DONALDSON LUFKIN & JENRETTE INC /NY/, 10-Q, 1997-11-13

DONALDSON LUFKIN & JENRETTE INC /NY/
10-Q, 1997-11-13
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
------ OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 1997

or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
------ OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---- ----
Commission file number 1-6862

- ------- DONALDSON, LUFKIN & JENRETTE, INC.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 13-1898818
- --------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

277 Park Avenue, New York, New York 10172
- --------------------------------------- --------------------------------
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code: (212) 892-3000

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 than 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 ( ).

As of November 7, 1997, the latest practicable date, there were 55,844,118
shares of Common Stock, $0.10 par value, outstanding.

1
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED September 30, 1997

TABLE OF CONTENTS

Part I FINANCIAL INFORMATION

Page Number
-----------
<S> <C>

Item 1. Financial Statements

Condensed Consolidated Statements of Financial Condition at
September 30, 1997 and Decem3er 31, 1996 (Unaudited)....................... 3

Condensed Consolidated Statements of Income for the three and nine months
ended September 30, 1997 and 1996 (Unaudited) ............................. 5

Condensed Consolidated Statements of Changes in Stockholders' Equity for
the year ended December 31, 1996 and the nine months ended
September 30, 1997 (Unaudited)............................................. 6

Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 (Unaudited).................................... 7

Notes to Condensed Consolidated Financial Statements (Unaudited)........... 9

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 14

Part II OTHER INFORMATION

Item 1. Legal Proceedings..................................................... 23

Item 6. Exhibits and Reports on Form 8-K...................................... 24

Signature............................................................. 25

</TABLE>

2
<PAGE>

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition (Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS

Cash and cash equivalents.................................................... $ 272,425 $ 158,831
Cash and securities segregated for regulatory purposes or deposited with
clearing organizations.................................................... 719,524 836,406
Securities purchased under agreements to resell.............................. 26,585,850 20,598,738
Securities borrowed.......................................................... 15,787,149 9,355,483
Receivables:
Customers................................................................. 4,021,961 3,169,293
Brokers, dealers and other................................................ 5,472,894 4,083,981
Securities owned, at value:
U.S. government and agencies.............................................. 7,268,613 6,882,604
Corporate debt............................................................ 5,419,058 4,424,649
Foreign sovereign debt.................................................... 3,042,599 3,116,201
Mortgage whole loans...................................................... 1,284,085 275,510
Equities and other........................................................ 968,229 1,029,094
Long-term corporate development investments............................... 316,845 204,403
Mortgages, other receivables collateralized by
real estate assets and real estate owned.................................. 303,143 322,371
Property, equipment and leasehold improvements, at cost, (net of accumulated
depreciation and amortization of $197,496 and $163,004, respectively).....
355,793 282,513
Other assets and deferred amounts............................................ 1,149,210 763,595
-------------- ---------------
Total Assets................................................................. $ 72,967,378 $ 55,503,672
============ ============

</TABLE>

See accompanying notes to condensed consolidated financial statements.

3
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition (Unaudited)
(in thousands, except share and per share data)

September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>

LIABILITIES AND STOCKHOLDERS' EQUITY

Short-term borrowings......................................................... $ 2,923,433 $ 1,162,896
Securities sold under agreements to repurchase................................ 36,672,414 29,378,291
Securities loaned............................................................. 5,202,108 2,724,773
Payables:
Customers................................................................. 4,849,543 3,897,817
Brokers, dealers and other................................................ 4,296,984 3,345,424
Securities sold not yet purchased, at value:
U.S. government and agencies.............................................. 9,981,436 6,864,643
Corporate debt............................................................ 768,197 646,421
Foreign sovereign debt.................................................... 567,979 1,265,553
Equities & other.......................................................... 775,157 665,053
Accounts payable and accrued expenses......................................... 1,982,214 1,721,255
Other liabilities............................................................. 576,933 442,667
---------------- ---------------

68,596,398 52,114,793
---------------- ---------------

Long-term borrowings.......................................................... 2,207,069 1,541,640
--------------- --------------

Total liabilities.................................................... 70,803,467 53,656,433
-------------- -------------

Company-obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely debentures of the Company.............. 200,000 200,000
---------------- ---------------

Stockholders' Equity:
Series A Preferred Stock, at liquidation preference ($50.00 liquidation
preference, 4,000,000 shares authorized, issued and outstanding)....... 200,000 200,000
Common stock ($0.10 par value; 150,000,000 shares authorized; 55,808,358
and 53,300,000 shares issued and outstanding, respectively)............ 5,581 5,330
Restricted stock units (5,179,147 units authorized; 3,281,207 and
5,081,793 units issued and outstanding, respectively).................. 67,255 104,167
Paid-in capital........................................................... 441,293 365,989
Retained earnings......................................................... 1,246,832 969,856
Cumulative translation adjustment......................................... 2,950 1,897
------------------ -----------------

Total stockholders' equity........................................... 1,963,911 1,647,239
--------------- --------------

Total Liabilities and Stockholders' Equity.................................... $ 72,967,378 $ 55,503,672
============= ============

</TABLE>

See accompanying notes to condensed consolidated financial statements.

4
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)

Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>

Revenues:
Commissions......................................... $ 178,301 $ 129,133 $ 504,997 $ 428,180
Underwritings....................................... 244,805 129,506 583,269 520,473
Fees................................................ 209,703 124,576 532,530 309,319
Interest, net of interest to finance U.S.
government, agency and mortgage-
backed securities of $731,785, $544,672,
$2,097,579 and $1,535,949, respectively........... 400,413 278,259 1,090,133 760,159
Principal transactions-net:
Trading........................................... 134,555 90,719 400,759 365,759
Investment........................................ 85,587 5,597 149,967 116,723
Other............................................... 15,132 13,217 49,424 37,513
------------ ---------- ------------ ------------

Total revenues................................... 1,268,496 771,007 3,311,079 2,538,126
---------- --------- ---------- ----------

Costs and Expenses:
Compensation and benefits........................... 545,493 329,260 1,411,272 1,138,212
Interest............................................ 279,287 178,967 744,464 531,483
Brokerage, clearing, exchange fees
and other......................................... 56,409 36,922 166,194 134,615
Occupancy and equipment............................. 47,452 39,550 132,757 107,462
Communications...................................... 16,141 13,169 45,912 36,982
Other operating expenses............................ 135,614 81,139 311,380 231,572
------------ ---------- ----------- -----------

Total costs and expenses......................... 1,080,396 679,007 2,811,979 2,180,326
----------- --------- ---------- ----------

Income before provision for income taxes................ 188,100 92,000 499,100 357,800
----------- ----------- ----------- -----------

Provision for income taxes.............................. 67,800 35,900 192,200 139,600
------------ ----------- ----------- -----------

Net income.............................................. $ 120,300 $ 56,100 $ 306,900 $ 218,200
========== ========== ========== ==========

Dividends on preferred stock............................ $ 2,970 $ 4,967 $ 9,174 $ 14,901
========== ========== =========== ===========

Earnings applicable to common shares.................... $ 117,330 $ 51,133 $ 297,726 $ 203,299
========== ========== ========== ==========

Earnings per share:
Primary............................................. $ 1.80 $ 0.86 $ 4.68 $ 3.40
Fully diluted....................................... $ 1.77 $ 0.84 $ 4.52 $ 3.35
========== ========== ========== ==========

Weighted average common shares:
Primary............................................. 65,214 59,611 63,604 59,763
Fully diluted....................................... 66,153 60,614 65,917 60,616
========== ========== ========== ==========

</TABLE>

See accompanying notes to condensed consolidated financial statements.

5
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

For the Year Ended December 31, 1996 and the Nine Months Ended
September 30, 1997
(In thousands, except per share data)

Series A Restricted Cumulative
Preferred Common Stock Paid-in Retained Translation
Stock Stock Units Capital Earnings Adjustment Total
------- -------- ----------- ------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995....... $ 0 $ 5,330 $ 106,163 $ 363,993 $ 723,859 $ (625) $ 1,198,720

Net income.......................... - - - - 291,300 - 291,300
Dividends:
Common stock
($0.50 per share)................ - - - - (26,650) - (26,650)
Preferred stock
($8.29 per share)................ - - - - (18,653) - (18,653)
Forfeiture of restricted
stock units...................... - - (1,996) 1,996 - - -
Issuance of Series A
preferred stock................ 200,000 - - - - - 200,000
Translation adjustment........... - - - - - 2,522 2,522
--------- -------- ---------- ---------- ----------- --------- -----------

Balances at December 31, 1996..... 200,000 5,330 104,167 365,989 969,856 1,897 1,647,239
--------- -------- ---------- ---------- ----------- --------- -----------

Net income........................ - - - - 306,900 - 306,900
Dividends:
Common stock
($0.38 per share).............. - - - - (20,750) - (20,750)
Preferred stock
($2.29 per share).............. - - - - (9,174) - (9,174)
Forfeiture of restricted stock
units.......................... - - (156) 156 - - -
Conversion of restricted stock
units to common stock..........
- 179 (36,756) 36,577 - - -
Income tax benefits attrib-
utable to conversion of
restricted stock units and
exercise of stock options...... - - - 9,028 - - 9,028
Conversion of debentures.......... - 69 - 28,710 - - 28,779
Exercise of stock options......... - 3 - 833 - - 836
Translation adjustment............ - - - - - 1,053 1,053
--------- -------- ---------- ---------- ----------- --------- -----------

Balances at September 30, 1997.... $ 200,000 $ 5,581 $ 67,255 $ 441,293 $ 1,246,832 $ 2,950 $ 1,963,911
========= ======= ========== ========== =========== ======== ===========

</TABLE>

See accompanying notes to condensed consolidated financial statements.

6
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

For the Nine Months Ended September 30, 1997 and 1996

1997 1996
-------------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 306,900 $ 218,200
------------ ------------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization................................................. 43,236 25,431
Deferred taxes................................................................ (20,872) (83,360)
(Decrease) increase in unrealized depreciation of long-term
corporate development investments.......................................... (27,012) 97,393
Other-net..................................................................... 334 259
------------- ------------
302,586 257,923
(Increase) decrease in operating assets:
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations........................... 116,882 (115,500)
Securities purchased under agreements to resell............................... (4,522,527) (1,126,113)
Securities borrowed........................................................... (6,431,666) (128,503)
Receivables from customers.................................................... (852,668) (405,852)
Receivables from brokers, dealers and other................................... (1,388,913) (687,227)
Securities owned, at value.................................................... (2,254,526) (4,370,742)
Other assets.................................................................. (140,595) (105,052)
Increase in operating liabilities:
Securities sold under agreements to repurchase................................ 4,522,527 1,126,113
Securities loaned............................................................. 2,477,335 550,923
Payables to customers......................................................... 951,726 703,002
Payables to brokers, dealers and other........................................ 951,560 2,340,606
Securities sold not yet purchased, at value................................... 2,651,099 1,835,197
Accounts payable and accrued expenses......................................... 260,959 43,418
Other liabilities and deferred amounts ....................................... 143,294 150,270
Translation adjustment........................................................ 1,053 183
------------ --------------

Net cash (used in) provided by operating activities................................ $ (3,211,874) $ 68,646
------------ --------------

</TABLE>

See accompanying notes to condensed consolidated financial statements.

7
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

For the Nine Months Ended September 30, 1997 and 1996

1997 1996
------------- ---------------
<S> <C> <C>
Cash flows from investing activities:
Net (payments for) proceeds from:
Purchases of long-term corporate development investments.................... $ (158,372) $ (73,385)
Sales of long-term corporate development investments........................ 72,942 27,082
Purchases of property, equipment and leasehold improvements................. (113,428) (108,944)
Other assets................................................................ (208,008) (25,998)
----------- --------------
Net cash used in investing activities........................................... (406,866) (181,245)
---------- -------------

Cash flows from financing activities:
Net proceeds from (payments for):
Short-term financings....................................................... 3,067,548 (254,742)
Global Floating Rate Notes.................................................. 347,760 -
Medium-Term Notes........................................................... 348,327 249,515
Medium-Term Notes due in 1997............................................... (88,000) -
Junior subordinated convertible debentures.................................. 19,779 43,500
Swiss Franc Bonds........................................................... - (105,513)
Subordinated revolving credit agreement..................................... 118,500 (43,500)
Structured notes............................................................ (38,739) 169,566
Company obligated mandatorily redeemable preferred securities............... - 200,000
Dividends................................................................... (29,924) (34,888)
Other....................................................................... (12,917) (2,473)
--------------- --------------

Net cash provided by financing activities....................................... 3,732,334 221,465
------------ -----------

Increase in cash and cash equivalents........................................... 113,594 108,866

Cash and cash equivalents at beginning of period................................ 158,831 107,766
------------ -----------

Cash and cash equivalents at end of period...................................... $ 272,425 $ 216,632
=========== ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

8
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 1997

1. Basis of Presentation

The condensed consolidated financial statements include Donaldson, Lufkin &
Jenrette, Inc. and its subsidiaries ("DLJ" or the "Company"). All significant
intercompany balances and transactions have been eliminated. The Company is a
majority owned subsidiary of the Equitable Companies Incorporated and its
subsidiaries (together, "Equitable"). The Company's separate financial
statements reflect Equitable's cost basis established at the time of
Equitable's acquisition of the Company in 1985.

Certain financial information that is normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
but is not required for interim reporting purposes has been condensed or
omitted. These condensed consolidated financial statements reflect, in the
opinion of management, all adjustments (consisting of normal, recurring
accruals) necessary for a fair presentation of the condensed consolidated
financial position and results of operations for the interim periods presented.
The results of operations for interim periods are not necessarily indicative of
results for the entire year. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto as of
and for the year ended December 31, 1996 included on Form 10-K filed by the
Company under the Securities Exchange Act of 1934.

The preparation of condensed consolidated 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 condensed consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Certain reclassifications have been made to prior year
financial statements to conform to the 1997 presentation.

2. Income Taxes

Income taxes for interim period condensed consolidated financial statements
have been accrued using the Company's estimated effective tax rate. Effective
January 1, 1997, Equitable's ownership for tax purposes declined to under 80%
and therefore, the Company will file its own U.S. consolidated Federal income
tax return separate and apart from Equitable. Federal income taxes paid for the
nine months ended September 30, 1997 were $145.3 million, including net federal
income tax equivalents paid to Equitable of $7.1 million. Net Federal income
tax equivalents paid to Equitable were $180.5 million during the nine months
ended September 30, 1996.

3. Borrowings

Long-term borrowings, including current maturities of $32.6 million and $112.0
million at September 30, 1997 and December 31, 1996, respectively, consist of
the following:

<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
(In thousands)

Senior notes, 6 7/8% due in 2005................................................ $ 497,403 $ 497,160
Senior subordinated revolving credit agreement due in 2000...................... 325,000 206,500
Global floating rate notes, due in 2002......................................... 347,797 -
Subordinated exchange notes, 9 5/8% due in 2003................................. 225,000 225,000
Structured notes................................................................ 177,495 216,234
Medium-term notes, 5 5/8% due in 2016........................................... 249,555 249,537
Medium-term notes, 7.88% due in 1997............................................ - 88,000
Medium-term notes, 6.90% due in 2007............................................ 148,535 -
Medium-term notes, 5.80%-6.85% due various dates through 2002................... 199,828 -
Junior subordinated convertibles debentures, 6.1875% due in 2001............... 34,500 43,500
Other........................................................................... 1,956 15,709
--------------- -------------

Total long-term borrowings................................................. $ 2,207,069 $ 1,541,640
=========== ===========

</TABLE>

9
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

During the first quarter of 1997, the Company borrowed an additional $75.0
million under its senior subordinated revolving credit agreement and extended
the maturity thereon to January 30, 2000. In June 1997, an additional $43.5
million was borrowed under such agreement.

In March 1997, the Company issued $28,779,000 aggregate principal amount of 5%
Junior Subordinated Convertible Debentures due 2004 (the "Convertible
Debentures") in connection with the acquisition of a London-based financial
advisory firm. In August 1997, the Company exercised its option to redeem all
of the outstanding convertible debentures. As a result, the holders of such
debentures elected to convert such debentures into an aggregate of 685,204
shares of common stock of the Company at the conversion price of $42 per share.

In April 1997, the Company commenced a program for the offering of up to $300
million Medium-Term Notes due nine months or more from the date of issuance.
The Medium-Term Note program was established under a shelf registration
statement previously filed by the Company. The notes may bear interest at fixed
or floating rates and may be issued as indexed notes, dual currency notes,
renewable notes, amortizing notes or original issue discount notes. At
September 30, 1997, the Company had $200.0 million fixed rate notes outstanding
under this program with a weighted average interest rate of 6.47%. The Company
has entered into interest rate swap transactions to convert $190.0 million of
such notes into floating rate notes based upon LIBOR. At September 30, 1997,
the weighted average effective interest rates on these notes was 5.89%.

In August 1997, the Company filed a shelf registration statement which enables
the Company to issue from time to time up to $1.0 billion in aggregate
principal amount of senior or subordinated debt securities. In September, the
Company commenced a program under such shelf registration statement for the
offering of up to $500 million Medium-Term Notes due nine months or more from
the date of issuance. The notes may bear interest at fixed or floating rates
and may be issued as indexed notes, dual currency notes, renewable notes,
amortizing notes or original issue discount notes. At September 30, 1997 there
were $150 million notes outstanding under this program at a fixed rate of
6.90%. Additionally, in September 1997, the Company issued $350 million Global
Floating Rate Notes from this shelf registration statement. Such notes bear
interest at a floating rate equal to LIBOR plus 0.25% and mature on September
18, 2002. The notes are redeemable by the Company in whole or in part on any
interest payment date on or after September 2000.

In August 1997, $88.0 million of 7.88% Medium-Term Notes plus accrued interest
was repaid in full.

Subordinated exchange notes due in 2003 include $20.0 million due to a
subsidiary of Equitable at September 30, 1997.

Structured notes are customized financing instruments in which the amount of
interest or principal paid on the debt obligation is linked to the return on
specific cash instruments. The notes, most of which carry a zero coupon, mature
at various dates through 2007.

During the second quarter of 1997, the Company replaced its $1.28 billion
committed credit facilities with a $2.0 billion revolving credit facility, of
which $1.0 billion may be unsecured. There were no borrowings outstanding under
this agreement at September 30, 1997.

Interest paid on all borrowings and financing arrangements amounted to $2.8
billion and $2.0 billion for the nine months ended September 30, 1997 and 1996,
respectively.

4. Long-term Corporate Development Investments

Long-term corporate development investments represent the Company's involvement
in private debt and equity investments which generally have no readily
available market or may otherwise be restricted as to resale under the
Securities Act of 1933, as amended. Accordingly, these investments are carried
at estimated fair value as determined by the Finance Committee of the Board of
Directors. The cost of these investments was $331.8 million and $246.4 million
at September 30, 1997 and December 31, 1996, respectively. The decrease
(increase) in net unrealized depreciation for the nine months ended

10
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 1997 and 1996 amounted to $27.0 million and $(97.4) million,
respectively. Changes in unrealized depreciation arising from changes in fair
value or upon realization are reflected in revenues, principal
transactions-net, investment in the condensed consolidated statements of
income.

5. Net Capital

The Company's principal wholly owned subsidiary, Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC"), is a registered broker-dealer, a registered
futures commission merchant and member firm of The New York Stock Exchange,
Inc. (the "NYSE") and, accordingly, is subject to the minimum net capital
requirements of the Securities and Exchange Commission, the NYSE and the
Commodities Futures Trading Commission. As such, it is subject to the NYSE's
net capital rule which conforms to the Uniform Net Capital Rule pursuant to
rule 15c3-1 of the Securities Exchange Act of 1934, as amended. Under the
alternative method permitted by this rule, the required net capital, as
defined, shall not be less than two percent of aggregate debit balances arising
from customer transactions, as defined, or four percent of greater. The NYSE
may also require a member firm to reduce its business if its net capital is
less than four percent of aggregate debit balances and may prohibit a member
firm from expanding its business and declaring cash dividends if its net
capital is less than five percent of aggregate debit balances. At September 30,
1997, DLJSC's net capital of approximately $753.7 million was 16 percent of
aggregate debit balances and in excess of the minimum requirement by
approximately $648.7 million.

Certain U.S. and foreign subsidiaries of the Company are subject to net capital
requirements of their respective regulatory agencies. At September 30, 1997,
the Company and its subsidiaries were in compliance with all applicable
regulatory capital adequacy requirements.

6. Earnings Per Share

Primary and fully diluted earnings per common share are computed by dividing
earnings applicable to common shares (net income less preferred dividends) by
the respective weighted average number of shares of common stock and common
stock equivalents outstanding during each period presented. Common share
equivalents include shares of common stock issuable under the Company's
Restricted Stock Unit Plan and the dilutive effects of options under the
Treasury Stock method. In addition, in calculating fully diluted earnings per
common share, common share equivalents also include the dilutive effect of
convertible debt using the "if - converted" method.

7. Stockholders' Equity

During the first nine months of 1997, 1.8 million restricted stock units vested
and were converted into common stock from the Company's authorized and unissued
shares. Approximately 600,000 of such shares were deposited in a grantor trust
pursuant to the Executive Deferred Compensation Plan which was effective
January 1, 1997.

During the third quarter the Company excerised its option to redeem all of the
outstanding convertible debentures issued in connection with the acquisition of
a London based financial advisory firm. As a result, the holders of such
debentures elected to convert such debentures into an aggregate of 685,204
shares of common stock of the Company.

8. Employee Benefits Plans

During the first quarter of 1997, the Management and Compensation Committee of
the Board of Directors authorized the creation of a long-term award pool under
the 1996 Incentive Compensation Plan (the "Plan"). The long-term award pool is
for the performance period from January 1, 1997 to December 31, 1999 and is
based on a percentage of the Company's pre-tax earnings and varies with the
Company's average return on common equity during the performance period. Each
unit granted under the Plan is equal to a percentage interest in the long-term
award pool. The units vest at the rate of 33 1/3% per year during the
performance period. The amount charged to expense for the Plan was $140.1
million for the nine months ended September 30, 1997.

11
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

9. Derivative Financial Instruments

Substantially all of the Company's activities related to derivatives are, by
their nature, trading activities which are primarily for the purpose of
customer accommodations. The Company enters into certain contractual agreements
referred to as derivatives or off-balance sheet financial instruments involving
futures, forwards and options. The Company's derivative activities consist of
writing over-the-counter ("OTC") options to accommodate its customers needs,
trading in forward contracts in U.S. government and agency issued or guaranteed
securities and in futures contracts on equity-based indices, interest rate
instruments and currencies and issuing structured notes. The Company's
involvement in swap contracts and commodity derivative instruments is not
significant. Although the Company may enter into certain derivative instruments
to provide an economic hedge against certain risks, all realized and unrealized
gains and losses on these instruments are recorded currently in the condensed
consolidated statements of income.

Accounting Policies for Derivatives
Changes in unrealized gains or losses as well as realized gains and losses at
settlement on all derivative instruments (options, forward and futures
contracts) are included in the condensed consolidated statements of income in
principal transactions-net, trading. Related offsetting amounts are presented
as receivables or payables from brokers, dealers and other in the condensed
consolidated statements of financial condition. Fair value of the options
includes the unamortized premiums which are deferred and are included in
payables to brokers, dealers and other in the condensed consolidated statement
of financial condition. Such premiums are recognized over the life of the
option contracts on a straight-line basis or are recognized through the change
in the fair value of the option in principal transactions net-trading revenue.
Cash flows from derivative instruments are presented as operating activities in
the condensed consolidated statements of cash flows.

The Company also enters into swap transactions as an end-user for non-trading
purposes to modify the interest rate exposure on certain debt obligations. Such
transactions are accounted for on an accrual basis. Under the accrual basis,
the net amount to be received or paid under the swap agreement is accrued as
part of interest expense in the condensed consolidated statements of income.

Options contracts are typically written for a duration of less than 13 months.
The notional value of written options contracts outstanding was approximately
$5.8 billion at September 30, 1997. These written option contracts are
substantially covered by various financial instruments that the Company has
purchased or sold as principal.

The notional amounts of forward and futures contracts are treated as
off-balance sheet items. The notional contract and market values of such
contracts at September 30, 1997 and December 31, 1996, were as follows:

September 30, 1997 December 31, 1996
---------------------------- --------------------------------
Purchases Sales Purchases Sales
---------- --------- ----------- --------
(In millions) (In millions)
<S> <C> <C> <C> <C>

Forward Contracts
(Notional Contract Value).............. $ 18,174 $ 29,044 $ 14,070 $ 17,917
======== ======== ======== ========
Futures Contracts and Options
on Futures Contracts
(Notional Market Value)................ $ 1,724 $ 2,664 $ 1,420 $ 2,774
======== ======== ======== ========
</TABLE>

12
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

10. Commitments and Contingencies

At September 30, 1997, the Company was contingently liable for unsecured
letters of credit of approximately $207.4 million.

The Company enters into commitments to extend credit in connection with the
origination and syndication of senior bank debt of non-investment grade
borrowers. At September 30, 1997, unfunded senior bank loan commitments
outstanding amounted to $290.3 million.

The Company also has commitments to invest in certain merchant banking
partnerships in the amount of $945 million at September 30, 1997.

As a securities broker and dealer, risk is an inherent part of the Company's
business activities. The principal types of risks involved in the Company's
activities are market risk, credit or counterparty risk and transaction risk.
The Company has developed an infrastructure designed to control, monitor and
manage each type of risk. For a further discussion of these matters, refer to
Notes 8, 9 and 10 of the Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.

11. Legal Proceedings

Certain significant legal proceedings and matters have been previously
disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and in the Company's Quarterly Report on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997. There have been no material
developments in such proceedings and matters, with the exception of the
following: On August 15, 1997, DLJ was named a defendant in Robert Orovitz v.
Charles R. Miller, et al., an action in the United States District Court for
the Southern District of Texas. The allegations in this action are
substantially similar to the allegations in James G. Caven v. Charles R.
Miller, et al. The plaintiff in Caven v. Miller, et al. filed a notice of
voluntary dismissal without prejudice with regard to DLJ, which was approved by
the Court by order dated October 14, 1997. The plaintiff in Orovitz v. Miller,
et al. filed a notice of voluntary dismissal without prejudice with regard to
DLJ, which was approved by the Court by order dated October 28, 1997.

In addition to the significant proceedings and matters referred to
above, the Company has been named as a defendant in a number of actions
relating to its various businesses including various civil actions and
arbitrations arising out of its activities as a broker-dealer in securities, as
an underwriter and as an employer and arising out of alleged employee
misconduct. Some of the actions have been brought on behalf of various classes
of claimants and seek damages of material or indeterminate amounts. The Company
is also involved, from time to time, in proceedings with, and investigations
by, governmental agencies and self regulatory organizations. Although there can
be no assurance that such other actions, proceedings, investigations and
litigation will not have a material adverse effect on the results of operations
of the Company in any future period, depending in part on the results for such
period, in the opinion of management of the Company the ultimate resolution of
any such other actions, proceedings, investigations and litigation against the
Company will not have a material adverse effect on the consolidated financial
condition and/or results of operations of the Company.

13
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following analysis of the consolidated results of operations and financial
condition of Donaldson, Lufkin & Jenrette, Inc. and Subsidiaries should be read
in conjunction with the Condensed Consolidated Financial Statements and the
related Notes to Condensed Consolidated Financial Statements included elsewhere
herein, and with the Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's 1996 Annual
Report on Form 10-K.

The Company has made in this report, and from time to time may otherwise make
in its public filings, press releases and discussions with Company management,
forward looking statements concerning the Company's operations, economic
performance and financial condition.

Such forward looking statements are subject to various risks and uncertainties
and the Company claims the protection afforded by the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. Actual results could differ materially from those currently
anticipated due to a number of factors in addition to those discussed elsewhere
herein and in the Company's other public filings, press releases and
discussions with Company management, including (i) the volatile nature of the
securities business, (ii) the competitive nature of the securities business,
(iii) the effect of extensive federal, state and foreign regulation on the
Company's business, (iv) market, credit and liquidity risks associated with the
Company's underwriting, securities trading, market-making and arbitrage
activities, (v) potential losses that could result from the Company's merchant
banking activities as a result of its capital intensive nature, (vi) risks
associated with the Company's use of derivative financial instruments, (vii)
the availability of adequate financing to support the Company's business,
(viii) potential restrictions on the business of, and withdrawal of capital
from, certain subsidiaries of the Company due to net capital requirements,
(ix) potential liability under federal and state securities and other laws
and (x) the effect of any future acquisitions.

BUSINESS ENVIRONMENT

The Company's principal business activities, investment and merchant
banking, securities sales and trading and correspondent brokerage services are,
by their nature, highly competitive and subject to general market conditions,
volatile trading markets and fluctuations in the volume of market activity.
Consequently, the Company's net income and revenues have been and are likely to
continue to be, subject to wide fluctuations, reflecting the impact of many
factors beyond the Company's control. These factors include securities market
conditions, the level and volatility of interest rates, competitive conditions
and the size and timing of transactions.

In general, the first nine months of 1997 reflected favorable market
conditions. The M&A market rebounded from the slight decreases experienced
during the second quarter of 1997 resulting in the second highest quarterly
total value of M&A transactions completed to date. These increases were
partially offset by reduced equity underwriting compared to the first
three quarters a year ago. The usual slowdown in trading volumes during the
summer months was not as prevalent in 1997 due to greater worldwide market
volatility. Daily average share volume on the NYSE and NASDAQ increased 26%
and 17%, respectively, over the same period a year ago. Additionally,
high-yield and investment-grade debt issuances during the first nine months
of 1997 reached record levels exceeding the total dollar value of issuances
for the full year 1996.

RECENT DEVELOPMENTS

In March 1997, the Company acquired a London-based financial advisory
firm, Phoenix Group Limited (Phoenix). Phoenix is an international financial
advisory and investment management business with offices in London and Hong
Kong. It has two principal operations, a corporate finance and advisory
business and a private equity fund management business investing in private
securities. It also makes investments as principal. In August 1997, the Company
exercised its option to redeem the $28.8 million convertible debentures issued
as a portion of the total compensation paid in conjunction with the acquisition
of Phoenix. As a result, the holders of such debentures elected to convert such
debentures into 685,204 shares of common stock of the Company at the conversion
price of $42 per share.

14
<PAGE>

During the third quarter of 1995, the Company provided $28.8 million
for a potential loss with respect to a bridge loan aggregating $150 million to
a company experiencing financial difficulties. In April 1997, the bridge loan
was repaid in full and the Company realized the amounts previously reserved,
plus interest.

In June 1997, the Company purchased from Equitable the remaining 50%
interest in a corporation formed to originate multi-family and commercial loans
bringing its ownership to 100%.

In October 1997, the Company sold for cash approximately $250.0
million of mortgage loans and related assets secured by 38 multi-family
properties. These assets were obtained through the repurchase in 1994 of
certain mortgage related securities previously underwritten by the
Company. The sales price approximated the Company's carrying value of
these assets.

In October 1997, the Company acquired London Global Securities, a
securities financing intermediary located in London. London Global is active
in approximately 25 equity markets and offers institutional investors and
financial institutions financing services for a full range of securities,
including equities, convertible bonds, warrants and emerging markets debt
through a variety of transaction structures such as swaps, repurchase
agreements, buy/sell arrangements and collateral management programs.

RESULTS OF OPERATIONS

QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996

Total revenues for the quarter ended September 30, 1997 were $1.27
billion, an increase of $497.5 million or 64.5% over the quarter ended
September 30, 1996. Revenues increased in the third quarter of 1997 due
primarily to an increase in net interest income, equity underwriting, principal
transactions and fees.

Commission revenues increased by $49.2 million or 38.1% to $178.3
million due to increased business in all areas and is generally consistent with
the overall growth in listed share volume on major equity exchanges.

Underwriting revenues increased by $115.3 million or 89.0% to $244.8
million. The Company and the industry experienced increases in equity
underwriting during the third quarter of 1997.

Fee revenues increased by $85.1 million or 68.3% to $209.7 million.
Overall, merger and acquisition, asset management and other advisory services
activities increased during the third quarter of 1997.

Interest, net of interest expense to finance U.S. government, agency
and mortgage-backed securities, increased by $122.2 million or 43.9% to $400.4
million. Higher levels of fixed-income securities in the Company's domestic
Fixed Income and Emerging Markets business accounted for more than half of the
increase. The remaining increase was due to increased margin balances at
Pershing.

Principal transactions-net, trading revenues increased by $43.8
million or 48.3% to $134.6 million primarily from an increase in domestic fixed
income instruments which was offset in part by decreases in foreign fixed
income instruments.

Principal transactions-net, investment revenues increased by $80.0
million to $85.6 million. Realized gains on investments were $82.1 million. Net
unrealized carrying values increased by $3.5 million, which includes the
elimination of net unrealized appreciation of $5.0 million on investments sold
and an increase in net unrealized appreciation of $8.5 million on retained
investments.

Other revenues, consisting primarily of dividends and miscellaneous
transaction revenues, increased by $1.9 million or 14.5% to $15.1 million.

Total costs and expenses for the third quarter of 1997 were $1,080.4
million, an increase of $401.4 million or 59.1% over the third quarter of 1996.

Compensation and benefits increased $216.2 million or 65.7% to $545.5
million. Incentive and production-related compensation increased by 80.4% in
1997 due to higher revenues and operating results. Base compensation, including
benefits and all payroll taxes, increased by 29.9% due to expansion in various
business groups. At September 30, 1997, full-time personnel totaled 6,815
compared to 5,706 at September 30, 1996, an increase of 1,109 or 19.4%.

Interest expense increased $100.3 million or 56.1% to $279.3 million.
Most of this increase was related to the financing of expanded levels of
inventory of fixed-income related products including foreign local fixed-income
securities as well as increased business activity at Pershing.

15
<PAGE>

All other expenses, as noted below, increased by $84.8 million or 49.7%
to $255.6 million for the third quarter of 1997.

Brokerage, clearing, exchange fees and other expenses increased by
$19.5 million due to increased share volume, underwritings and transaction fee
payments. Occupancy and equipment costs increased by $7.9 million as a result
of the expansion of the Company's principal office in the U.S. and the
expansion of the Company's other domestic and overseas offices. Communications
costs increased by $3.0 million due to expanded facilities and growth in
professional staff. All other operating expenses increased by $54.5 million.
Included therein are professional fees, travel and entertainment, and printing
and stationery which increased due to an overall increase in the level of
business activity. Data processing costs increased due to expansion of the
Company's international operations and the implementation and development of
new systems. In addition, these costs increased due to the overhaul of the
on-line customer trading and information system for the Company's correspondent
brokerage network as well as costs relating to the Year 2000 project
discussed below.

The Company's income tax provision for the third quarter of 1997 and
1996 was $67.8 million and $35.9 million, respectively, which represented a 36%
and 39% effective tax rate, respectively. The decrease in the effective tax
rate is attributable to lower state and local taxes and the utilization of
foreign tax credits.

Net income for the quarter ended September 30, 1997 was a record
$120.3 million, up $64.2 million or 114.4% from the comparable 1996 period.
Primary and fully diluted earnings per common share using the treasury stock
method were $1.80 and $1.77 and $0.86 and $0.84 for the third quarter of 1997
and 1996, respectively.

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

Total revenues for the nine months ended September 30, 1997 were $3.3
billion, an increase of $773.0 million or 30.5% over the nine months ended
September 30, 1996. Revenues increased primarily due to increases in fees and
net interest income during 1997.

Commission revenues increased by $76.8 million or 17.9% to $505.0
million due to increased business in all areas and is generally consistent with
the overall growth in listed share volume on major equity exchanges.

Underwriting revenues increased by $62.8 million or 12.1% to $583.3
million. The Company and the industry experienced significant increases in
fixed income underwriting during the nine months ended September 30, 1997.

Fee revenues increased by $223.2 million or 72.2% to $532.5 million.
Overall, merger and acquisition, asset management and other advisory services
activities have increased during the first nine months of 1997.

Interest, net of interest expense to finance U.S. government, agency
and mortgage-backed securities, increased by $330.0 million or 43.4% to
$1,090.1 million. Higher levels of foreign fixed-income securities in the
Company's domestic Fixed Income and Emerging Markets business accounted for
more than half of the increase. The remaining increase was due to higher margin
balances at Pershing.

Principal transactions-net, trading revenues increased by $35.0
million or 9.6% to $400.8 million. Most of the increase took place in domestic
fixed income instruments and was offset in part by decreases in foreign fixed
income instruments.

Principal transactions-net, investment revenues increased by $33.2
million or 28.5% to $150.0 million primarily as a result of the Company's
merchant banking activities. Realized gains on investments were $123.0 million.
Net unrealized carrying values increased by $27.0 million, which includes the
elimination of net unrealized depreciation of $22.0 million on investments sold
and an increase in net unrealized appreciation of $5.0 million on retained
investments.

Other revenues, consisting primarily of dividends and miscellaneous
transaction revenues, increased by $11.9 million or 31.8% to $49.4 million.

Total costs and expenses for the nine months ended September 30, 1997
were $2.8 billion, an increase of $631.7 million or 29.0% over the nine months
ended 1996.

Compensation and benefits increased $273.1 million or 24.0% to
$1,411.3 million. Incentive and production-related compensation increased by
24.1% in 1997 due to higher revenues and operating results.

16
<PAGE>

Similarly, base compensation, including benefits and all payroll taxes,
increased by 23.6% due to expansion in various business groups. At September
30, 1997, full-time personnel totaled 6,815 compared to 5,706 at September 30,
1996, an increase of 1,109 or 19.4%.

Interest expense increased $213.0 million or 40.1% to $744.5 million.
Most of this increase was related to expanded levels of inventory of
fixed-income related products including foreign local fixed-income securities
as well as increased business activity at Pershing.

All other expenses, as noted below, increased by $145.6 million or
28.5% to $656.2 million for the first nine months of 1997.

Brokerage, clearing, exchange fees and other expenses increased by
$31.6 million due to increased share volume, underwritings and transaction fee
payments. Occupancy and equipment costs increased by $25.3 million as a result
of the expansion of the Company's principal office in the U.S. and the
expansion of the Company's other domestic and overseas offices. Communications
costs increased by $8.9 million due to expanded facilities and growth in
professional staff. All other operating expenses increased by $79.8 million.
Included therein are professional fees, travel and entertainment, and printing
and stationery which increased due to an overall increase in the level of
business activity. Data processing costs increased due to an expansion of the
Company's international operations and the implementation and development of
new systems. In addition, these costs increased due to the overhaul of the
on-line customer trading and information system for the correspondent brokerage
network as well as costs relating to the Year 2000 project.

The Company's income tax provision for the nine months ended September
30, 1997 and 1996 was $192.2 million and $139.6 million, respectively, which
represented a 38.5% and 39% effective tax rate, respectively.

Net income for the nine months ended September 30, 1997 was $306.9
million, up $88.7 million or 40.7% from the comparable 1996 period. Primary and
fully diluted earnings per common share using the treasury stock method were
$4.68 and $4.52 and $3.40 and $3.35, for the nine months ended September 30,
1997 and 1996, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company's assets are highly liquid with the majority consisting of
securities inventories and collateralized receivables, both of which fluctuate
depending on the levels of customer business and proprietary trading. Such
collateralized receivables consist primarily of resale agreements and
securities borrowed, both of which are secured by U.S. government and agency
securities and highly marketable corporate debt and equity securities. In
addition, the Company has significant receivables from customers, brokers and
dealers which turn over frequently. As a securities dealer, the Company may
carry significant levels of trading inventories to meet client needs. As such,
the Company's total assets or the individual components of total assets vary
significantly from period to period because of changes relating to customer
needs, economic and market conditions and proprietary trading strategies. A
relatively small percentage of total assets is fixed or held for a period of
longer than one year. The Company's total assets at September 30, 1997 and
December 31, 1996 were $73.0 billion and $55.5 billion, respectively.

The majority of the Company's assets are financed through daily
operations by repurchase agreements, securities sold not yet purchased,
securities loaned, bank loans, and through payables to customers and brokers
and dealers. Short-term funding is generally obtained at rates related to
Federal funds, LIBOR and money market rates. Other borrowing costs are
negotiated depending upon prevailing market conditions. The Company monitors
overall liquidity by tracking the extent to which unencumbered marketable
assets exceed short-term unsecured borrowings.

The Company maintains borrowing relationships with a broad range of
banks, financial institutions, counterparties and others including $6.0
billion, at September 30, 1997, in uncommitted and committed bank credit lines
with 50 domestic and international banks. These include $4.0 billion of
uncommitted bank credit lines, and a $2.0 billion revolving credit facility, of
which $1.0 billion may be unsecured.

Certain of the Company's businesses are capital intensive. In addition
to normal operating requirements, capital is required to cover financing and
regulatory charges on securities inventories, merchant banking investments and
investments in fixed assets. The Company's overall capital needs are
continually reviewed to ensure that its capital base can appropriately support
the anticipated needs of its business units as well as the regulatory capital
requirements of subsidiaries. Based upon these

17
<PAGE>

analyses, management believes that the Company's debt and equity base is
adequate for current operating levels. The Company has been active in raising
additional long-term financing, including extending the maturity of its $325.0
million senior subordinated revolving credit agreement. As of September 30,
1997, $325.0 million was outstanding under this facility. In addition, the
Company has issued $350 million of $350 Medium-Term Notes and $350 million
of Global Floating Rate Notes during the first nine months of 1997.

Mortgages, other receivables collateralized by real estate assets and
real estate owned amounting to $303.1 million at September 30, 1997 and $322.4
million at December 31, 1996, generally represent the Company's interest in
mortgages receivable. Included therein is $250 million of certain mortgage-
related securities previously underwritten by the Company which were
repurchased in 1994 and subsequently sold for cash in October, 1997 at their
approximate carrying value.

DLJSC is subject to the capital requirements of the Securities and
Exchange Commission, the New York Stock Exchange, Inc., the Commodities Futures
Trading Commission and the Chicago Board of Trade, all of which ensure the
general capital adequacy and liquidity of broker-dealers and futures commission
merchants. DLJSC has consistently maintained capital substantially in excess of
the minimum requirements of such capital rules. At September 30, 1997, DLJSC
had aggregate regulatory "net capital," after adjustments required by Rule
15c3-1 under the Securities Exchange Act of 1934, of approximately $753.7
million, which exceeded minimum net capital requirements by $648.7 million and
which exceeded the net capital required by DLJSC's most restrictive debt
covenants by $389.7 million.

The Company issues structured notes which are customized financing
instruments in which the amount of interest or principal paid on the debt
obligation is linked to the return on specific cash instruments. At September
30, 1997 and December 31, 1996, the Company had issued long-term structured
notes with principal amounts of $177.5 million and $216.2 million outstanding,
respectively. The Company covers its obligations on structured notes primarily
by purchasing and selling the financial instruments to which the value of its
structured notes are linked.

As a portion of the total consideration paid in connection with the
Phoenix acquisition, the Company issued $28,779,000 aggregate principal amount
of 5% Junior Subordinated Convertible Debentures due 2004 (the "Convertible
Debentures") to the former shareholders of Phoenix. In August 1997, the Company
exercised its option to redeem all of the outstanding convertible debentures.
As a result, the holders of such debentures elected to convert such debentures
into an aggregate of 685,204 shares of common stock of the Company at the
conversion price of $42 per share.

In April 1997, the Company commenced a program for the offering of up
to $300 million Medium-Term Notes due nine months or more from the date of
issuance. The Medium-Term Note program was established under a shelf
registration statement previously filed by the Company. The notes may bear
interest at fixed or floating rates and may be issued as indexed notes, dual
currency notes, renewable notes, amortizing notes or original issue discount
notes. At September 30, 1997, the Company had $200.0 million fixed rate notes
outstanding under this program with a weighted average rate of 6.47%. The
Company has entered into interest rate swap transactions to convert $190
million of such notes into floating rate notes based upon LIBOR. At September
30, 1997, the weighted average effective interest rates on these notes was
5.89%.

In August 1997, the Company filed a shelf registration statement which
enables the Company to issue from time to time up to $1.0 billion in aggregate
principal amount of senior or subordinated debt securities. In September 1997,
the Company commenced a program under such shelf registration for the offering
of up to $500 million Medium-Term Notes due nine months or more from the date
of issuance. The notes may bear interest at fixed or floating rates and may be
issued as indexed notes, dual currency notes, renewable notes, amortizing notes
or original issue discount notes. At September 30, 1997 there were $150 million
notes outstanding under this program at a fixed rate of 6.90%. Additionally, in
September 1997, the Company issued $350 million Global Floating Rate Notes from
the $1.0 billion shelf registration statement. Such notes bear interest at a
floating rate equal to LIBOR plus 0.25% and mature on September 18, 2002. The
notes are redeemable by the Company in whole or in part on any interest payment
date on or after September 2000.

The Company's credit ratings of its long-term debt at September 30,
1997 are as follows: Duff & Phelps A; Fitch A; IBCA A; Moody's Baal; Standard &
Poors A-; and Thomson BankWatch A+.

18
<PAGE>

The Company continues to explore potential acquisition opportunities
as a means of expanding its business. Such opportunities may involve
acquisitions which are material in size and may require the raising of
additional capital.

The Company's overall capital and funding needs are continually
reviewed to ensure that its capital base can support the estimated needs of its
business units.

CASH FLOWS

The Company's condensed consolidated statements of cash flows classify
cash flow into three broad categories: cash flows from operating activities,
investing activities and financing activities. The Company's net cash flows are
principally associated with operating and financing activities, which support
the Company's trading, customer and banking activities.

NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

Cash and cash equivalents at September 30, 1997 and 1996, totaled
$272.4 million and $216.6 million, respectively, an increase of $113.6 million
and $108.9 million, respectively, for the comparable periods.

Cash (used in) provided by operating activities totaled $(3.2) billion
and $68.6 million for the nine months ended 1997 and 1996, respectively, and
reflects primarily an increase in operating assets in 1997 and an increase in
operating liabilities in 1996. In the first nine months of 1997, there were
increases in assets including securities borrowed of $6.4 billion, trading
inventories of $2.3 billion, receivables from brokers, dealers and other of
$1.4 billion and receivables from customers of $852.7 million. These increases
were partially offset by increases in liabilities including securities sold not
yet purchased of $2.7 billion, securities loaned of $2.5 billion, payables to
customers of $951.7 million and payables to brokers, dealers and other of
$951.6 million. In the first nine months of 1996, there were increases in
payables to brokers, dealers and other of $2.3 billion, securities sold not yet
purchased of $1.8 billion, payables to customers of $703.0 million and
securities loaned of $550.9 million. These increases were partially offset by
increases in assets including trading inventories of $4.4 billion and
receivables from brokers, dealers and other of $687.2 million.

For the nine months ended September 30, 1997 and 1996, cash of $406.9
million and $181.2 million, respectively, was used in investing activities.
These generally consist of fixed asset purchases and purchases of long-term
corporate development investments. Additionally, in 1997, cash was used for the
purchase of net assets related to the Phoenix acquisition.

For the first nine months of 1997 and 1996, net cash provided by
financing activities totaled $3.7 billion and $221.5 million, respectively. In
1997, $3.1 billion was provided by short-term funding (principally repurchase
agreements), $347.8 million was provided by the issuance of Global Floating
Rate Notes, $260.3 million from the issuance of Medium-Term Notes and $118.5
million from additional borrowing under the senior subordinated revolving
credit agreement. In 1996, $249.5 million was provided by the issuance of
Medium-Term Notes and $200.0 million was provided by the issuance of
mandatorily redeemable preferred securities by the Company's wholly owned
trust. In addition, $254.7 million was used to repay short-term financings and
$105.5 million was used to repay Swiss Franc Bonds which matured in January
1996.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company's derivative activities are not as extensive as many of
its competitors. Instead, the Company has focused its derivative activities on
writing over-the-counter ("OTC") options to accommodate its customers needs,
trading in forward contracts in U.S. government and agency issued or guaranteed
securities and engaging in futures contracts on equity-based indices, interest
rate instruments and currencies, and issuing structured notes. The Company's
involvement in swap contracts and commodity derivative instruments is not
significant. As a result, the Company's involvement in derivative products is
related primarily to revenue generation through the provision of products to
its clients as opposed to hedges against the Company's own positions.

Options Contracts:
Options contracts are typically written for a duration of less than 13
months. Revenues from these activities (net of related interest expenses) were
approximately $51.5 million and $51.2 million for the nine months ended
September 30, 1997 and 1996, respectively. Option writing revenues are
primarily from the amortization of option premiums.

19
<PAGE>

The notional value of written options contracts outstanding was
approximately $5.8 billion and $7.5 billion at September 30, 1997 and 1996,
respectively. The overall decrease in the notional value of all options was due
primarily to decreases in customer activity related to foreign sovereign debt
securities. Such written options contracts are substantially covered by various
financial instruments that the Company has purchased or sold as principal.

Forward and Futures Contracts:
As part of the Company's trading activities, including trading
activities in the related cash instruments, the Company enters into forward and
futures contracts primarily involving securities, foreign currencies, indices
and forward rate agreements, as well as options on futures contracts. Such
forward and futures contracts are entered into as part of the Company's
covering transactions and generally are not used for speculative purposes.

Net trading losses on forward contracts were $38.2 million and $39.7
million and net trading (losses) gains on futures contracts were $(33.3)
million and $20.9 million for the nine months ended September 30, 1997 and
1996, respectively.

The notional contract and market values of the forward and futures contracts at
September 30, 1997 and 1996 were as follows:

September 30, 1997 September 30, 1996
------------------ ------------------
Purchases Sales Purchases Sales
--------- ------- ---------- -------
(In millions)

Forward Contracts
(Notional Contract Value).... $ 18,174 $ 29,044 $ 18,610 $ 24,290
======== ======== ========= ========

Futures Contracts and Options on
Futures Contracts (Market Value)......... $ 1,724 $ 2,664 $ 2,653 $ 3,546
======== ======== ========= ========

</TABLE>

Structured Notes:
Structured notes are customized financing instruments in which the
amount of interest or principal paid on a debt obligation is linked to the
return on specific cash instruments. At September 30, 1997 and December 31,
1996, the Company had issued long-term structured notes totaling $177.5 million
and $216.2 million, respectively. The Company covers its obligations on
structured notes primarily by purchasing or selling the financial instruments
to which the value of its structured notes are linked.

MERCHANT BANKING AND BRIDGE LENDING ACTIVITIES

The Company's merchant banking activities include investments in
various partnerships, for which subsidiaries of the Company acts as general
partner, as well as direct investments in connection with its merchant banking
activities. As of September 30, 1997 the Company has investments of $247
million and has potential commitments to invest up to an additional $945
million in connection with these merchant banking activities.

The Company is also a co-sponsor of a $1.25 billion interim acquisition
funding facility which provides short-term loans in connection with its
merchant banking and financial advisory businesses. The facility includes a
$750 million commitment of subordinated debt from Equitable and a $500 million
commitment of senior revolving debt by a commercial bank syndicate. Any
drawdowns against the facility would be expected to be refinanced, and
the outstanding amounts repaid, within a short-term period. The Company has
agreed to pay Equitable the first $25 million of aggregate principal losses
incurred by Equitable with respect to bridge loans made after
September 30, 1995. To the extent such payments by the Company do not fully
cover any such losses incurred by Equitable, Equitable is entitled to receive
all other distributions otherwise payable to the Company with respect to
DLJ Bridge Fund activities until such losses have been recovered. The
Company has also agreed to pay Equitable the amount, if any, by which any
principal loss on an individual loan exceeds $150 million. The DLJ Bridge Fund
does not currently have any individual bridge loan outstanding in excess of
$150 million. Pursuant to arrangements between the Company and the commercial
bank syndicate, the Company is at risk for a significant portion of any
bank loans funded by such banks. However, substantially all of the bridge
loans have been made without using the bank commitment. At September 30, 1997,
the facility had short-term bridge financings outstanding of $115 million.

20
<PAGE>

HIGH YIELD SECURITIES

The Company participates in the underwriting, trading and sales of
high-yield non-investment-grade securities. Non investment grade securities are
defined as securities or loans to companies rated BB+ or lower as well as
non-rated securities or loans which in the opinion of management, are
non-investment grade. These securities generally involve greater risk than
investment-grade debt securities due to credit considerations, liquidity of
secondary trading markets and vulnerability to general economic conditions.

The Company accounts for its high-yield inventory positions on a
market basis with unrealized gains and losses being recognized currently in
earnings. At September 30, 1997 and December 31, 1996 the Company had long
inventory of $793.8 million and $502.6 million, respectively, and short
inventory of $366.6 million and $378.5 million, respectively, of high-yield
securities which accounted for less than 4% of the Company's overall inventory
positions. The Company is also involved in the origination, syndication and
trading of senior bank debt of non-investment grade companies. Such loans are
carried at fair value and recorded on a settlement date basis. At September 30,
1997 and December 31, 1996, the aggregate value of senior bank loans held by
the Company was $784.2 million and $305.6 million, respectively.

YEAR 2000

In connection with the Company's recent expansion, entry into new
products and its move to new corporate headquaters, many of the newer
communications and data processing systems installed are Year 2000 compliant.
The Company has undertaken a project to identify and modify other non-Year 2000
compliant data processing systems in anticipation of the Year 2000. Many of the
non-Year 2000 compliant systems process transactions using two digit date
fields for the year of a transaction, rather than the full four digits. If
these systems are not identified and reconfigured, Year 2000 transactions
would be processed as year "00", which could lead to processing inaccuracies
and potential inoperability. At the present time, the Company expects that most
of its significant Year 2000 corrections should be tested and in production by
the end of 1998. The total cost of the project through the end of 1998 is
currently estimated to be between $80 and $90 million. However, there can be no
assurance that the systems of other companies on which the Company's systems
rely also will be timely converted or that any such failure to convert by
another company would not have an adverse effect on the Company's systems.
Costs related to this project are expensed. As of the current date, the Company
has incurred approximately $27 million of such costs.

21
<PAGE>

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Certain significant legal proceedings and matters have been previously
disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and in the Company's Quarterly Report on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997. There have been no material
developments in such proceedings and matters, with the exception of the
following: On August 15, 1997, DLJ was named a defendant in Robert Orovitz v.
Charles R. Miller, et al., an action in the United States District Court for
the Southern District of Texas. The allegations in this action are
substantially similar to the allegations in James G. Caven v. Charles R.
Miller, et al. The plaintiff in Caven v. Miller, et al. filed a notice of
voluntary dismissal without prejudice with regard to DLJ, which was approved by
the Court on October 14, 1997. The plaintiff in Orovitz v. Miller, et al. filed
a notice of voluntary dismissal without prejudice with regard to DLJ, which was
approved by the Court by order dated October 28, 1997.

22
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

3.1 Certificate of Incorporation. (Incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1,
File No. 33-96276).

3.2 By-Laws. (Incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, File No. 33-96276).

11 Statement re: computation of primary earnings per share.

11.1 Statement re: computation of fully diluted earnings per share.

27 Financial Data Schedule

The Company agrees to furnish copies to the Commission of all
instruments with respect to long-term debt of the Company and its
subsidiaries.

(b) Reports on Form 8-K
1. Form 8-K dated October 13, 1997; Item 5

23
<PAGE>

Signature

Pursuant to the requirements 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.

DONALDSON, LUFKIN & JENRETTE, INC.

November 14, 1997 /s/ Anthony F. Daddino
------------------------------
Anthony F. Daddino
Executive Vice President and Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial Officer)

24
<PAGE>

EXHIBIT INDEX

3.1 Certificate of Incorporation. (Incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1,
File No. 33-96276).

3.2 By-Laws. (Incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, File No. 33-96276).

11 Statement re: computation of primary earnings per share.

11.1 Statement re: computation of fully diluted earnings per share.

27 Financial Data Schedule

<PAGE>

EXHIBIT 11

DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES

Computation of Primary Earnings Per Share
(In thousands, except per share amounts)

Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ---------------------------
1997 1996 1997 1996
------------ ----------- ------------ --------
<S> <C> <C> <C> <C>

Weighted Average Common Shares:
Average Common Shares
Outstanding 55,114 53,300 54,751 53,300
Average Restricted Stock Units Outstanding 3,283 5,140 3,633 5,160

Average Common Shares Issuable Under Employee
Benefit Plans 6,395 1,171 5,078 1,303

Average Common Shares Issuable Under
Conversion of Convertible Debt 422 - 142 -
----------- ----------- ----------- ------------

Weighted Average Common Shares Outstanding 65,214 59,611 63,604 59,763
=========== ========== =========== ===========

Earnings:
Net Income $ 120,300 $ 56,100 $ 306,900 $ 218,200
Less: Preferred Stock Dividend
Requirement 2,970 4,967 9,174 14,901
----------- ---------- ----------- -----------

Earnings Applicable to Common Shares $ 117,330 $ 51,133 $ 297,726 $ 203,299
========= ========= ========= =========

Primary Earnings Per Common Share $ 1.80 $ 0.86 $ 4.68 $ 3.40
========= ========= ========= =========
</TABLE>

<PAGE>

EXHIBIT 11-1

DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES

Computation of Fully Diluted Earnings Per Share
(In thousands, except per share amounts)

Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------ ----------- ------------ --------
<S> <C> <C> <C> <C>

Weighted Average Common Shares:
Average Common Shares Outstanding 55,114 53,300 54,751 53,300

Average Restricted Stock Units Outstanding 3,283 5,140 3,633 5,160

Average Common Shares Issuable Under Employee
Benefit Plans 7,081 2,174 6,973 2,156

Average Common Shares Issuable
Upon Conversion of Convertible Debt 675 - 560 -
--------- --------- --------- ---------
Weighted Average Common Shares Outstanding 66,153 60,614 65,917 60,616
========= ======== ========= =========
Earnings:
Net Income $ 120,300 $ 56,100 $ 306,900 $ 218,200
Less: Preferred Stock Dividend
Requirement 2,970 4,967 9,174 14,901
---------- --------- --------- ---------

Earnings Applicable to Common Shares $ 117,330 $ 51,133 $ 297,726 $ 203,299
========== ======== ========= =========

Fully Diluted Earnings Per Common Share $ 1.77 $ 0.84 $ 4.52 $ 3.35
========== ======== ========= =========
</TABLE>

<PAGE>

<ARTICLE> BD
<LEGEND>
The schedule contains summary financial information extracted from the
condensed consolidated financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 991,949
<RECEIVABLES> 9,494,855
<SECURITIES-RESALE> 26,585,850
<SECURITIES-BORROWED> 15,787,149
<INSTRUMENTS-OWNED> 18,299,429
<PP&E> 355,793
<TOTAL-ASSETS> 72,967,378
<SHORT-TERM> 2,923,433
<PAYABLES> 9,146,527
<REPOS-SOLD> 36,672,414
<SECURITIES-LOANED> 5,202,108
<INSTRUMENTS-SOLD> 12,092,769
<LONG-TERM> 2,207,069
200,000
200,000
<COMMON> 5,581
<OTHER-SE> 1,758,330
<TOTAL-LIABILITY-AND-EQUITY> 72,967,378
<TRADING-REVENUE> 400,759
<INTEREST-DIVIDENDS> 1,135,442
<COMMISSIONS> 504,997
<INVESTMENT-BANKING-REVENUES> 842,644
<FEE-REVENUE> 38,084
<INTEREST-EXPENSE> 744,464
<COMPENSATION> 1,411,272
<INCOME-PRETAX> 499,100
<INCOME-PRE-EXTRAORDINARY> 499,100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 306,900
<EPS-PRIMARY> 4.68
<EPS-DILUTED> 4.52

</TABLE>