Extension of Employment Agreement of Albert R. Gamper,
Jr. (incorporated by reference to Exhibit 10(b)(3) to
Form 10-K filed by the Corporation for the fiscal year
ended December 31, 1994).

10(c)(1) Employment Agreement of Nikita Zdanow (incorporated by
reference to Exhibit 10(c)(1) to Form 10-K filed by the
Corporation for the fiscal year ended December 31, 1992).

10(c)(2) Extension of Employment Agreement of Nikita Zdanow
(incorporated by reference to Exhibit 10(c)(2) to Form
10-K filed by the Corporation for the fiscal year ended
December 31, 1992).

10(c)(3) Extension of Employment Agreement of Nikita Zdanow
(incorporated by reference to Exhibit 10(c)(3) to Form
10-K filed by the Corporation for the fiscal year ended
December 31, 1994).

10(d) The CIT Group Bonus Plan (incorporated by reference to
Exhibit 10(d) to Form 10-K filed by the Corporation for
the fiscal year ended December 31, 1992).

10(e) The CIT Group Holdings, Inc. Career Incentive Plan
(incorporated by reference to Exhibit 10(e) to Form 10-K
filed by the Corporation for the fiscal year ended
December 31, 1992).

10(f) The CIT Group Holdings, Inc. Supplemental Savings Plan
(incorporated by reference to Exhibit 10(f) to Form 10-K
filed by the Corporation for the fiscal year ended
December 31, 1992).

59
<PAGE>

10(g) The CIT Group Holdings, Inc. Supplemental Retirement Plan
(incorporated by reference to Exhibit 10(g) to Form 10-K
filed by the Corporation for the fiscal year ended
December 31, 1992).

12 Computation of Ratios of Earnings to Fixed Charges.

21 Subsidiaries of the Registrant.

23 Consent of KPMG Peat Marwick LLP.

24 Powers of Attorney.

27 Financial Data Schedule (filed electronically)

(b) A Current Report on Form 8-K dated October 12, 1995 was filed with the
Commission reporting the Corporation's announcement of results for the quarter
ended September 30, 1995.

A Current Report on Form 8-K dated December 15, 1995 was filed with the
Commission reporting the Corporation's announcement that DKB purchased an
additional twenty percent (20%) stock interest in the Corporation on December
15, 1995 from CBC.

A Current Report on Form 8-K dated January 18, 1996 was filed with the
Commission reporting the Corporation's announcement of results for the year
ended December 31, 1995.

60
<PAGE>

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.

THE CIT GROUP HOLDINGS, INC.

By: /s/ ERNEST D. STEIN
-------------------------------------------
Ernest D. Stein
Executive Vice President, General Counsel
and Secretary

March 22, 1996

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

Signature and Title Date
------------------- ----

<S> <C>
ALBERT R. GAMPER, JR.*
- -----------------------------------------------
President, Chief Executive Officer and Director
(principal executive officer)

HISAO KOBAYASHI*
- -----------------------------------------------
Director

TAKASUKE KANEKO*
- -----------------------------------------------
Director

MICHIO MURATA*
- -----------------------------------------------
Director

KENJI NAKAMURA*
- -----------------------------------------------
Director
By: /s/ Ernest D. Stein March 22, 1996
-----------------------
Ernest D. Stein
JOSEPH A. POLLICINO* Attorney-In-Fact
- -----------------------------------------------
Director

PAUL N. ROTH*
- -----------------------------------------------
Director

PETER J. TOBIN*
- -----------------------------------------------
Director

KEIJI TORII*
- -----------------------------------------------
Director

/S/ JOSEPH M. LEONE March 22, 1996
- -----------------------------------------------
Joseph M. Leone
Executive Vice President and
Chief Financial Officer
(principal accounting officer)
</TABLE>

Original powers of attorney authorizing Albert R. Gamper, Jr., Ernest D.
Stein, and Donald J. Rapson and each of them to sign on behalf of the
above-mentioned directors and are held by the Corporation and available for
examination by the Securities and Exchange Commission pursuant to Item 302(b) of
Regulation S-T.

Exhibit 12

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

Years Ended December 31,
-----------------------------------------
1995 1994 1993
--------- --------- ---------
Dollar Amounts in Millions
<S> <C> <C> <C>
Net income ................................................. $ 225.3 $ 201.1 $ 182.3
Provision for income taxes ................................. 139.8 123.9 128.5
--------- --------- ---------

Earnings before provision for income taxes ................. 365.1 325.0 310.8
--------- --------- ---------
Fixed Charges:
Interest and debt expenses on indebtedness ............... 831.5 614.0 508.0
Interest factor--one third of rentals on real and personal
properties ............................................. 7.9 7.9 8.0
--------- --------- ---------

Total fixed charges ...................................... 839.4 621.9 516.0
--------- --------- ---------

Total earnings before provisions for income taxes and
fixed charges ........................................ $ 1,204.5 $ 946.9 $ 826.8
========= ========= =========

Ratios of Earnings to Fixed Charges ........................ 1.44 1.52 1.60

</TABLE>

EXHIBIT 21

THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
December 31, 1995

Jurisdiction of
Name of Subsidiary Incorporation
------------------ -------------

The CIT Group/Credit Finance, Inc....................... Delaware
The CIT Group/Sales Financing, Inc...................... Delaware
The CIT Group/Consumer Finance, Inc..................... Delaware
Equipment Credit Services, Inc.......................... Delaware
North American Exchange, Inc............................ Delaware
C.I.T. Corporation (Maine).............................. Maine
C.I.T. Corporation of the South, Inc. .................. Delaware
William Iselin & Company, Inc. (N.Y.)................... New York
The CIT Group/Commercial Services, Inc. ................ New York
CIT Foreign Sales Corporation One, Ltd.............. Barbados
CIT FSC Two, Ltd.................................... Bermuda
CIT FSC Three, Ltd.................................. Bermuda
CIT FSC Four, Ltd................................... Bermuda
CIT FSC Seven, Ltd.................................. Bermuda
CIT FSC Nine, Ltd................................... Bermuda
CIT FSC Ten, Ltd.................................... Bermuda
The CIT Group/Capital Aircraft, Inc................. Delaware
The CIT Group/Factoring One, Inc.................... New York
CIT FSC Five, Ltd............................... Bermuda
The CIT Group/Capital Transportation, Inc........... Delaware
The CIT Group, Inc...................................... New Jersey
The CIT Group/Capital Investments, Inc.................. New York
Assurers Exchange, Inc.................................. Delaware
C.I.T. Financial Management, Inc........................ New York
The CIT Group/Capital Equipment Financing, Inc.......... Delaware
Banord Limited...................................... United Kingdom
Equipment Acceptance Corporation.................... New York
The CIT Group/Asset Management Inc...................... Delaware
Commercial Investment Trust Corporation................. Delaware
The CIT Group/Business Credit, Inc...................... New York
Meinhard-Commercial Corporation......................... New York
650 Management Corp..................................... New Jersey
The CIT Group/Equity Investments, Inc................... New Jersey
The CIT Group/Venture Capital, Inc.................. New Jersey
The CIT Group/Equipment Financing, Inc.................. New York
C.I.T. Realty Corporation........................... Delaware
CIT FSC Eleven, Ltd................................. Bermuda
CIT FSC Twelve, Ltd................................. Bermuda
CIT FSC Fourteen, Ltd............................... Bermuda
CIT FSC Fifteen, Ltd................................ Bermuda
CIT FSC Sixteen, Ltd................................ Bermuda
CIT FSC Seventeen, Ltd.............................. Bermuda
CIT FSC Eighteen, Ltd............................... Bermuda
CIT FSC Nineteen, Ltd............................... Bermuda
The CIT Group/El Paso Refinery, Inc................. Delaware
The CIT Group/Industrial Properties, Inc............ Delaware
Bunga Bebaru, Ltd................................ Bermuda
CIT Leasing (Bermuda), Ltd....................... Bermuda
The CIT Group/Corporate Aviation, Inc............... Delaware
C.I.T. Leasing Corporation.......................... Delaware
CIT FSC Six, Ltd................................ Bermuda
CIT FSC Eight, Ltd.............................. Bermuda
Arctic Shipping Co., Inc........................ Delaware
Atlantic Shipping Co., Inc...................... Delaware
Baltic Shipping Co., Inc........................ Delaware
Indian Shipping Co., Inc........................ Delaware
Mediterranean Shipping Co., Inc................. Delaware
The CIT Group, Inc...................................... Delaware
The CIT Group Securitization Corporation................ Delaware
The CIT Group/Consumer Finance, Inc. (NY)............... New York
C.I.T. Financial International, N. V.................... Netherlands Antilles
C.I.T. Financial Overseas, B. V......................... Netherlands Antilles
The CIT Group Securitization Corporation II............. Delaware
The CIT GP Corporation (IL)............................. Illinois
The CIT Group/Commercial Services (Asia), Ltd........... Hong Kong
GSFC Aircraft Acquisition Financing Corp................ Delaware

EXHIBIT 23

INDEPENDENT AUDITORS' CONSENT

To the Board of Directors
of The CIT Group Holdings, Inc.:

We consent to incorporation by reference in Registration Statements No.
33-58107, No. 33-58418 and No. 33-85224 on Form S-3 of The CIT Group Holdings,
Inc. of our report dated January 18, 1996, relating to the consolidated balance
sheets of The CIT Group Holdings, Inc. and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995, which report appears in the December 31, 1995
Annual Report on Form 10-K of The CIT Group Holdings, Inc.

Our report on the consolidated financial statements refers to a change in
the method of accounting for postretirement benefits other than pensions in
1993.

KPMG PEAT MARWICK LLP

Short Hills, New Jersey
March 20, 1996

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of THE CIT GROUP HOLDINGS, INC., a Delaware corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1934, as amended, an annual report on Form
10-K for the year ended December 31, 1995, hereby constitutes and appoints
ALBERT R. GAMPER, JR., ERNEST D. STEIN, and DONALD J. RAPSON his true and lawful
attorneys-in-fact and agents, and each of them with full power to act without
the others, his true and lawful attorneys-in-fact and agents, for him and in his
name, place, and stead, in any and all capacities, to sign such Form 10-K and
any and all amendments thereof, with power where appropriate to affix the
corporate seal of said corporation thereto and to attest to said seal, and to
file such Form 10-K and each such amendment, with all exhibits thereto, and any
and all other documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person and hereby
ratifies and confirms all that said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereby.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 15th
day of February, 1996.

/s/ Albert R. Gamper, Jr.
----------------------------------
Albert R. Gamper, Jr.

<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 15th
day of February, 1996.

/s/ Kenji Nakamura
----------------------------------
Kenji Nakamura

<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 15th
day of February, 1996.

/s/ Keiji Torii
----------------------------------
Keiji Torii

<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 15th
day of February, 1996.

/s/ Hisao Kobayashi
----------------------------------
Hisao Kobayashi

<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 15th
day of February, 1996.

/s/ Michio Murata
----------------------------------
Michio Murata

<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 15th
day of February, 1996.

/s/ Joseph A. Pollicino
----------------------------------
Joseph A. Pollicino

<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 15th
day of February, 1996.

/s/ Paul N. Roth
----------------------------------
Paul N. Roth

<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 15th
day of February, 1996.

/s/ Takasuke Kaneko
----------------------------------
Takasuke Kaneko

<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 15th
day of February, 1996.

/s/ Peter J. Tobin
----------------------------------
Peter J. Tobin

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1995
<PERIOD-END> DEC-31-1994 DEC-31-1995
<CASH> 6,558 161,464
<SECURITIES> 0 0
<RECEIVABLES> 14,794,363 15,795,532
<ALLOWANCES> 192,421 206,027
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 15,959,660 17,420,298
<CURRENT-LIABILITIES> 0 0
<BONDS> 6,731,850 7,464,530
0 0
0 0
<COMMON> 250,000 250,000
<OTHER-SE> 1,793,027 1,914,191
<TOTAL-LIABILITY-AND-EQUITY> 15,959,660 17,420,298
<SALES> 0 0
<TOTAL-REVENUES> 1,438,211 1,713,943
<CGS> 0 0
<TOTAL-COSTS> 345,708 337,936
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 96,941 91,924
<INTEREST-EXPENSE> 649,888 697,708
<INCOME-PRETAX> 325,069 365,028
<INCOME-TAX> 123,941 139,777
<INCOME-CONTINUING> 201,128 225,251
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 201,128 225,251
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0

</TABLE>