DONALDSON LUFKIN & JENRETTE INC /NY/, 10-Q, 1998-05-14

DONALDSON LUFKIN & JENRETTE INC /NY/
10-Q, 1998-05-14
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 March 31, 1998

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 May 7, 1998, the latest practicable date, there were 117,282,968 shares
of Common Stock, $0.10 par value, outstanding.

1
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998

TABLE OF CONTENTS

Part I FINANCIAL INFORMATION

<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Item 1. Financial Statements

Condensed Consolidated Statements of Financial Condition at
March 31, 1998 and December 31, 1997 (Unaudited)................. 3

Condensed Consolidated Statements of Income for the three months
ended March 31, 1998 and 1997 (Unaudited)........................ 5

Condensed Consolidated Statements of Changes in Stockholders'
Equity for the year ended December 31, 1997 and the three months
ended March 31, 1998 (Unaudited)................................. 6

Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 (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.................................................. 21

Item 5. Other Information.................................................. 22

Item 6. Exhibits and Reports on Form 8-K................................... 23

Signature.......................................................... 24

</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>
March 31, December 31,
1998 1997
----------- -------------
<S> <C> <C>
ASSETS

Cash and cash equivalents ............................. $ 247,430 $ 273,164
Cash and securities segregated for regulatory purposes
or deposited with clearing organizations ............. 1,261,100 832,093
Collateralized short-term agreements:
Securities purchased under agreements to resell .... 21,094,329 22,628,782
Securities borrowed ................................ 21,618,273 20,598,639
Receivables:
Customers .......................................... 4,469,945 4,397,668
Brokers, dealers and other ......................... 4,307,416 3,162,970
Financial instruments owned, at value:
U.S. government and agency ......................... 7,006,609 6,834,996
Corporate debt ..................................... 5,825,539 5,577,023
Foreign sovereign debt ............................. 3,326,130 1,624,235
Mortgage whole loans ............................... 1,160,929 1,555,685
Equity and other ................................... 1,363,320 943,782
Long-term corporate development investments ........ 495,860 315,774
Office facilities, at cost, (net of accumulated
depreciation and amortization of $234,328 and
$216,230, respectively) ............................. 401,813 388,677
Other assets and deferred amounts ..................... 1,485,326 1,372,357
----------- -----------

Total Assets .......................................... $74,064,019 $70,505,845
=========== ===========

</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)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Commercial paper and short-term borrowings ........................ $ 2,529,779 $ 1,418,757
Collateralized short-term financings:
Securities sold under agreements to repurchase ............... 34,769,279 36,006,656
Securities loaned ............................................ 8,655,428 7,687,416
Payables:
Customers .................................................... 5,118,215 5,071,653
Brokers, dealers and other ................................... 3,813,067 2,491,115
Financial instruments sold not yet purchased, at value:
U.S. government and agencies ................................. 8,632,856 7,671,498
Corporate debt ............................................... 833,470 854,155
Foreign sovereign debt ....................................... 388,602 553,852
Equities & other ............................................. 1,683,388 1,376,395
Accounts payable and accrued expenses ............................. 1,824,053 2,119,131
Other liabilities ................................................. 798,714 741,870
----------- -----------

69,046,851 65,992,498
----------- -----------

Long-term borrowings .............................................. 2,419,740 2,251,857
----------- -----------

Total liabilities ..................................... 71,466,591 68,244,355
----------- -----------

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

Stockholders' Equity:
Preferred stock, 50,000,000 shares authorized:
Series A Preferred Stock, at $50.00 per share liquidation
preference (4,000,000 shares issued and outstanding) .. 200,000 200,000
Series B Preferred Stock, at $50.00 per share liquidation
preference (3,500,000 shares issued and outstanding) . 175,000 --
Common stock ($0.10 par value; 300,000,000 shares
authorized; 116,926,356 and 111,852,762 shares issued
and outstanding, respectively) ........................... 11,693 11,185
Restricted stock units (10,358,294 units authorized; 2,082,876
and 6,562,414 units issued and outstanding, respectively) 21,339 67,255
Paid-in capital .............................................. 526,435 440,926
Retained earnings ............................................ 1,459,619 1,338,220
Accumulated other comprehensive income ....................... 3,342 3,904
----------- -----------

Total stockholders' equity ............................ 2,397,428 2,061,490
----------- -----------

Total Liabilities and Stockholders' Equity ........................ $74,064,019 $70,505,845
=========== ===========
</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)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---------- ----------
<S> <C> <C>

Revenues:
Commissions ........................................................ $ 198,524 $ 168,350
Underwritings ...................................................... 320,799 173,920
Fees ............................................................... 255,371 146,132
Interest, net of interest to finance U.S. government, agency and
mortgage-backed securities of $766,071 and $613,877, respectively 564,789 319,728
Principal transactions-net:
Trading ......................................................... 104,303 156,318
Investment ...................................................... 41,298 847
Other .............................................................. 8,337 16,108
---------- ----------

Total revenues ................................................. 1,493,421 981,403
---------- ----------

Costs and Expenses:
Compensation and benefits .......................................... 644,084 423,449
Interest ........................................................... 373,866 218,171
Brokerage, clearing, exchange fees and other ....................... 56,321 58,480
Occupancy and equipment ............................................ 59,434 39,970
Communications ..................................................... 19,501 13,844
Other operating expenses ........................................... 122,965 83,489
---------- ----------

Total costs and expenses ....................................... 1,276,171 837,403
---------- ----------

Income before provision for income taxes ................................ 217,250 144,000
---------- ----------

Provision for income taxes .............................................. 83,100 57,600
---------- ----------

Net income .............................................................. $ 134,150 $ 86,400
========== ==========

Dividends on preferred stock ............................................ $ 5,443 $ 3,234
========== ==========

Earnings applicable to common shares .................................... $ 128,707 $ 83,166
========== ==========

Earnings per share (after giving effect to the stock split):
Basic .............................................................. $ 1.12 $ 0.76
Diluted ............................................................ $ 1.00 $ 0.69
========== ==========

Weighted average common shares (after giving effect to the stock split):
Basic .............................................................. 115,088 108,860
Diluted ............................................................ 128,794 120,976
========== ==========

</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, 1997 and the Three Months Ended March 31, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Restricted Other
Preferred Common Stock Paid-in Retained Comprehensive
Stock Stock Units Capital Earnings Income Total
-------- ------- -------- -------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 .......... $200,000 $10,659 $104,167 $360,660 $ 969,856 $ 1,897 $ 1,647,239

Net income ............................. -- -- -- -- 408,250 -- 408,250
Dividends:
Common stock ($0.25 per share) ...... -- -- -- -- (27,742) -- (27,742)
Preferred stock ..................... -- -- -- -- (12,144) -- (12,144)
Common stock issued upon the
exercise of stock options,
including related tax benefits ..... -- 30 -- 6,428 -- -- 6,458
Conversion of restricted stock
units to common stock,
including related tax benefits ...... -- 358 (36,756) 45,041 -- -- 8,643
Forfeiture of restricted stock units ... -- -- (156) 156 -- -- --
Conversion of debentures ............... -- 138 -- 28,641 -- -- 28,779
Translation adjustment ................. -- -- -- -- -- 2,007 2,007
-------- ------- -------- -------- ---------- ------- -----------

Balances at December 31, 1997 .......... $200,000 $11,185 $ 67,255 $440,926 $1,338,220 $ 3,904 $ 2,061,490

Net income ............................. -- -- -- -- 134,150 -- 134,150
Dividends:
Common stock ($0.0625 per
share) ........................... -- -- -- -- (7,308) -- (7,308)
Preferred stock ..................... -- -- -- -- (5,443) -- (5,443)
Issuance of Series B Preferred
Stock ............................... 175,000 -- -- -- -- -- 175,000
Common stock issued upon the
exercise of stock options, including
related tax benefits ................ -- 60 -- 14,614 -- -- 14,674
Conversion of restricted stock
units to common stock,
including related tax benefits ...... -- 448 (45,891) 70,870 -- -- 25,427
Forfeiture of restricted stock units ... -- -- (25) 25 -- -- --
Translation adjustment ................. -- -- -- -- -- (562) (562)
-------- ------- -------- -------- ---------- ------- -----------

Balances at March 31, 1998 ............. $375,000 $11,693 $ 21,339 $526,435 $1,459,619 $ 3,342 $ 2,397,428
======== ======= ======== ======== ========== ======= ===========

</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 three months Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 134,150 $ 86,400
----------- -----------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization ................................... 19,980 12,062
Deferred taxes .................................................. 21,798 28,019
Increase in unrealized (appreciation) depreciation of long-term
corporate development investments ............................ (5,750) 3,436
----------- -----------
170,178 129,917
(Increase) decrease in operating assets:
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations ............ (429,007) (149,417)
Securities purchased under agreements to resell ................. (232,880) (5,437,843)
Securities borrowed ............................................. (1,019,634) (3,924,802)
Receivables from customers ...................................... (72,277) (240,662)
Receivables from brokers, dealers and other ..................... (1,144,446) 718,460
Financial instruments owned, at value ........................... (2,146,806) (1,647,890)
Other assets .................................................... (94,893) 16,744
Increase (decrease) in operating liabilities:
Securities sold under agreements to repurchase .................. 232,880 5,437,843
Securities loaned ............................................... 968,012 1,390,658
Payables to customers ........................................... 46,562 109,088
Payables to brokers, dealers and other .......................... 1,321,952 (150,782)
Financial instruments sold not yet purchased, at value .......... 1,082,416 907,230
Accounts payable and accrued expenses ........................... (295,078) (482,011)
Other liabilities and deferred amounts .......................... 87,517 (36,901)
Translation adjustment .......................................... (562) 611
----------- -----------

Net cash used in operating activities ................................. $(1,526,066) $(3,359,757)
----------- -----------

</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 Three Months Ended March 31, 1998 and 1997

1998 1997
------------- ------------
<S> <C> <C>

Cash flows from investing activities:
Net (payments for) proceeds from:
Purchases of long-term corporate development investments ......... $ (219,231) $ (37,928)
Sales of long-term corporate development investments ............. 44,895 10,957
Office facilities ................................................ (31,666) (34,784)
Other assets ..................................................... (40,320) (57,785)
----------- -----------

Net cash used in investing activities ................................. (246,322) (119,540)
----------- -----------

Cash flows from financing activities:
Net proceeds from (payments for):
Short-term financings ............................................ 1,408,098 3,432,167
Senior notes ..................................................... 148,401 --
Subordinated revolving credit agreement .......................... -- 75,000
Structured notes ................................................. 23,895 (4,817)
Other long-term debt ............................................. (4,691) 23,155
Dividends ........................................................ (12,751) (10,047)
Issuance of Series B preferred stock ............................. 175,000 --
Exercise of stock options ........................................ 8,702 --
----------- -----------

Net cash provided by financing activities ............................. 1,746,654 3,515,458
----------- -----------

Increase (decrease) in cash and cash equivalents ...................... (25,734) 36,161

Cash and cash equivalents at beginning of period ...................... 273,164 158,831
----------- -----------

Cash and cash equivalents at end of period ............................ $ 247,430 $ 194,992
=========== ===========

</TABLE>

See accompanying notes to condensed consolidated financial statements.

8
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 1998

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, 1997 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 1998 presentation.

On January 1, 1998, all provisions of SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" were
effective. The Financial Accounting Standards Board ("FASB") deferred until
that date certain provisions of SFAS No. 125 relating to secured borrowings and
collateral, repurchase agreements, securities lending and other similar
transactions. The impact of adopting the deferred provisions of SFAS No. 125
was not material to the Company's condensed consolidated statement of financial
condition.

In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components. Total comprehensive income measures all changes in
stockholders' equity resulting from transactions of the period, other than
transactions with stockholders.

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (the "SOP"). The SOP requires that certain costs related to the
development or purchase of software for internal use be capitalized. The SOP is
effective for financial statements for fiscal years beginning after December
15, 1998 and should be applied prospectively, however, earlier application is
encouraged. The Company adopted the provisions of the SOP effective January 1,
1998. The adoption of the SOP did not have a material impact on the Company's
condensed consolidated financial statements.

2. Common Stock Split

In February 1998, the Board of Directors declared a two-for-one stock split
(the "stock split") of the Company's common stock, subject to stockholder
approval, to increase the number of authorized common shares. In April 1998,
the stockholders approved an amendment to the Company's Certificate of
Incorporation whereby the amount of total authorized shares of common stock was
increased to 300 million shares and the amount of total authorized shares of
preferred stock was increased to 50 million. The stock split was effected in
the form of a 100% stock dividend to stockholders of record on April 27, 1998,
and was paid on May 11, 1998. The par value of the common stock remained at
$.10 per share. Accordingly, an adjustment from paid-in capital to common stock
was made to preserve the value of the post-split shares. All common share, per
common share, restricted stock unit and option data have been restated for the
effect of the stock split in the accompanying condensed consolidated financial
statements.

9
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

3. 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. There were no Federal income
taxes paid for the three months ended March 31, 1998. Net Federal income tax
equivalents paid to Equitable were $7.1 million during the three months ended
March 31, 1997.

4. Borrowings

Short-term borrowings are generally demand obligations, at interest rates
approximating Federal fund rates from banks and other financial institutions.
Such borrowings are generally used to finance securities inventories, to
facilitate the financial instruments settlement process and to finance
financial instruments purchased by customers on margin. In January 1998, the
Company commenced a $1.0 billion commercial paper program. Obligations issued
thereunder (the "Notes") are exempt from registration under the Securities Act
of 1933, as amended. The Notes rank pari passu with the Company's other
unsecured and unsubordinated indebtedness. At March 31, 1998, the Company had
$194.2 million of Notes outstanding under this program which are included in
short-term borrowings on the accompanying condensed consolidated statement of
financial condition.

Long-term borrowings, including current maturities of $39.6 million and $32.8
million at March 31, 1998 and December 31, 1997, respectively, consist of the
following:

March 31, December 31,
1998 1997
---------- ------------
(In thousands)
<S> <C> <C>
Senior notes, 6 7/8% due in 2005 .............................. $ 497,565 $ 497,484
Senior notes, 6 1/2% due in 2008 .............................. 148,409 --
Senior subordinated revolving credit agreement due in 2000 .... 325,000 325,000
Subordinated exchange notes, 9.58% due in 2003 ............... 225,000 225,000
Medium-term notes, 5.625%-6.90% due various dates through 2016 697,387 697,310
Global floating rate notes, due in 2002 ....................... 348,021 347,909
Structured notes .............................................. 147,593 123,698
Other ......................................................... 30,765 35,456
---------- ----------
Total long-term borrowings .............................. $2,419,740 $2,251,857
========== ==========
</TABLE>

In March 1998, the Company issued $150 million of 6 1/2% Senior Notes which
mature on April 1, 2008.

Subordinated exchange notes due in 2003 include $20.0 million due to a
subsidiary of Equitable at March 31, 1998.

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, primarily foreign sovereign debt. The notes, most of
which carry a zero coupon, mature at various dates through 2012.

The Company maintains a $2.0 billion revolving credit facility with various
banks, of which $1.0 billion may be unsecured. There were no borrowings
outstanding under this agreement at March 31, 1998.

Interest paid on all borrowings and financing arrangements amounted to $1.1
billion and $758.5 million for the three months ended March 31, 1998 and 1997,
respectively.

5. 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

10
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

determined by the Finance Committee of the Board of Directors. The cost of
these investments was $497.5 million and $323.2 million at March 31, 1998 and
December 31, 1997, respectively. The increase in net unrealized appreciation
(depreciation) for the three months ended March 31, 1998 and 1997 amounted to
$5.8 million and $(3.4) million, respectively. Changes in unrealized
appreciation (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.

6. 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, NYSE and the
Commodities Futures Trading Commission. As such, it is subject to 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. 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 segregated funds, as defined,
whichever is 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 March 31, 1998, DLJSC's net capital of
approximately $815.1 million was 16 percent of aggregate debit balances and in
excess of the minimum requirement by approximately $705.1 million.

Certain of the Company's London-based broker-dealer subsidiaries are subject to
the requirements of the Securities and Futures Authority, a self-regulatory
organization established pursuant to the United Kingdom Financial Services Act
of 1986. Other U.S. and foreign broker-dealer subsidiaries of the Company are
subject to net capital requirements of their respective regulatory agencies. At
March 31, 1998, the Company and its broker-dealer subsidiaries were in
compliance with all applicable regulatory capital adequacy requirements.

7. Earnings Per Share

Basic and diluted earnings per common share amounts have been calculated by
dividing earnings applicable to common shares (net income less preferred
dividends) by the weighted average common shares outstanding. Diluted earnings
per common share also include the dilutive effects of shares of common stock
issuable under the Restricted Stock Unit Plan and options under the treasury
stock method. All earnings per share amounts have been restated for the effect
of the stock split.

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per common share computations at March 31:

1998 1997
------------------ --------------------
Income Shares Income Shares
------ ------ ------ -------
(In thousands)
<S> <C> <C> <C> <C>

Basic EPS
Earnings applicable to common shares $128,707 115,088 $ 83,166 108,860

Effect of Dilutive Securities:
Restricted stock units .......... -- 3,566 -- 7,898
Stock options .................... -- 10,140 -- 4,218
-------- -------- -------- --------
Diluted EPS ......................... $128,707 128,794 $ 83,166 120,976
======== ======== ======== ========
</TABLE>

8. Stockholders' Equity

In January 1998, the Company issued 3.5 million shares of Fixed/Adjustable Rate
Cumulative Preferred Stock, Series B, with a liquidation preference of $50 per
share ($175.0 million aggregate liquidation value). Dividends are payable
quarterly at a rate of 5.30% per annum, subject to adjustment after January
2003.

11
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

In February 1998, approximately 4.4 million restricted stock units (after
giving effect to the stock split) vested and were converted into the Company's
common stock from the authorized and unissued shares. Approximately 1.95
million of such shares (after giving effect to the stock split) were deposited
in a grantor trust pursuant to the Executive Deferred Compensation Plan.

9. Comprehensive Income

The components of comprehensive income for the three months ended March 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---------- ---------
(In thousands)
<S> <C> <C>
Net income ............................... $ 134,150 $ 86,400
Other comprehensive income:
Foreign currency translation adjustments (562) 611
--------- ---------
Total comprehensive income ............... $ 133,588 $ 87,011
========= =========
</TABLE>

10. Derivative Financial Instruments

The Company enters into certain contractual agreements referred to as
derivatives or off-balance sheet financial instruments involving options,
forwards and futures. 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'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
products based on emerging market debt, other financial instruments and
indices. 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 certain options
includes the unamortized premiums which are deferred and are included in
payables to brokers, dealers and other in the condensed consolidated statements
of financial condition. Such premiums are recognized over the life of the
option contracts on a straight-line basis. 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 (contract) values of written options contracts outstanding was
approximately $6.7 billion and $5.4 billion at March 31, 1998 and December 31,
1997, respectively. Such options contracts are substantially covered by various
financial instruments that the Company has purchased or sold on a proprietary
basis.

12
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 March 31, 1998 and December 31, 1997, were as follows:

<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
Purchases Sales Purchases Sales
--------- ------- --------- ------
(In millions) (In millions)
<S> <C> <C> <C> <C>
Forward Contracts
(Notional Contract Value) ....................... $23,288 $23,555 $18,366 $27,028
======= ======= ======= =======

Futures Contracts and Options on Futures contracts
(Notional Market Value) ....................... $ 1,210 $ 2,117 $ 988 $ 2,767
======= ======= ======= =======
</TABLE>

11. Commitments and Contingencies

At March 31, 1998, the Company was contingently liable for unsecured letters of
credit of approximately $209.5 million.

The Company has outstanding commitments, expiring on March 16, 2000, to provide
financings to third parties in the total amount of $150.0 million which would
be secured by mortgage loans on real estate properties. At March 31, 1998,
unfunded commitments outstanding under this facility amounted to $78.4 million.
In addition, 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 March 31, 1998, unfunded senior bank loan commitments
outstanding amounted to $440.5 million.

The Company has commitments to invest on a side by side basis with merchant
banking partnerships in the amount of $843.8 million at December 31, 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, 1997.

12. 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, 1997. With respect to the litigation in the National Gypsum case,
DLJSC has appealed the Bankruptcy Court's ruling in January 1998 that the State
Court plaintiff's claims were not barred by the NGC plan of reorganization
insofar as they alleged nondisclosure of certain cost reductions.

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 (the
"Company") 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 1997 Annual Report on Form 10-K.

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 including securities market conditions,
the level and volatility of interest rates, competitive conditions and the size
and timing of transactions.

The favorable market conditions that existed throughout most of 1997 continued
through the first quarter of 1998. Despite continued uncertainty relating to
the Asian financial crisis, the U.S. financial markets remained robust. U.S.
interest rates remained low, with the last increase by the U.S. Federal Reserve
Board occurring in March 1997. Continued merger and acquisition activity
combined with the low U.S. interest rates resulted in record levels of debt and
equity underwritings. More than $472.6 billion in stocks and bonds were issued
in the U.S. in the first quarter of 1998 compared with $372.5 billion for the
prior quarter. Trading activity on the major exchanges continued their bullish
ascent in March amid strong advances in all major market indices. The Dow Jones
Industrial Average, Standard & Poor's 500 Index and NASDAQ Composite increased
11.3%, 13.5% and 16.9%, respectively for the quarter.

Global financial market conditions were generally favorable during the quarter.
European interest rates and currencies have stabilized in anticipation of
economic and monetary union ("EMU"). However, U.S. interest rate policy will
continue to be a primary factor in determining whether the European capital
markets will remain buoyant.

RECENT DEVELOPMENTS

In March 1998, the Company issued $150 million of 6 1/2% Senior Notes due
2008.

In February 1998, the Board of Directors declared a two-for-one stock
split (the "stock split") of the Company's common stock, subject to stockholder
approval to increase the number of authorized common shares. In April 1998, the
stockholders approved an amendment to the Company's Certificate of
Incorporation whereby the amount of total authorized shares of common stock was
increased to 300 million shares and the amount of total authorized shares of
preferred stock was increased to 50 million. The stock split was effected in
the form of a 100% stock dividend to stockholders of record on April 27, 1998,
and was paid on May 11, 1998. The par value of the common stock remained at
$.10 per share. All common share, per common share, restricted stock unit and
option data have been restated for the effect of the stock split in the
accompanying condensed consolidated financial statements.

RESULTS OF OPERATIONS

QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997

Total revenues for the quarter ended March 31, 1998 were $1.49 billion, an
increase of $512.0 million or 52.2% over the quarter ended March 31, 1997.
Revenues increased due primarily to an increase in net interest income, equity
underwriting, principal transactions and fees.

Commission revenues increased by $30.2 million or 17.9% to $198.5 million
due to increased business in all areas and is generally consistent with the
overall growth in listed share volume on major equity exchanges.

14
<PAGE>

Underwriting revenues increased by $146.9 million or 84.5% to $320.8
million. The Company and the industry experienced increases in equity, fixed
income and high yield underwriting during the first quarter of 1998. Among the
offerings, the Company completed the first high-yield offering denominated in
ECU/EURO and the largest ever offerings denominated in British Pounds Sterling
and German Deutsche Marks.

Fee revenues increased by $109.2 million or 74.8% to $255.4 million.
Overall, merger and acquisition, asset management and other advisory services
activities increased during the first quarter of 1998.

Interest, net of interest expense to finance U.S. government, agency and
mortgage-backed securities, increased by $245.1 million or 76.6% to $564.8
million. Higher levels of fixed-income securities in the Company's Fixed Income
and Emerging Markets business accounted for more than half of the increase. The
remaining increase was due to increased margin balances and stock loan/borrowed
business at Pershing.

Principal transactions-net, trading revenues decreased by $52.0 million or
33.3% to $104.3 million primarily from an emerging markets trading strategy
whereby profits are realized as net interest revenues rather than as trading
gains.

Principal transactions-net, investment revenues increased by $40.5 million
to $41.3 million. Realized gains on investments were $35.5 million. Net
unrealized carrying values increased by $5.8 million, which includes the
elimination of net unrealized depreciation of $4.4 million on investments sold
and an increase in net unrealized appreciation of $1.4 million on retained
investments.

Total costs and expenses for the first quarter of 1998 were $1.28 billion,
an increase of $438.8 million or 52.4% over the first quarter of 1997 due to
continued expansion of the Company's domestic and international operations.
During the first quarter of 1998, the Company launched an international
equities group, opened an office in Moscow and established a European
high-yield business in London. In addition, the Investment Banking Group
expanded coverage in the financial services, technology and telecommunication
industries.

Compensation and benefits increased $220.6 million or 52.1% to $644.1
million. Incentive and production-related compensation increased by 54.9% in
1998 due to higher revenues and operating results. In addition, the first
quarter of 1998 includes a $29 million one-time provision for costs associated
primarily with the Company's plans for significant expansion in Europe. Base
compensation, including benefits and all payroll taxes, increased by 43.7% due
to expansion in various business groups. At March 31, 1998, full-time personnel
totaled 7,377 compared to 6,046 at March 31, 1997, an increase of 1,331 or
22.0%.

Interest expense increased $155.7 million or 71.4% to $373.9 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.

All other expenses, as noted below, increased by $62.4 million or 31.9% to
$258.2 million for the first quarter of 1998.

Brokerage, clearing, exchange fees and other expenses decreased by $2.2
million due to decreased transaction fee payments. Occupancy and equipment
costs increased by $19.5 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 $5.7 million due to
expanded facilities and growth in professional staff. All other operating
expenses increased by $39.5 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.

The Company's income tax provision for the first quarter of 1998 and 1997
was $83.1 million and $57.6 million, respectively, which represented a 38.25%
and 40% 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 March 31, 1998 was a record $134.2
million, up $47.8 million or 55.3% from the comparable 1997 period. Basic and
diluted earnings per common share after giving effect to the stock split, using
the treasury stock method were $1.12 and $0.76 and $1.00 and $0.69 for the
first quarter of 1998 and 1997, respectively.

15
<PAGE>

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 proprietary trading and customer business. Such
collateralized receivables consist primarily of resale agreements and
securities borrowed, both of which are secured by U.S. government and agency
securities, and 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 March 31, 1998 and December
31, 1997 were $74.1 billion and $70.5 billion, respectively.

The majority of the Company's assets are financed through daily operations
by repurchase agreements, financial instruments sold not yet purchased,
securities loaned, bank loans, and through payables to 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 a $2.0 billion credit facility with various banks,
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 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 senior subordinated revolving credit
agreement of $325 million. In addition, the Company issued $150 million of 6
1/2% Senior Notes due 2008 in March 1998.

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 market financial
instruments, primarily foreign sovereign debt. At March 31, 1998 and December
31, 1997, the Company had issued long-term structured notes with principal
amounts of $147.6 million and $123.7 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.

In January 1998, the Company commenced a $1.0 billion commercial paper
program. Obligations issued thereunder (the "Notes") are exempt from
registration under the Securities Act of 1933, as amended. The Notes rank pari
passu with the Company's other unsecured and unsubordinated indebtedness. At
March 31, 1998, the Company had $194.2 million of Notes outstanding under this
program.

The Company's current credit ratings of its long-term debt and commercial paper
are as follows:
<TABLE>
<CAPTION>
Long-Term Debt Commercial Paper
-------------- ----------------
<S> <C> <C>
Duff & Phelps A -
Fitch IBCA A F-1
Moody's A3 P-2
Standard & Poors A- A-2
Thomson Bank Watch A+ TBW-1
</TABLE>

The Company's principal wholly-owned subsidiary, Donaldson, Lufkin &
Jenrette Securities Corporation ("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

16
<PAGE>

which should ensure the general capital adequacy and liquidity of
broker-dealers and/or futures commission merchants. DLJSC has consistently
maintained capital substantially in excess of the minimum requirements of such
capital rules. At March 31, 1998, DLJSC had aggregate regulatory "net capital,"
after adjustments required by Rule 15c3-1 under the Securities Exchange Act of
1934, of approximately $815.1 million, which exceeded minimum net capital
requirements by $705.1 million and which exceeded the net capital required by
DLJSC's most restrictive debt covenants by $439.2 million. Certain of the
Company's London-based broker-dealer subsidiaries are subject to the
requirements of the Securities and Futures Authority, a self-regulatory
organization established pursuant to the United Kingdom Financial Services Act
of 1986. Other U.S. and foreign broker-dealer subsidiaries of the Company are
subject to net capital requirements of their respective regulatory agencies. At
March 31, 1998, the Company and its broker-dealer subsidiaries were in
compliance with all applicable regulatory capital adequacy requirements.

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.

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.

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.

Three Months Ended March 31, 1998 and 1997

Cash and cash equivalents at March 31, 1998 and 1997, totaled $247.4
million and $195.0 million, respectively. This represents a decrease of $25.7
million for the three months ended March 31, 1998 and an increase of $36.2
million for the three months ended March 31, 1997.

Cash used in operating activities totaled $1.5 billion and $3.4 billion
for the three months ended March 31, 1998 and 1997, respectively, and reflects
primarily an increase in operating assets. In the first three months of 1998,
there were increases in assets including trading inventories of $2.1 billion,
receivables from brokers, dealers and other of $1.1 billion and securities
borrowed of $1.0 billion. These increases were partially offset by increases in
liabilities including payables to brokers, dealers and other of $1.3 billion
and financial instruments sold not yet purchased of $1.1 billion. In the first
three months of 1997, there were increases in assets including securities
borrowed of $3.9 billion and trading inventories of $1.6 billion. These
increases were partially offset by increases in securities loaned of $1.4
billion and financial instruments sold not yet purchased of $0.9 billion.

For the three months ended March 31, 1998 and 1997, cash of $246.3 million
and $119.5 million, respectively, was used in investing activities. These
generally consist of purchases of long-term corporate development investments
and office facilities. Additionally, in 1997, cash was used for the purchase of
net assets related to the Phoenix acquisition.

For the first three months of 1998 and 1997, net cash provided by
financing activities totaled $1.7 billion and $3.5 billion, respectively, of
which, $1.4 billion and $3.4 billion was provided by short-term financings
(principally repurchase agreements). Additionally, in 1998, $175.0 million was
provided from the issuance of Series B preferred stock.

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 contracts to accommodate its
customers' needs, trading in forward contracts in U.S. government and agency
issued or guaranteed securities, trading in futures contracts on equity-based
indices, interest rate instruments and foreign currencies, and issuing
structured products based on emerging market debt, other financial instruments
and indices. 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 covers of the
Company's own positions.

17
<PAGE>

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 $15.1 million and $9.6 million for the three months ended March
31, 1998 and 1997, respectively. Option writing revenues are primarily from the
amortization of option premiums.

The notional value of written options contracts outstanding was
approximately $6.7 billion and $9.3 billion at March 31, 1998 and 1997,
respectively. Such written options contracts are substantially covered by
various financial instruments that the Company has purchased or sold as
principal. The overall decrease in the notional value of all options was due
primarily to decreases in customer activity related to foreign sovereign debt
securities.

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 $20.9 million and $29.3
million and net trading gains (losses) on futures contracts were $(27.0)
million and $5.7 million for the three months ended March 31, 1998 and 1997,
respectively.

The notional contract and market values of the forward and futures contracts at
March 31, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
-------------- --------------
Purchases Sales Purchases Sales
--------- ----- --------- -----
(In millions)
<S> <C> <C> <C> <C>
Forward Contracts
(Notional Contract Value) ..................... $23,288 $23,555 $ 17,222 $26,189
======= ======= ========== =======

Futures Contracts and Options on
Futures Contracts (Market Value) ............. $ 1,210 $ 2,117 $ 2,193 $ 6,844
======= ======= ========== =======

</TABLE>

MERCHANT BANKING AND BRIDGE LENDING ACTIVITIES

The Company's merchant banking activities include investments in various
partnerships, for which subsidiaries of the Company act as general partner, as
well as direct investments in connection with its merchant banking activities.
As of March 31, 1998 the Company had investments of $423.6 million and has
commitments to invest up to an additional $843.8 million in connection with
these merchant banking activities.

The Company is the sponsor of the $1.25 billion DLJ Bridge Fund which
provides short-term loans in connection with DLJ's merchant banking and
financial advisory businesses. The Bridge Fund has a commitment of subordinated
debt from Equitable. Any loans made by the DLJ Bridge Fund would be expected to
be refinanced, and the outstanding amounts repaid, within a short-term period.
At March 31, 1998, the DLJ Bridge Fund had extended $233.9 million of
short-term bridge loans.

HIGH-YIELD AND OTHER NON-INVESTMENT GRADE DEBT

The Company participates in the underwriting, trading, sales and holding
of high-yield and other non-investment-grade debt. Non-investment-grade debt is
defined as loans to companies rated BB+ or lower as well as non-rated loans.
These instruments generally involve greater risk than investment-grade debt
holdings due to credit considerations, liquidity of secondary trading markets
and vulnerability to general economic conditions. In the first quarter of 1998,
the Company's high-yield and other non-investment grade debt increased due to
the demand for higher-yielding instruments, expansion of the Company's senior
bank debt activities and increased investment activities of the Emerging
Markets Division.

18
<PAGE>

The Company accounts for its high-yield financial instruments at market
value and other non-investment grade holdings generally at market or fair
value, with unrealized gains and losses recognized currently in earnings. At
March 31, 1998 and December 31, 1997 the Company had long and short financial
instruments (excluding derivatives and structured notes) as follows:

<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------ -------------------
(In millions)
Long Short Long Short
---- ----- ---- -----
<S> <C> <C> <C> <C>
High-Yield Debt .......... $ 847.0 $ 387.1 $ 645.6 $ 389.6
Senior Bank Debt ......... 907.5 -- 864.1 --
Foreign Sovereign Debt ... 3,303.2 376.4 1,615.4 543.3
Mortgage Whole Loans ..... 1,130.3 -- 1,555.7 --
Convertible Debt ......... 484.2 19.2 320.3 3.1
Other Non-Investment Grade 136.8 62.1 44.4 4.9
---------- -------- ---------- --------
Totals .................... $ 6,809.0 $ 844.8 $ 5,045.5 $ 940.9
========== ======== ========== ========
</TABLE>
RISK MANAGEMENT AND VALUE AT RISK

For a description of the Company's risk management policies and procedures
and value-at-risk ("VAR") model, including such model's assumptions and
limitations, refer to the Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's 1997 Annual
Report on form 10-K.

The Company-wide VAR was approximately $15.6 million and $10.9 million at March
31, 1998 and December 31, 1997, respectively. The Company-wide VAR is less than
the sum of the individual components below due to the benefit of
diversification among the risks presented below. The VAR for the three main
components of market risk, expressed in terms of theoretical fair values at
March 31, 1998 and December 31, 1997 is as follows:

March 31, December 31,
1998 1997
-------- ------------
(In millions)

Interest rate risk ........... $ 9.1 $ 7.6
Equity risk .................. $ 10.2 $ 7.9
Foreign currency exchange risk $ 2.3 $ 1.2

YEAR 2000

As a result of the Company's recent expansion, entry into new product
markets and its move to new corporate headquarters, many of the Company's newer
communications and data processing systems are Year 2000 compliant. The
Company, however, has undertaken a project to identify and modify non-Year 2000
compliant communications and 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 and could have a material adverse
effect on the Company's business. 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. Full integration testing of these systems and
testing of interfaces with third party providers will continue through 1999.
However, there can be no assurance that such schedule will be met or the
systems of other companies on which the Company's business is dependent 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 business. The total cost of
the project through the end of 1998 is currently estimated to be between $80
and $90 million. Costs related to this project are expensed and the Company has
incurred approximately $51 million of such costs at March 31, 1998.

19
<PAGE>

FORWARD-LOOKING STATEMENTS

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.

20
<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, 1997. With respect to the litigation involving Dayton Monetary
Associates and Charles Davison, DLJSC's motions for summary judgments were
denied in April 1998. In the National Gypsum case, DLJSC has appealed the
Bankruptcy Court's ruling in January 1998 that the State Court plaintiff's
claims were not barred by the NGC plan of reorganization insofar as they
alleged nondisclosure of certain cost reductions.

21
<PAGE>

ITEM 5. OTHER INFORMATION

The Company's Annual Meeting of Stockholders was held on April 22, 1998.
At the meeting, (i) sixteen persons were elected as directors of the Company,
(ii) the selection of KPMG Peat Marwick LLP to serve as the independent
auditors of the Company for the fiscal year ending December 31, 1998 was
ratified, and (iii) an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of the Company's
common stock from 150,000,000 to 300,000,000 and the number of authorized
shares of the Company's preferred stock from 25,000,000 to 50,000,000 was
approved.

Election of Directors:

<TABLE>
<CAPTION>
Nominee For Withheld Against
------- --- -------- -------
<S> <C> <C> <C>
John S. Chalsty 55.188,221 155,170
Anthony F. Daddino 55,188,401 154,990
Henri de Castries 55,183,421 159,970
Denis Duverne 55,182,763 160,628
Louis Harris 55,183,050 160,341
Henri Baron Hottinguer 52,810,368 2,533,023
Hamilton E. James 55,187,821 155,570
W. Edwin Jarmain 55,187,801 155,590
Francis Jungers 55,183,650 159,741
Edward D. Miller 55,184,843 158,548
Richard S. Pechter 55,188,021 155,370
Joe L. Roby 55,188,221 155,170
W.J. Sanders III 55,191,301 152,090
Theodore P. Shen 52,781,291 2,562,100
Stanley B. Tulin 55,186,143 157,248
John C. West 55,183,450 159,941

Ratification of Auditors 55,325,172 10,773 7,446

Approval of an amendment to
the Company's Restated
Certificate of Incorporation 49,671,714 4,840,767 830,910
</TABLE>

22
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

3.1 Amended and Restated Certificate of Incorporation.

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).

4.1 Certificate of Designation of 3,500,000 shares of Fixed/Adjustable
Rate Cumulative Preferred Stock, Series B. (Incorporated herein by
reference to Exhibit 99.1 to the Company's Form 8-K, dated January
8, 1998; Item 5).

11 Statement re: computation of basic earnings per share.

11.1 Statement re: computation of diluted earnings per share.

27 Financial Data Schedule

(b) Reports on Form 8-K
1. Form 8-K dated January 8, 1998; Item 5
2. Form 8-K dated March 22, 1998; Items 5 and 7
3. Form 8-K dated April 14, 1998; 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.

May 14, 1998 /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 Amended and Restated Certificate of Incorporation.

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 basic earnings per share.

11.1 Statement re: computation of diluted earnings per share.

27 Financial Data Schedule

<PAGE>

EXHIBIT 3.1

STATE OF DELAWARE

OFFICE OF THE SECRETARY OF STATE
--------------------------------

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "DONALDSON, LUFKIN & JENRETTE, INC.'', FILED IN THIS OFFICE ON
THE TWENTY-SECOND DAY OF APRIL, A.D. 1998, AT 9 O'CLOCK A.M.

/s/ Edward J. Freel
----------------------------
Edward J. Freel

Authorization Number: 9042949
Date: 04-23-98

<PAGE>

AMENDMENT AND RESTATED CERTIFICATE OF INCORPORATION
OF
DONALDSON, LUFKIN & JENRETTE, INC.

Donaldson, Lufkin & Jenrette, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:

1. The name of the corporation is Donaldson, Lufkin & Jenrette, Inc. The
date of filing its original Certificate of Incorporation with the Secretary of
State was October 20, 1959.

2. This Amendment and Restated Certificate of Incorporation has been duly
adopted and proposed to the stockholders of he Corporation by the Board of
Directors of the Corporation, and has been approved and adopted by the
stockholders of the Corporation, in accordance with Sections 242 and 245 of
the General Corporation Law of the State of Delaware.

3. Pursuant to Section 242 and 245 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Certificate
of Incorporation of the Corporation.

4. The text of the Certificate of Incorporation is hereby restated and
further amended to read in its entirety as hereinafter set forth:

<PAGE>

FIRST: The name of the Corporation is DONALDSON, LUFKIN & JENRETTE, INC.

SECOND: The principal office of the Corporation in the State of Delaware
is located at Corporation Trust Center, 1209 Orange Street, Wilmington, DE
19081. The name and address of the Corporation's resident agent is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, DE 19081; County of New Castle.

THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may now or hereafter be organized under the
General Corporation Law of the State of Delaware.

FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 300,000,000 shares of Common Stock, par value $0.10
per share (the "Common Stock"), and 50,000,000 shares of Preferred Stock, par
value $0.01 per share (the "Preferred Stock").

The Board of Directors (or such committee of the Board of Directors as
the Board of Directors shall empower) is hereby empowered to authorize by
resolution or resolutions from time to time the issuance of one of more classes
or series of Preferred Stock and to fix the designations, powers, preferences
and relative, participating, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, if any, with respect to
each such class or series of Preferred Stock and the number of shares
constituting each such class or series, and to increase or decrease the number
of shares of any such class or series to the

2
<PAGE>

extent permitted by the General Corporation Law of the State of Delaware, as
amended from time to time.

FIFTH: The Corporation is to have perpetual existence.

SIXTH: The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.

SEVENTH: The following additional provisions are inserted for the
management of the business and for the conduct of the affairs of the
Corporation, and for the creation, definition, limitation and regulation of
the powers of the Corporation, the directors and the stockholders:

1. Election of directors need not be by ballot. The Board of Directors
shall have the power to make, alter, amend and repeal the By-laws of the
Corporation.

2. Any director may be removed at any time, with or without cause, upon
the affirmative vote of the holder of a majority of the stock of the
Corporation at that time having voting power for the election of directors.

3. In the event that any contract or other transaction to which this
Corporation is a party would be affected by the fact that any directors or
officers of this Corporation are directors, officers, creditors, stockholders,
partners, or otherwise interested in any other party to such contract, or are
parties to or are otherwise interested in such contract or other transaction,
then, in any such event, such contract or other transaction shall not be
affected by such fact if such contract of other transaction shall be approved
or ratified by the affirmative vote

3
<PAGE>

of directors who are not so interested constituting a majority of a quorum of
directors present at a meeting of the Board of Directors. In the absence of
actual fraud, no director or officer shall be liable to account to the
Corporation for any profit realized by him from or through any such contract
or other transaction of the types described above in this paragraph ratified
or approved as aforesaid, by reason of his interest in any such contract or
other transaction.

Directors interested in any such contract or other transaction of the
types described in the foregoing paragraph may be counted when present at
meetings of the Board of Directors for the purpose of determining the
existence of a quorum to consider and vote on any such contract or other
transaction.

Any contract or other transaction that shall be approved or ratified by
the vote of the holders of a majority of the stock of the Corporation at the
time having voting powers for the election of directors present, in person or
by proxy, at any annual or special meeting of stockholders (provided that a
lawful quorum of such stockholders be there present in person or by proxy)
shall, except as otherwise provided, by law, be as valid and as binding upon
the Corporation and upon all its stockholders as though it had been approved or
ratified by every stockholder of the Corporation.

4. The Board of Directors may, by resolution or resolutions, passed by a
majority of the whole board, designate one or more committees, each committee
to consist of two or more of the directs of the Corporation, which to the
extent provided in said resolution or resolutions or in the By-Laws of the
Corporation,

4
<PAGE>

shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
Such committee or committees shall have such name or names as may be stated
in the By-Laws of the Corporation or as may be determined from time to time
by resolution adopted by the Board of Directors.

5. The Board of Directors shall also have power to authorize and cause to
be executed and delivered mortgages and instruments of pledge, and any other
instruments creating liens, on the real and personal property of the
Corporation; to fix the times for the declaration and payment of dividends;
to set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any
such reserve; and to make and determine the use and disposition of any
surplus (whether capital, earned or other surplus) or net profits over and
above the capital of the Corporation, and in its discretion, the Board of
Directors may use and apply any such surplus or net profits in purchasing or
acquiring shares of its own stock to such extent and in such manner and upon
such terms as the Board of Directors shall deem expedient. The shares of such
stock so purchased or acquired may be resold, except as otherwise provided by
law.

6. The business of the Corporation shall be managed by the Board of
Directors, except as otherwise provided by the General Corporation Law of the
State of Delaware or herein. The Board of Directors, in addition to the
powers

5
<PAGE>

and authority expressly conferred upon it herein, by law, by the By-Laws and
otherwise, is hereby empowered to exercise all such powers as may be
exercised by the Corporation; subject, nevertheless, to the provisions of the
laws of the State of Delaware, of this Certificate of Incorporation, and of
any amendments thereto, and to the By-Laws.

7. A director, or a member of any committee designated by the Board of
Directors pursuant to authority hereinbefore conferred, shall, in the
performance of his duties, be fully protected in relying in good faith upon
the books of account or reports made to the Corporation, its stockholders,
its Board of Directors or any such committee, by any of its officials, or by
an independent certified public accountant, or by an appraiser selected with
reasonable care by the Board of Directors or by any such committee, or in
relying in good faith upon other records of the Corporation. Without
prejudice to the generality of the foregoing, a director shall be fully
protected in relying in good faith upon the books of account of the
Corporation or statements prepared by any of its officials as to the value
and amount of the assets, liabilities and/or net profits of the Corporation,
or any other facts pertinent to the existence and amount of surplus or other
funds from which dividends might properly be declared and paid.

8. Whenever under the provisions of the laws of the State of Delaware or
this Certificate of Incorporation the vote of the holders of Common Stock at
a meeting thereof is required or permitted to be taken for or in connection
with any corporate action, the meeting and vote of such holders may be
dispensed with and

6
<PAGE>

such actions may be effectively and validly taken on the written consent of
the holders of not less than a majority of the shares of Common Stock then
outstanding, provided that in no case shall such written consent be by the
holders of Common Stock having less than the minimum percentage of the total
vote required by statue for the proposed corporate action, and provided,
further that prompt notice shall be given to all stockholders of the taking
of corporate action without a meeting and by less than unanimous written
consent.

EIGHTH: (a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had not reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption

7
<PAGE>

that the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.

(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence or misconduct in
the performance of his duty to the Corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.

8
<PAGE>

(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsection (a) or (b), or in
defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.

(d) Any indemnification under subsection (a) or (b) (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to such action, suit
or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.

(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the Board of Directors in
the specific case upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in this section.

9
<PAGE>

(f) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
a person.

(g) The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this section.

10
<PAGE>

IN WITNESS WHEREOF, said Donaldson, Lufkin & Jenrette, Inc. has caused
this certificate to be signed by Joe L. Roby, its President and Chief
Executive Officer, and attested by Marjorie White, its Secretary, this 22nd
day of April, 1998.

DONALDSON, LUFKIN &
JENRETTE, INC.
By /s/ Joe L. Roby
-------------------------------
President and
Chief Executive Officer

ATTEST:
By Marjorie White
--------------------
Secretary

<PAGE>

EXHIBIT 11

DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES

Computation of Basic Earnings Per Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Weighted Average Common Shares (1):
Average Common Shares Outstanding ......... 114,972 108,100
Average Restricted Stock Units Outstanding 116 760
-------- --------

Weighted Average Common Shares Outstanding ..... 115,088 108,860
======== ========

Earnings:
Net Income ................................ $134,150 $ 86,400
Less: Preferred Stock Dividend Requirement 5,443 3,234
-------- --------

Earnings Applicable to Common Shares ........... $128,707 $ 83,166
======== ========

Basic Earnings Per Common Share ................ $ 1.12 $ 0.76
======== ========
</TABLE>

(1) In February 1998, the Board of Directors declared a two-for-one stock
split (the "stock split") of the Company's common stock, subject to
stockholder approval, to increase the number of authorized common shares.
In April 1998, the stockholders approved an amendment to the Company's
Certificate of Incorporation whereby the amount of total authorized
shares of common stock was increased to 300 million shares and the amount
of total authorized shares of preferred stock was increased to 50
million. The stock split was effected in the form of a 100% stock
dividend to stockholders of record on April 27, 1998, and was paid on May
11, 1998. All common share, per common share, restricted stock unit and
option data have been restated for the effect of the stock split.

<PAGE>

EXHIBIT 11-1

DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES

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

<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Weighted Average Common Shares (1):
Average Common Shares Outstanding ......................... 114,972 108,100
Average Restricted Stock Units Outstanding ................ 3,682 8,658
Average Common Shares Issuable Under Employee Benefit Plans 10,140 4,218
-------- --------

Weighted Average Common Shares Outstanding ..................... 128,794 120,976
======== ========

Earnings:
Net Income ................................................ $134,150 $ 86,400
Less: Preferred Stock Dividend Requirement ............... 5,443 3,234
-------- --------

Earnings Applicable to Common Shares ........................... $128,707 $ 83,166
======== ========

Diluted Earnings Per Common Share .............................. $ 1.00 $ 0.69
======== ========
</TABLE>

<PAGE>

<ARTICLE> BD
<LEGEND>
THIS 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,508,530
<RECEIVABLES> 8,777,361
<SECURITIES-RESALE> 21,094,329
<SECURITIES-BORROWED> 21,618,273
<INSTRUMENTS-OWNED> 19,178,387
<PP&E> 401,813
<TOTAL-ASSETS> 74,064,019
<SHORT-TERM> 2,529,779
<PAYABLES> 8,931,282
<REPOS-SOLD> 34,769,279
<SECURITIES-LOANED> 8,655,428
<INSTRUMENTS-SOLD> 11,538,316
<LONG-TERM> 2,419,740
200,000
375,000
<COMMON> 11,693<F1>
<OTHER-SE> 2,010,735<F1>
<TOTAL-LIABILITY-AND-EQUITY> 74,064,019
<TRADING-REVENUE> 104,303
<INTEREST-DIVIDENDS> 569,123
<COMMISSIONS> 197,635
<INVESTMENT-BANKING-REVENUES> 346,653
<FEE-REVENUE> 30,689
<INTEREST-EXPENSE> 373,866
<COMPENSATION> 644,084
<INCOME-PRETAX> 217,250
<INCOME-PRE-EXTRAORDINARY> 217,250
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,707
<EPS-PRIMARY> 1.12<F2>
<EPS-DILUTED> 1.00<F2>
<FN>
<F1> Common stock and other stockholder's equity have been restated for the
effect of the stock split.
<F2> Basic and diluted earnings per share amounts have been restated for the
implementation of SFAS No. 128 "Earnings Per Share" and for the effect of
the stock split. The restated basic and diluted earnings per share
amounts at March 31, 1997 totaled $0.76 and $0.69, respectively.
</FN>

</TABLE>