DONALDSON LUFKIN & JENRETTE INC /NY/, DEF 14C, 1999-05-04

DONALDSON LUFKIN & JENRETTE INC /NY/
DEF 14C, 1999-05-04
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES

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SCHEDULE 14C

(Rule 14c-101)

INFORMATION REQUIRED IN INFORMATION STATEMENT

SCHEDULE 14C INFORMATION

Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
(Amendment No. 2)

Check the appropriate box:

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<CAPTION>
<S> <C>
[ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
[X] Definitive Information Statement
</TABLE>

DONALDSON, LUFKIN & JENRETTE, INC.
(Name of Registrant as Specified in Its Charter)

Payment of Filing Fee (check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount previously paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:
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DONALDSON, LUFKIN & JENRETTE, INC.
277 PARK AVENUE
NEW YORK, NEW YORK 10172

May 3, 1999

Dear Stockholder:

We are furnishing this Information Statement to you in connection with our
proposed offering of "tracking stock" for our DLJdirect online discount
brokerage and related investment services businesses described in the
accompanying Information Statement.

In order to issue the tracking stock, we need to amend our amended and
restated certificate of incorporation. Our certificate of incorporation permits
us to make this amendment if we obtain the written consent of holders of shares
representing a majority of the votes entitled to be cast at a duly called
meeting of stockholders. Donaldson, Lufkin & Jenrette, Inc.'s principal
stockholder, The Equitable Companies Incorporated, controls 71.3% of the
outstanding votes of Donaldson, Lufkin & Jenrette, Inc. and has indicated that
it intends to approve the tracking stock proposal by written consent. WE ARE
NOT ASKING YOU FOR A PROXY OR A WRITTEN CONSENT AND YOU ARE REQUESTED NOT TO
SEND US A PROXY OR A WRITTEN CONSENT. As we explain in this Information
Statement, however, completion of the offering is still subject to a number of
conditions. We cannot predict with certainty when we will complete the
offering, but we hope to complete the offering in the second quarter of 1999.

We are sending this Information Statement to all holders of shares of
Donaldson, Lufkin & Jenrette, Inc. common stock. The record date for the
determination of your status as a holder of Donaldson, Lufkin & Jenrette, Inc.
common stock was April 16, 1999.

The tracking stock proposal will allow us to issue a new series of common
stock which will be called "DLJdirect Common Stock". The new series of common
stock is intended to reflect the performance of DLJdirect, our online discount
brokerage and related investment services business. Before we first issue
DLJdirect Common Stock, we would re-classify Donaldson, Lufkin & Jenrette,
Inc.'s existing common stock as "DLJ Common Stock", intended to reflect the
performance of DLJ's other businesses and a retained interest in DLJdirect.

We currently plan to offer to the public, for cash, shares of DLJdirect
Common Stock intended to represent a minority interest in the equity value
attributed to DLJdirect.

We are proceeding with the tracking stock proposal primarily for the
following reasons:

- The proposal will permit the market to review separate information about
DLJdirect and to separately value DLJdirect Common Stock. This should
encourage investors and analysts to focus more attention on DLJdirect and
result in greater market recognition of the value of DLJdirect to
Donaldson, Lufkin & Jenrette, Inc.

- The proposal will allow investors to invest in either or both series of
common stock, depending on their particular investment objectives.

- The proposal will allow us to issue stock options tied to DLJdirect
Common Stock, thereby providing more focused incentives to DLJdirect
management and employees.

- The proposal will provide us with greater flexibility to raise capital
and respond to strategic opportunities (including acquisitions), because
it will allow us to issue either DLJ Common Stock or DLJdirect Common
Stock as appropriate under the circumstances.

- The proposal will allow us to realize some of the value of DLJdirect
while preserving the financial, tax, operational, strategic and other
benefits of being a single consolidated entity.

- The proposal will allow us to issue DLJdirect Common Stock to the public
for cash on a basis that we believe is tax-free and to attribute the net
proceeds from the offering to DLJdirect. DLJdirect will use the net
proceeds from the offering to repay a note issued to us prior to the
consummation of the offering and for other general corporate purposes.

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The tracking stock proposal will also increase the number of shares of our
existing common stock (which will become DLJ Common Stock) authorized for
issuance from 300 million to 500 million and authorize the board of directors
to create additional series of common stock other than DLJ Common Stock and
DLJdirect Common Stock.

This Information Statement is to inform you of the tracking stock proposal
and constitutes the notice of corporate action without a meeting required by
Section 228 of the Delaware General Corporation Law. The tracking stock
proposal will become effective no earlier than 20 days after this Information
Statement is mailed to stockholders of Donaldson, Lufkin & Jenrette, Inc.

In addition to the Information Statement, we have attached for your
convenience, in "Q and A" format, a summary of certain questions you may have
about the tracking stock proposal and our answers to these questions.

Thank you for your cooperation and continued support and interest in
Donaldson, Lufkin & Jenrette, Inc.

Sincerely,

Joe L Roby John S. Chalsty
President and Chairman of the Board
Chief Executive Officer

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QUESTIONS AND ANSWERS
ABOUT OUR
TRACKING STOCK PROPOSAL

Q: WHY AM I RECEIVING THIS INFORMATION STATEMENT? WHAT IS THE TRACKING STOCK
PROPOSAL?

A: We are sending you this Information Statement to inform you of the tracking
stock proposal described in this Information Statement. The Equitable Companies
Incorporated, the owner of approximately 71.3% of our outstanding common stock,
has indicated that it intends to consent to the tracking stock proposal. Thus,
no meeting or additional approval or consent of our other stockholders is
necessary to effect the tracking stock proposal. This Information Statement
constitutes notice of corporate action without a meeting required by Section
228 of the Delaware General Corporation Law.

The tracking stock proposal would allow us to amend our amended and restated
certificate of incorporation to:

o Authorize the board of directors to issue common stock in multiple
series--initially, we would have two series: DLJ Common Stock and DLJdirect
Common Stock.

o We intend DLJdirect Common Stock to reflect the performance of DLJdirect
(our online discount brokerage and related investment services
businesses).

o We intend DLJ Common Stock to reflect the performance of DLJ (our other
businesses and a retained interest in DLJdirect).

o We have allocated all of Donaldson, Lufkin & Jenrette, Inc.'s
consolidated assets, liabilities, revenue, expenses and cash flow
between DLJ and DLJdirect.

o Re-classify each outstanding share of existing common stock into a share of
DLJ Common Stock.

Q: WHAT IS "TRACKING STOCK"?

A: "Tracking stock", which people sometimes call "alphabet stock", "letter
stock" or "targeted stock", is a type of common stock that the issuing company
intends to reflect (or "track") the performance of a particular business. As
mentioned above, we propose creating two new series of tracking stock, to be
designated as DLJ Common Stock and DLJdirect Common Stock.

We cannot assure you that the market values of DLJ Common Stock and DLJdirect
Common Stock will in fact reflect the performance of DLJ and DLJdirect as we
intend. Holders of DLJ Common Stock and DLJdirect Common Stock will continue to
be common stockholders of Donaldson, Lufkin & Jenrette, Inc. and, as such, will
be subject to all risks associated with an investment in Donaldson, Lufkin &
Jenrette, Inc. and all of our businesses, assets and liabilities.

Q: WHY IS THERE NO STOCKHOLDER VOTE?

A: The tracking stock proposal requires the consent of the holders of a
majority of the outstanding shares. The Equitable Companies Incorporated, the
owner of approximately 71.3% of our outstanding common stock, has indicated
that it intends to consent to the tracking stock proposal by executing a
written stockholders' consent. This consent meets the stockholder approval
requirements under Delaware Law. Thus, no meeting or further approval or
consent of our other stockholders is necessary to effect the tracking stock
proposal.

Q: HOW WILL YOU INITIALLY ISSUE DLJdirect COMMON STOCK? HOW MANY SHARES WILL
YOU INITIALLY ISSUE AND WHEN?

A: We currently plan to offer to the public, for cash, shares of DLJdirect
Common Stock intended to represent a minority of the equity value attributed to
DLJdirect and to attribute the net proceeds from the offering to DLJdirect.
DLJdirect will use the net proceeds from the offering to repay a note issued to
us

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prior to the consummation of the offering and for other general corporate
purposes. We expect the DLJdirect Common Stock offering to occur sometime in
the second or third quarter of 1999. However, we could choose to conduct the
offering at a later time, or not to make the offering at all, depending on the
circumstances at the time.

Q: WHEN WILL YOU IMPLEMENT THE TRACKING STOCK PROPOSAL? WHEN WILL YOU
RE-CLASSIFY MY COMMON STOCK INTO DLJ COMMON STOCK?

A: When we file the amendment to our amended and restated certificate of
incorporation implementing the tracking stock proposal, it will re-classify
your common stock into DLJ Common Stock.

Q: WHAT HAPPENS TO MY COMMON STOCK WHEN YOU IMPLEMENT THE TRACKING STOCK
PROPOSAL? DO I NEED TO SEND IN MY STOCK CERTIFICATES?

A: When we file the amendment to our amended and restated certificate of
incorporation implementing the tracking stock proposal, that filing will
automatically re-classify each of your shares into one share of DLJ Common
Stock, and your existing stock certificates will automatically represent that
DLJ Common Stock. Since the re-classification is automatic, you do not need to
send in your stock certificates or make any notations reflecting the change.
DONALDSON, LUFKIN & JENRETTE, INC. WILL FURNISH WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF OUR EXISTING COMMON STOCK
(WHICH WILL BECOME DLJ COMMON STOCK) AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.

Q: WILL DLJ COMMON STOCK BE LISTED ON THE NYSE? HOW ABOUT DLJdirect COMMON
STOCK?

A: When we re-classify our common stock as DLJ Common Stock, it will continue
to trade on the NYSE under the symbol "DLJ". We currently intend to apply for
listing of DLJdirect Common Stock on the NYSE under the symbol "DIR".

Q: WHAT VOTING RIGHTS WILL I HAVE?

A: Each share of DLJ Common Stock will continue to entitle the holder to one
vote. Shares of DLJdirect Common Stock will not entitle the holders to vote,
unless a separate class vote is required by law.

Q: WHAT ARE THE TAX CONSEQUENCES OF THE TRACKING STOCK PROPOSAL?

A: We believe that neither you nor Donaldson, Lufkin & Jenrette, Inc. will
recognize any income, gain or loss for federal income tax purposes as a result
of the re-classification of existing common stock into DLJ Common Stock or the
issuance of DLJdirect Common Stock. There are, however, no court decisions
bearing directly on similar transactions, and the Internal Revenue Service has
announced that it will not issue advance rulings on the federal income tax
consequences of such transactions. Thus, you should consult a tax advisor.

Q: DO YOU INTEND TO PAY DIVIDENDS?

A: We currently intend to retain all of DLJdirect's earnings to finance
operations and fund future growth. We do not expect to pay any dividends on
DLJdirect Common Stock for the foreseeable future. We do not expect to change
our dividend policy with respect to our currently outstanding common stock
(which will become DLJ Common Stock) as a result of the tracking stock
proposal.

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DATED MAY 3, 1999

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

INFORMATION STATEMENT

----------------
DONALDSON, LUFKIN & JENRETTE, INC.

----------------
The board of directors of Donaldson, Lufkin & Jenrette, Inc. is furnishing
this Information Statement to you in connection with the proposed offering of
"tracking stock" for our DLJdirect online discount brokerage and related
investment services businesses described in this Information Statement.

In order to issue the tracking stock, we need to amend our amended and
restated certificate of incorporation. Our amended and restated certificate of
incorporation permits us to make this amendment if we obtain the written
consent of holders of shares representing a majority of the votes entitled to
be cast at a duly called meeting of stockholders. Donaldson, Lufkin & Jenrette,
Inc.'s principal stockholder, The Equitable Companies Incorporated, controls
71.3% of the outstanding votes of Donaldson, Lufkin & Jenrette, Inc. and has
indicated that it intends to approve the tracking stock proposal by written
consent. WE ARE NOT ASKING YOU FOR A PROXY OR A WRITTEN CONSENT AND YOU ARE
REQUESTED NOT TO SEND US A PROXY OR A WRITTEN CONSENT. As we explain in this
Information Statement, however, completion of the offering is still subject to
a number of conditions. We cannot predict with certainty when we will complete
the offering, but we hope to complete the offering in the second quarter of
1999.

The tracking stock proposal will allow us to issue a new series of common
stock which will be called Donaldson, Lufkin & Jenrette, Inc.--DLJdirect Common
Stock ("DLJdirect Common Stock"). The new series of common stock is intended to
reflect the performance of DLJdirect, our online discount brokerage and related
investment services business. Before we first issue DLJdirect Common Stock, we
would re-classify Donaldson, Lufkin & Jenrette, Inc.'s existing common stock as
Donaldson, Lufkin & Jenrette, Inc.--DLJ Common Stock ("DLJ Common Stock") which
would be intended to reflect the performance of DLJ's other businesses and a
retained interest in DLJdirect. Our reasons for proceeding with the tracking
stock proposal are outlined elsewhere in this Information Statement. See "The
Tracking Stock Proposal--Reasons for the Tracking Stock Proposal".

We currently plan to offer to the public, for cash, shares of DLJdirect
Common Stock intended to represent a minority interest in the equity value
attributed to DLJdirect and to allocate the net proceeds from that offering to
DLJdirect. DLJdirect will use the net proceeds to repay a note issued to us
prior to the consummation of the offering and for other general corporate
purposes.

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The tracking stock proposal will become effective no earlier than 20 days after
this Information Statement is mailed to stockholders of Donaldson, Lufkin &
Jenrette, Inc.

----------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES REGULATOR,
NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION
NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This Information Statement is dated May 3, 1999, and was first mailed to
stockholders of Donaldson, Lufkin & Jenrette, Inc. on or about May 4, 1999.

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---------------------
TABLE OF CONTENTS
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PAGE
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INFORMATION STATEMENT SUMMARY ........................................................ 5
THE TRACKING STOCK PROPOSAL .......................................................... 5
General ............................................................................. 5
Reasons for the Tracking Stock Proposal ............................................. 6
Summary Comparison of Terms of Existing Common Stock with Terms of
DLJ Common Stock and DLJdirect Common Stock ......................................... 6
Certain Cash Management and Allocation Policies ..................................... 11
No Appraisal Rights ................................................................. 11
Certain Federal Income Tax Considerations ........................................... 12
RISK FACTORS ......................................................................... 13
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS .................................... 16
WHERE YOU CAN FIND MORE INFORMATION .................................................. 17
THE TRACKING STOCK PROPOSAL .......................................................... 18
General ............................................................................. 18
Background and Reasons for the Tracking Stock Proposal .............................. 19
Potential Loss of Value to DLJ Common Stock if DLJdirect Common Stock is Offered
to the Public at Less than its Value ................................................ 20
Required Approval ................................................................... 20
DIVIDEND POLICY ...................................................................... 21
CERTAIN CASH MANAGEMENT AND ALLOCATION POLICIES ...................................... 22
DESCRIPTION OF CAPITAL STOCK ......................................................... 26
General ............................................................................. 26
Dividends ........................................................................... 27
Mandatory Dividend, Redemption or Exchange on Disposition of All or Substantially
All of the Assets of a Group ........................................................ 28
Optional Exchange of DLJ Common Stock for DLJdirect Common Stock .................... 33
Optional Exchange for Stock of a Subsidiary ......................................... 33
General Dividend, Exchange and Redemption Provisions ................................ 34
Voting Rights ....................................................................... 36
Liquidation ......................................................................... 36
DLJ's Retained Interest in Any Group ................................................ 36
Attribution of Issuances of Common Stock ............................................ 37
Issuances of Common Stock as Distributions on DLJ Common Stock ...................... 37
Dividends on Common Stock ........................................................... 37
Repurchases of Common Stock ......................................................... 38
Transfers of Cash or Other Property between DLJ and Any Other Group ................. 38
Effectiveness of Certain Terms ...................................................... 39
Determinations by the Board ......................................................... 39
</TABLE>

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PAGE
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Preemptive Rights ................................................................... 39
Certain Other Provisions of the Amended and Restated Certificate of Incorporation and
By-laws ............................................................................. 39
Preferred Stock ..................................................................... 39
Certain Provisions of Delaware Law .................................................. 41
No Appraisal Rights ................................................................. 42
Stock Transfer Agent and Registrar .................................................. 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND
MANAGEMENT ............................................................................ 43
ANNEX I--ILLUSTRATION OF CERTAIN TERMS ................................................ I-1
ANNEX II--AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION ...................................................................... II-1
ANNEX III--DLJdirect
SELECTED COMBINED FINANCIAL INFORMATION OF DLJdirect ................................ III-1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF DLJdirect .............................................. III-3
BUSINESS OF DLJdirect ............................................................... III-13
COMBINED FINANCIAL STATEMENTS ....................................................... III-F-1
ANNEX IV--DONALDSON, LUFKIN & JENRETTE, INC. ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 ........................................ IV-1
ANNEX V--DONALDSON, LUFKIN & JENRETTE, INC. PROXY STATEMENT AS
FILED WITH THE SEC ON MARCH 18, 1999. ................................................. V-1
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INFORMATION STATEMENT SUMMARY

This summary highlights key aspects of the tracking stock proposal
contained elsewhere in this Information Statement. This summary is not a
substitute for the more detailed information contained in the rest of this
Information Statement. For a more comprehensive description of the tracking
stock proposal you should read the rest of this Information Statement. In this
Information Statement, "we", "us" and "our" refer to Donaldson, Lufkin &
Jenrette, Inc. and "board of directors" refers to the board of directors of
Donaldson, Lufkin & Jenrette, Inc.

THE TRACKING STOCK PROPOSAL

GENERAL

We are not asking you to vote on the tracking stock proposal described in
this Information Statement. The Equitable Companies Incorporated, the owner of
approximately 71.3% of our outstanding common stock, has indicated that it
intends to consent to the tracking stock proposal by executing a written
stockholders' consent. This consent would meet the stockholder approval
requirements under Delaware Law. Thus, no meeting or additional approval or
consent of our other stockholders is necessary to effect the tracking stock
proposal.

The tracking stock proposal would allow us to amend our amended and
restated certificate of incorporation to:

o Authorize the board of directors to issue common stock in multiple
series--initially, we would have two series: DLJ Common Stock and
DLJdirect Common Stock.

o We intend DLJdirect Common Stock to reflect the performance of
DLJdirect (our online discount brokerage and related investment
services businesses).

o We intend DLJ Common Stock to reflect the performance of DLJ (our
other businesses and a retained interest in DLJdirect).

o We have allocated all of Donaldson, Lufkin & Jenrette, Inc.'s
consolidated assets, liabilities, revenue, expenses and cash flow
between DLJ and DLJdirect.

o Re-classify each outstanding share of existing common stock into a
share of DLJ Common Stock.

We currently plan to offer to the public, for cash, shares of DLJdirect
Common Stock intended to represent a minority interest in the equity value
attributed to DLJdirect.We call this offer the "offering". This would leave DLJ
with a retained interest intended to represent the majority of the equity
attributable to DLJdirect. Assuming we complete the offering of DLJdirect
Common Stock, we currently plan to attribute the net proceeds from the offering
to DLJdirect, in a manner analogous to a primary offering of common stock.
DLJdirect will use the net proceeds from the offering to repay a note issued to
us prior to the consummation of the offering and for other general corporate
purposes.

We expect that the offering would occur sometime in the second or third
quarter of 1999. However, we could choose to conduct the offering at a later
time, or not to make the offering at all, depending on the circumstances at the
time.

Before we issue DLJdirect Common Stock, we will file the amendment to our
amended and restated certificate of incorporation implementing the tracking
stock proposal, as a result of which your common stock will be reclassified as
DLJ Common Stock. The tracking stock proposal will also increase the number of
shares of our existing common stock (which will become DLJ Common Stock)
authorized for issuance from 300 million to 500 million and authorize the board
of directors to create additional series of common stock other than DLJ Common
Stock and DLJdirect Common Stock.

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REASONS FOR THE TRACKING STOCK PROPOSAL

We are proceeding with the tracking stock proposal primarily for the
following reasons:

o The proposal will permit the market to review separate information
about DLJdirect and to separately value DLJdirect Common Stock. This
should encourage investors and analysts to focus more attention on
DLJdirect and result in greater market recognition of the value of
DLJdirect to Donaldson, Lufkin & Jenrette, Inc.

o The proposal will allow investors to invest in either or both series
of common stock, depending on their particular investment objectives.

o The proposal will allow us to issue stock options tied to DLJdirect
Common Stock, thereby providing more focused incentives to DLJdirect
management and employees.

o The proposal will provide us with greater flexibility to raise
capital and respond to strategic opportunities, including
acquisitions, because it will allow us to issue either DLJ Common
Stock or DLJdirect Common Stock as appropriate under the
circumstances.

o The proposal will enable us to realize some of the value of DLJdirect
while preserving the financial, tax, operational, strategic and other
benefits of being a single consolidated entity.

o The proposal will allow us to issue DLJdirect Common Stock to the
public for cash on a basis that we believe is tax-free and to
attribute the net proceeds from the offering to DLJdirect. These net
proceeds will be used to repay a note issued to us prior to the
consummation of the offering and for other general corporate purposes.

SUMMARY COMPARISON OF TERMS OF EXISTING COMMON STOCK WITH TERMS OF DLJ COMMON
STOCK AND DLJDIRECT COMMON STOCK

The following compares certain terms of our existing common stock to the
proposed terms of DLJ Common Stock and DLJdirect Common Stock. This comparison
is not complete and should be read together with the more detailed information
contained in the rest of this Information Statement. In particular, see
"Description of Capital Stock".

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Tracking Stock Proposal
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Existing Common Stock DLJ Common Stock DLJdirect Common Stock
----------------------- ------------------------------------- -----------------------------------
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Basic Investment Our existing common We intend DLJ Common Stock We intend DLJdirect Common
Characteristics: stock reflects the to reflect the performance of Stock to reflect the performance
performance of all of DLJ. DLJ includes, among other of DLJdirect, our online
our businesses. things, a retained interest in discount brokerage and related
DLJdirect, which is currently investment services business.
100% but will decline to reflect
the initial issuance of DLJdirect
Common Stock as well as any
future issuances.

We cannot assure you that the We cannot assure you that the
market value of DLJ Common market value of DLJdirect
Stock will in fact reflect the Common Stock will in fact
performance of DLJ as we reflect the performance of
intend. Holders of DLJ DLJdirect as we intend. Holders
Common Stock will continue to of DLJdirect Common Stock will
be common stockholders of continue to be common
Donaldson, Lufkin & Jenrette, stockholders of Donaldson,
Inc. and, as such, will be subject Lufkin & Jenrette, Inc. and, as
to all risks associated with an such, will be subject to all risks
investment in Donaldson, Lufkin associated with an investment in
& Jenrette, Inc. and all of our Donaldson, Lufkin & Jenrette,
businesses, assets and liabilities. Inc. and all of our businesses,
assets and liabilities.

Issuance: Our existing common Before we first issue DLJdirect We currently plan to offer to the
stock is already Common Stock, we will public, for cash, DLJdirect
outstanding. re-classify each outstanding Common Stock intended to
share of existing common stock represent a minority interest in
into a share of DLJ Common the equity value attributed to
Stock. DLJdirect.

Use of Proceeds N/A We currently plan to attribute We currently plan to attribute
of Initial Offering the net proceeds from the the net proceeds from the
of DLJdirect offering to DLJdirect, in a offering to DLJdirect, in a
Common Stock: manner analogous to a primary manner analogous to a primary
offering of common stock. These offering of common stock. These
net proceeds will be used to net proceeds will be used to
repay a note issued to an repay a note issued to an
affiliate prior to the affiliate prior to the
consummation of the offering consummation of the offering
and for other general corporate and for other general corporate
purposes. purposes.
</TABLE>

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<TABLE>
<CAPTION>
Tracking Stock Proposal
----------------------------------------------------------------------
Existing Common Stock DLJ Common Stock DLJdirect Common Stock
-------------------------- ----------------------------------- ----------------------------------
<S> <C> <C> <C>
Retained Interest N/A Assuming we issue to the public, N/A
After Initial for cash, shares of DLJdirect
Offering of Common Stock intended to
DLJdirect represent a minority of the
Common Stock: equity value attributed to
DLJdirect, as currently planned,
this would leave DLJ with a
retained interest intended to
represent a majority of the
equity value attributed to
DLJdirect. Afterwards, we would
adjust the retained interest as
appropriate to reflect issuances
or repurchases of DLJdirect
Common Stock, capital
contributions to, or returns of
capital from, DLJdirect and
certain other events.

Authorized and We are currently The tracking stock proposal will The tracking stock proposal will
Outstanding authorized to issue only authorize us to issue multiple authorize us to issue multiple
Common Stock: one series of common series of common stock-- series of common stock--
stock. initially, we would have two initially, we would have two
series: DLJ Common Stock and series: DLJ Common Stock and
DLJdirect Common Stock. DLJdirect Common Stock.

We are currently The tracking stock proposal will The tracking stock proposal will
authorized to issue up authorize us to issue 500 million authorize us to issue 500 million
to 300 million shares of shares of DLJ Common Stock. shares of DLJdirect Common
common stock. The total number of shares of Stock. The total number of
common stock authorized for shares of common stock
issuance will be 1,500 million. authorized for issuance will be
1,500 million.

124,938,455 shares of Once the tracking stock proposal Once the tracking stock proposal
existing common stock is implemented, the number of is implemented, a number of
were outstanding on shares of DLJ Common Stock shares of DLJdirect Common
April 16, 1999. These that will be outstanding will be Stock equal to the number we
shares count against the equal to the number of shares of initially determine to issue will
total number of shares existing common stock be outstanding. These shares,
we are authorized to outstanding on the date the and the shares of DLJ Common
issue. tracking stock proposal is Stock then outstanding, will
implemented. These shares, and count against the total number
the shares of DLJdirect of shares of common stock we
Common Stock then are authorized to issue.
outstanding, will count against
the total number of shares of
common stock we are authorized
to issue.

Dividends: We currently pay We do not expect to change our We currently intend to retain all
$0.0625 per share of dividend policy with respect to of our earnings attributable to
common stock on a DLJ Common Stock as a result DLJdirect to finance its
quarterly basis. of the tracking stock proposal. operations, repay its
indebtedness and fund future
growth. We do not expect to pay
any dividends on DLJdirect
Common Stock for the
foreseeable future.
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
Tracking Stock Proposal
------------------------------------------------------------------------
Existing Common Stock DLJ Common Stock DLJdirect Common Stock
------------------------ ------------------------------------ -----------------------------------
<S> <C> <C> <C>
We are permitted to We will be permitted to pay We will be permitted to pay
pay dividends out of dividends on DLJ Common dividends on DLJdirect Common
the assets of Stock out of the assets of Stock out of the assets of
Donaldson, Lufkin & Donaldson, Lufkin & Jenrette, Donaldson, Lufkin & Jenrette,
Jenrette, Inc. legally Inc. legally available for the Inc. legally available for the
available for the payment of dividends under payment of dividends under
payment of dividends Delaware law, but the total of Delaware law (and transfer
under Delaware law. the amounts paid as dividends corresponding amounts to DLJ
on DLJ Common Stock cannot in respect of its retained
exceed the available dividend interest), but the total of the
amount for DLJ. The available amounts paid as dividends on
dividend amount for DLJ is DLJdirect Common Stock (and
based on the amount that would the corresponding amounts
be legally available for the transferred to DLJ in respect of
payment of dividends under its retained interest) cannot
Delaware law if DLJ were a exceed the available dividend
single, separate Delaware amount for DLJdirect. The
corporation, had outstanding available dividend amount for
common stock and preferred DLJdirect is based on the
stock, and DLJ's retained amount that would be legally
interest in DLJdirect was available for the payment of
represented by outstanding dividends under Delaware law if
shares. DLJdirect were a single,
separate Delaware corporation
and DLJ's retained interest in
DLJdirect was represented by
outstanding shares.

Mandatory None. If we dispose of all or If we dispose of all or
Dividend, substantially all of the assets of substantially all of the assets of
Redemption or DLJ and the disposition is not DLJdirect and the disposition is
Exchange on an exempt disposition, we would not an exempt disposition, we
Disposition of be required to choose one of the would be required to choose one
Assets: following three alternatives: of the following three
alternatives:

o pay a dividend to holders of o pay a dividend to holders of
DLJ Common Stock in an DLJdirect Common Stock in
amount equal to their an amount equal to their
proportionate interest in the proportionate interest in the
net proceeds of such net proceeds of such
disposition, disposition,

o redeem from holders of DLJ o redeem from holders of
Common Stock, for an DLJdirect Common Stock, for
amount equal to their an amount equal to their
proportionate interest in the proportionate interest in the
net proceeds of such net proceeds of such
disposition, outstanding shares disposition, outstanding shares
of DLJ Common Stock or of DLJdirect Common Stock
or
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
Tracking Stock Proposal
--------------------------------------------------------------------
Existing Common Stock DLJ Common Stock DLJdirect Common Stock
----------------------- --------------------------------- ----------------------------------
<S> <C> <C> <C>
o issue DLJdirect Common o issue DLJ Common Stock in
Stock in exchange for exchange for outstanding
outstanding DLJ Common DLJdirect Common Stock at a
Stock at a 10% premium 10% premium (based on the
(based on the average market average market value of
value of DLJ Common Stock DLJdirect Common Stock as
as compared to the average compared to the average
market value of DLJdirect market value of DLJ Common
Common Stock over a Stock over a specified
specified 20-trading day period 20-trading day period prior to
prior to the exchange). the exchange).

At any time within one year At any time within one year
after completing a special after completing a special
dividend or partial redemption dividend or partial redemption
referred to above, we will have referred to above, we will have
the right to issue DLJdirect the right to issue DLJ Common
Common Stock in exchange for Stock in exchange for
outstanding DLJ Common Stock outstanding DLJdirect Common
at a 10% premium (based on the Stock at a 10% premium (based
average market value of DLJ on the average market value of
Common Stock as compared to DLJdirect Common Stock as
the average market value of compared to the average market
DLJdirect Common Stock over a value of DLJ Common Stock
specified 20-trading day period over a specified 20-trading day
prior to the exchange). period prior to the exchange).

Exchange DLJ N/A N/A We will have the right to issue
Common Stock DLJ Common Stock in exchange
for DLJdirect for outstanding DLJdirect
Common Stock at Common Stock at a premium at
Donaldson, any time. The premium will be
Lufkin & 25% for exchanges occurring in
Jenrette, Inc.'s the 90 days after issuance and
Option: will decline ratably each quarter
thereafter over a period of 3
years to 15%. However, the
premium will be 10% in the
event of certain adverse tax law
changes after the consummation
of the offering regardless of
when such changes occur.

The exchange ratio that will
result in the specified premium
will be calculated based on the
average market value of DLJ
Common Stock as compared to
the average market value of
DLJdirect Common Stock during
the 20 consecutive trading day
period ending on, and including,
the 5th trading day immediately
preceding the date on which we
mail the notice of exchange to
holders of the outstanding shares
being exchanged.
</TABLE>

10
<PAGE>

Voting Rights: One vote per share. One vote per share. No vote, unless a separate class
vote is required by applicable
law.

Liquidation: Upon liquidation of Upon liquidation of Donaldson, Upon liquidation of Donaldson,
Donaldson, Lufkin & Lufkin & Jenrette, Inc., holders Lufkin & Jenrette, Inc., holders
Jenrette, Inc., holders of DLJ Common Stock and of DLJ Common Stock and
of existing common DLJdirect Common Stock will DLJdirect Common Stock will
stock are entitled to be entitled to receive the net be entitled to receive the net
receive the net assets of assets of Donaldson, Lufkin & assets of Donaldson, Lufkin &
Donaldson, Lufkin & Jenrette, Inc., if any, remaining Jenrette, Inc., if any, remaining
Jenrette, Inc., if any, for distribution to stockholders for distribution to stockholders
remaining for (after payment or provision for (after payment or provision for
distribution to all liabilities of Donaldson, all liabilities of Donaldson,
stockholders (after Lufkin & Jenrette, Inc. and Lufkin & Jenrette, Inc. and
payment or provision payment of the liquidation payment of the liquidation
for all liabilities of preference payable to any preference payable to any
Donaldson, Lufkin & holders of Preferred Stock). holders of Preferred Stock).
Jenrette, Inc. and Amounts due upon liquidation Amounts due upon liquidation
payment of the in respect of shares of DLJ in respect of shares of DLJ
liquidation preference Common Stock and DLJdirect Common Stock and DLJdirect
payable to any holders Common Stock will be Common Stock will be
of Preferred Stock). distributed pro rata in distributed pro rata in
proportion to the average proportion to the average
market value of DLJ Common market value of DLJ Common
Stock and the average market Stock and the average market
value of DLJdirect Common value of DLJdirect Common
Stock over a specified 20-trading Stock over a specified 20-trading
day period prior to the day period prior to the
liquidation. liquidation.

Stock Exchange NYSE under the NYSE under the symbol "DLJ". We currently intend to apply for
Listings: symbol "DLJ". listing DLJdirect Common Stock
on the NYSE under the symbol
"DIR".
</TABLE>

CERTAIN CASH MANAGEMENT AND ALLOCATION POLICIES

Because DLJ and DLJdirect are part of a single company, we have
established certain policies relating to cash management and allocations
between DLJ and DLJdirect. For a more complete description of how we will
allocate cash between DLJ and DLJdirect, see "Certain Cash Management and
Allocation Policies".

NO APPRAISAL RIGHTS

Under the Delaware general corporation law, you will not have appraisal
rights in connection with the tracking stock proposal.

11
<PAGE>

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

We have been advised by Davis Polk & Wardwell, our counsel for federal
income tax purposes, that neither you nor Donaldson, Lufkin & Jenrette, Inc.
will recognize any income, gain or loss for federal income tax purposes as a
result of the re-classification of existing common stock into DLJ Common Stock
or the issuance of DLJdirect Common Stock. There are, however, no court
decisions bearing directly on similar transactions and the Internal Revenue
Service has announced that it will not issue advance rulings on the federal
income tax consequences of such transactions. Thus, you should consult a tax
advisor.

12
<PAGE>

RISK FACTORS

RISKS RELATING TO THE TRACKING STOCK PROPOSAL

The risks described below are not the only ones accompanying the tracking
stock proposal. Additional risks not presently known to DLJ or that it
currently deems immaterial may also impair the operations of DLJ. The trading
price of DLJ Common Stock could decline due to any of these risks.

HOLDERS OF DLJ COMMON STOCK WILL NOT HAVE ANY LEGAL RIGHTS RELATED TO SPECIFIC
ASSETS OF DLJ

Even though from a financial reporting standpoint we have allocated our
consolidated assets, liabilities, revenue, expenses and cash flow between DLJ
and DLJdirect, that allocation will not change the legal title to any assets or
responsibility for any liabilities and will not affect the rights of any of our
creditors. Holders of DLJ Common Stock and DLJdirect Common Stock will not have
any legal rights related to specific assets of either DLJ or DLJdirect and, in
any liquidation, will receive a share of the net assets of Donaldson, Lufkin &
Jenrette, Inc. based on the relative trading prices of DLJ Common Stock and
DLJdirect Common Stock rather than on any assessment of the actual value of DLJ
or DLJdirect.

THE BOARD OF DIRECTORS MAY MAKE DECISIONS THAT FAVOR DLJDIRECT AT THE EXPENSE
OF DLJ

Due to the extensive relationships between DLJ and DLJdirect, there will
be inherent conflicts of interest. The board of directors, in its sole
discretion, will make operational and financial decisions and implement
policies that may affect the businesses of DLJ and DLJdirect differently,
potentially favoring DLJdirect at the expense of DLJ. Examples include:

o future allocations of assets, liabilities, revenues, expenses, cash flow
and the tax consequences of operations,

o the allocation of business opportunities, resources and personnel,

o the manner of accounting for a transfer of funds between DLJ and
DLJdirect as either a revolving credit advance, a long-term loan or a
return of capital,

o the allocation of funds for capital expenditures,

o the allocation of proceeds from the issuance of DLJdirect Common Stock
and the costs of repurchases of DLJdirect Common Stock either to DLJ in
respect of its retained interest in DLJdirect or to the equity of
DLJdirect,

o the allocation of issuances of debt or preferred stock of Donaldson,
Lufkin & Jenrette, Inc. between DLJ and DLJdirect,

o decisions as to how to allocate consideration received in connection with
a merger involving Donaldson, Lufkin & Jenrette, Inc. between holders of
DLJ Common Stock and DLJdirect Common Stock,

o decisions as to whether and when to exchange one series of common stock
for the other series of common stock,

o decisions as to whether and when to approve dispositions of assets of
either DLJ or DLJdirect, and

o other transactions between DLJ and DLJdirect.

WE MAY PAY GREATER DIVIDENDS ON DLJDIRECT COMMON STOCK THAN ON DLJ COMMON
STOCK

We have the right to pay dividends on DLJ Common Stock or DLJdirect Common
Stock, or both, in equal or unequal amounts, notwithstanding:

o the performance of either DLJ or DLJdirect,

o the amount of assets available for dividends on either series,

13
<PAGE>

o the amount of prior dividends declared on either series or

o any other factor.

PRINCIPLES OF DELAWARE LAW MAY PROTECT DECISIONS OF THE BOARD OF DIRECTORS
THAT FAVOR HOLDERS OF DLJDIRECT COMMON STOCK AT THE EXPENSE OF HOLDERS OF DLJ
COMMON STOCK

Delaware law provides that a board of directors owes an equal duty to all
stockholders regardless of class or series and does not have separate or
additional duties to either group of stockholders, subject to applicable
provisions set forth in a company's charter. We are not aware of any
legislative or judicial precedent involving the fiduciary duties of directors
of a Delaware corporation with two classes of common stock with separate rights
related to specified operations of the corporation. However, under the
principles of Delaware law referred to above and the related principle known as
the "business judgment rule", you may not be able to challenge decisions that
have an adverse effect upon holders of DLJ Common Stock if the board of
directors is disinterested, is informed with respect to these decisions, acts
in good faith, and acts in the belief that it is acting in the best interests
of Donaldson, Lufkin & Jenrette, Inc.'s stockholders.

WE MAY ISSUE DLJ COMMON STOCK IN EXCHANGE FOR DLJDIRECT COMMON STOCK WHEN
DLJDIRECT COMMON STOCK IS OVERVALUED OR DLJ COMMON STOCK IS UNDERVALUED

We will have the right to issue shares of DLJ Common Stock in exchange for
outstanding shares of DLJdirect Common Stock. Because certain exchanges would
be at a premium, and since we could determine to effect an exchange at a time
when either or both of DLJ Common Stock and DLJdirect Common Stock may be
considered to be overvalued or undervalued, any such exchange may be
disadvantageous to holders of DLJ Common Stock and could also have a dilutive
effect on the value of shares of DLJ Common Stock.

EXISTING STOCKHOLDERS OF DONALDSON, LUFKIN & JENRETTE, INC. WILL HAVE A
REDUCED INTEREST IN DLJDIRECT

Holders of DLJ Common Stock will participate in the ownership of DLJdirect
through DLJ's retained interest in DLJdirect. DLJ's interest in DLJdirect will
decrease as a result of the issuance of DLJdirect Common Stock. After the
offering. the existing shareholders of Donaldson, Lufkin & Jenrette, Inc. will
no longer share in the gains or losses attributable to the portion of DLJdirect
that is represented by the outstanding shares of DLJdirect Common Stock. The
price at which the DLJdirect Common Stock will be sold to the public will be
determined by negotiations with the underwriters. Holders of DLJ Common Stock
will suffer an immediate loss in value to the extent, if any, that the offering
price is below the inherent value of DLJdirect Common Stock. In addition, there
can be no assurance that the market value of the DLJ Common Stock will reflect
accurately the underlying ownership participation in DLJdirect. Existing
stockholders of Donaldson, Lufkin & Jenrette, Inc. will not have any special
rights to subscribe for DLJdirect Common Stock in the offering.

THE COST OF MAINTAINING SEPARATE GROUPS MAY EXCEED THE COSTS ASSOCIATED WITH
OPERATING DONALDSON, LUFKIN & JENRETTE, INC. AS A SINGLE ENTITY

The costs associated with implementing the tracking stock proposal and the
ongoing cost of operating separate Groups may exceed the costs associated with
operating Donaldson, Lufkin & Jenrette, Inc. as it currently exists. In
particular, the issuance of the DLJdirect Common Stock will result in a complex
capital structure and additional reporting requirements with respect to each
Group.

IF DONALDSON, LUFKIN & JENRETTE, INC. RUNS INTO FINANCIAL DIFFICULTY, THE
VALUE OF DLJ COMMON STOCK MAY SUFFER FOR REASONS UNRELATED TO THE PROSPECTS OF
DLJ

Financial results of both DLJ and DLJdirect will affect Donaldson, Lufkin
& Jenrette, Inc.'s consolidated results of operations, financial position and
borrowing costs. This could affect the results of operations, financial
position or borrowing costs of the other group or the market price of shares
issued

14
<PAGE>

with respect to the other group. In addition, net losses of either group, and
any dividends or distributions on, or repurchases of, either series of common
stock, will reduce the assets of Donaldson, Lufkin & Jenrette, Inc. legally
available for dividends on both DLJ Common Stock.

WE CANNOT PREDICT HOW THE ISSUANCE OF TRACKING STOCK WILL AFFECT THE MARKET
PRICE OF DLJ COMMON STOCK

We cannot predict the prices at which DLJ Common Stock will trade after
the proposed offering of DLJdirect Common Stock and we cannot assure you that
the market price of DLJ Common Stock will equal or exceed the market price of
our existing common stock.

THE VALUE OF DLJ COMMON STOCK MAY DECLINE DUE TO FUTURE ISSUANCES OF DLJ
COMMON STOCK OR DLJDIRECT COMMON STOCK

Our amended and restated certificate of incorporation allows the board of
directors, in its sole discretion, to issue authorized but unissued shares of
DLJ Common Stock and DLJdirect Common Stock. This could dilute the value of
shares of DLJ Common Stock. Under Delaware general corporation law, the board
of directors would not need your approval for these issuances. We do not intend
to seek your approval for any such issuances unless stock exchange regulations
or other applicable law requires approval or the board of directors deems it
advisable.

WE MAY NOT OFFER DLJDIRECT COMMON STOCK AT ALL

This Information Statement describes our current plans for an offering of
DLJdirect Common Stock. Such an offering is subject to various conditions and
uncertainties, so we cannot assure you that it will be completed. Even if an
offering occurs, there can be no certainty regarding the amount of proceeds we
would realize.

DLJ FACES INHERENT CONFLICTS OF INTEREST WITH DLJDIRECT

Due to the extensive relationships between DLJ and DLJdirect, there will
be inherent conflicts of interest. The board of directors, in its sole
discretion, will make operational and financial decisions and implement
policies that affect the businesses of both DLJ and DLJdirect. These decisions
may favor DLJdirect to the detriment of DLJ.

Competition

DLJ and DLJdirect are both engaged in brokerage and related investment
service businesses. DLJ is not restricted from competing with DLJdirect and
DLJdirect is not restricted from competing with DLJ and, accordingly, there can
be no assurance that either entity will not expand its operations to compete
with the other. If the markets for their services continue to converge,
opportunities for direct competition between DLJ and DLJdirect will increase
and may include the following:

o DLJ offering online trading to its existing brokerage customers or
launching its own group dedicated to online brokerage;

o DLJdirect competing with DLJ for underwriting business; and

o DLJdirect offering private placements or investment advice to its
customers in competition with financial products and services offered by
DLJ.

Business opportunities and strategic issues

Donaldson, Lufkin & Jenrette, Inc. currently intends to pursue its online
brokerage business through DLJdirect. However, the board of directors, in its
sole discretion, may in the future decide to pursue business opportunities or
operational strategies, even in the online brokerage area, through DLJ instead
of DLJdirect. As DLJdirect expands internationally, conflicts may arise in
selecting new target international markets and in selecting joint venture
partners, if any.

In addition to conflicts posed by international expansion, DLJdirect may
desire to pursue other strategic initiatives that present conflicts between DLJ
and DLJdirect. These initiatives could include:

15
<PAGE>

o alliances by DLJdirect with competitors of DLJ to participate as an
Internet-based distributor or an underwriter in non-DLJ managed
offerings;

o DLJ selling its research products to competitors of DLJdirect; and

o DLJ including other Internet-based distributors in its offerings.

In addition to research products and access to DLJ-managed offerings, DLJdirect
intends to expand the range of DLJ products and services available to its
clients as part of its ongoing business strategy. As competition in the
financial services industry increases and DLJdirect's business continues to
grow, issues relating to the pricing and the level of availability for such
products and services may result in conflicts of interest.

Financial considerations

The consolidated financial results of Donaldson, Lufkin & Jenrette, Inc.
will reflect DLJdirect's financial results. Accordingly, strategic decisions by
DLJdirect that adversely affect DLJdirect's near-term reported results will
also adversely affect DLJ's near-term reported results.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Information Statement and the information incorporated by reference
includes forward-looking statements. Some of the forward-looking statements can
be identified by the use of forward-looking words such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "estimates," or "anticipates" or the negative of those words or other
comparable terminology. Forward-looking statements involve risks and
uncertainties. A number of important factors could cause actual results to
differ materially from those in the forward-looking statements. These factors
include systems failures, technological changes, volatility of securities
markets, government regulations, and economic conditions and competition in the
geographic and the business areas in which we conduct our operations. For a
discussion of factors that could cause actual results to differ, please see the
discussion under "Risk Factors" contained in this Information Statement and in
other information contained in our publicly available SEC filings and press
releases.

16
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

We file reports, proxy statements, and other information with the SEC.
Such reports, proxy statements, and other information concerning Donaldson,
Lufkin & Jenrette, Inc. can be read and copied at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference Room. The SEC
maintains an Internet site at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the SEC, including Donaldson, Lufkin & Jenrette, Inc. The
common stock of Donaldson, Lufkin & Jenrette, Inc. is listed on the New York
Stock Exchange. Reports and other information concerning Donaldson, Lufkin &
Jenrette, Inc. can also be inspected at the office of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.

We have recently filed a registration statement with the SEC with respect
to the proposed offering of DLJdirect Common Stock. The full registration
statement can be obtained from the SEC as indicated above, or from us. Requests
should be directed to Donaldson, Lufkin & Jenrette, Inc., 277 Park Avenue, New
York, New York 10172, Attention: Corporate Secretary (Telephone: (212)
892-3000).

17
<PAGE>

THE TRACKING STOCK PROPOSAL

GENERAL

The tracking stock proposal described in this Information Statement would
allow us to amend our amended and restated certificate of incorporation to:

o authorize the board of directors to issue common stock in multiple
series--initially, we would have two series: Donaldson, Lufkin &
Jenrette, Inc.--DLJ Common Stock ("DLJ Common Stock") and Donaldson,
Lufkin, Jenrette, Inc.--DLJdirect Common Stock ("DLJdirect Common
Stock"). The board of directors will be authorized to issue up to
1,500,000,000 shares of common stock not more than 500,000,000 of which
can be shares of DLJ Common Stock and not more than 500,000,000 of which
can be shares of DLJdirect Common Stock; and

o re-classify each outstanding share of common stock into a share of DLJ
Common Stock.

We intend DLJdirect Common Stock to reflect the performance of the online
discount brokerage and related services business of DLJdirect, including
certain activities currently conducted by DLJdirect Holdings Inc. and one or
more affiliates of Donaldson, Lufkin & Jenrette, Inc. (the "DLJdirect Group" or
"DLJdirect").

We intend DLJ Common Stock to reflect the performance of the rest of the
businesses conducted by Donaldson, Lufkin & Jenrette, Inc. and its affiliates
(the "DLJ Group" or "DLJ"), including DLJ's retained interest in DLJdirect.

We will allocate all of Donaldson, Lufkin & Jenrette, Inc.'s consolidated
assets, liabilities, revenue, expenses and cash flow between the DLJ Group and
DLJdirect Group.

The Equitable Companies Incorporated, the owner of approximately 71.3% of
our outstanding common stock, has indicated that it intends to consent to the
tracking stock proposal by executing a written stockholders' consent. This
consent meets the stockholder approval requirements under Delaware law. Thus,
no meeting or additional approval or consent of our other stockholders is
necessary to effect the tracking stock proposal.

We currently plan to offer to the public, for cash, shares of DLJdirect
Common Stock intended to represent a minority interest in the equity value
attributed to DLJdirect. This would leave DLJ with a retained interest intended
to represent a majority interest in the equity attributable to DLJdirect. (We
call Donaldson, Lufkin & Jenrette, Inc.'s interest in DLJdirect, excluding the
interest intended to be represented by outstanding shares of DLJdirect Common
Stock, DLJ's "retained interest" in DLJdirect.) Assuming we do so, we currently
plan to attribute the net proceeds from the offering to DLJdirect (in a manner
analogous to a primary offering of common stock). We currently estimate the
gross proceeds from the offering to be $210 million (assuming the underwriters'
over-allotment option is not exercised). This estimate is preliminary and the
actual amount could differ materially. The net proceeds will be used to repay a
note issued to us prior to the consummation of the offering and for other
general corporate purposes. We may decide to increase or decrease the size of
the offering.

We expect the offering to occur sometime in the second or third quarter of
1999. However, we could choose to conduct the offering at a later time, or not
to make the offering at all, depending on the circumstances at the time.

The board of directors and the underwriters for the offering will
determine the terms of the offering based upon:

o prevailing market and other conditions, both generally and for Internet
businesses,

o the financial condition, results of operations and prospects of DLJdirect
and

o such factors as they deem appropriate at the time of the offering.

In addition to or instead of the offering, we reserve the right to
distribute DLJdirect Common Stock to stockholders of Donaldson, Lufkin &
Jenrette, Inc.

18
<PAGE>

We will file an amendment to our amended and restated certificate of
incorporation implementing the tracking stock proposal (the "restated charter")
and re-classify your common stock as DLJ Common Stock before we first issue
DLJdirect Common Stock. The tracking stock proposal will also increase the
number of shares of our existing common stock (which will become DLJ Common
Stock) authorized for issuance from 300 million to 500 million and authorize
the board of directors to create additional series of common stock other than
DLJ Common Stock and DLJdirect Common stock.

BACKGROUND AND REASONS FOR THE TRACKING STOCK PROPOSAL

We continually review each of our businesses and Donaldson, Lufkin &
Jenrette, Inc. as a whole to determine the best way to realize the inherent
value of Donaldson, Lufkin & Jenrette, Inc. as a whole. As a result of this
review process, we recently began to evaluate various alternatives, including
an offering of direct stock in a corporation that would acquire DLJdirect or of
"tracking stock" of Donaldson, Lufkin & Jenrette Inc. intended to reflect the
performance of DLJdirect.

Upon management's recommendation and after extensive consultation with our
financial and legal advisors, the board of directors has determined that the
issuance of tracking stock would be preferable because, among other things,
issuance of tracking stock, unlike the issuance of direct stock, would preserve
certain favorable financial, tax, operational, strategic and other benefits of
being a single consolidated entity.

In arriving at its determination, the board of directors, with assistance
of its financial and legal advisors, considered, among other things, the
following:

o The proposal will permit the market to review separate information about
DLJdirect and to separately value DLJdirect Common Stock. This should
encourage investors and analysts to focus more attention on DLJdirect and
result in greater market recognition of the value of DLJdirect to
Donaldson, Lufkin & Jenrette Inc.

o The proposal will allow investors to invest in either or both series of
common stock, depending on their particular investment objectives.

o The proposal will allow us to issue stock options tied to DLJdirect
Common Stock, thereby providing more focused incentives to DLJdirect
management and employees.

o The proposal will provide us with greater flexibility to raise capital
and respond to strategic opportunities (including acquisitions), because
it will allow us to issue either DLJ Common Stock or DLJdirect Common
Stock as appropriate under the circumstances.

o The proposal will enable us to realize some of the value of DLJdirect
while preserving the financial, tax, operational, strategic and other
benefits of being a single consolidated entity.

o The proposal will allow us to issue DLJdirect Common Stock to the public
for cash on a basis that we believe to be tax-free and to allow DLJdirect
to use the net proceeds to repay a note issued to an affiliate prior to
the consummation of the offering and for other general corporate
purposes.

The board of directors also evaluated the potential negative aspects of
the tracking stock proposal, including the following:

o The uncertainty as to the amount of net proceeds we may realize in the
offering.

o The tracking stock proposal will require a complex capital structure and
additional reporting requirements with respect to each Group.

o The tracking stock proposal will expand the board of directors'
responsibility to oversee the interests of two series of common
stockholders.

o The potential diverging or conflicting interests between the holders of
DLJ Common Stock and the holders of DLJdirect Common Stock and issues
that the board of directors may face in resolving any conflicts.

19
<PAGE>

o The pooling-of-interests method of accounting might not be available for
future acquisitions using DLJ Common Stock or DLJdirect Common Stock.

o The costs associated with implementing the tracking stock proposal and
the ongoing cost of operating separate Groups will exceed the costs
associated with operating Donaldson, Lufkin & Jenrette, Inc. as it
currently exists.

The board of directors determined that the positive aspects of the
tracking stock proposal outweighed the negative aspects and concluded that the
tracking stock proposal is in the best interests of Donaldson, Lufkin &
Jenrette Inc. and its stockholders.

POTENTIAL LOSS OF VALUE TO DLJ COMMON STOCK IF DLJDIRECT COMMON STOCK IS
OFFERED TO THE PUBLIC AT LESS THAN ITS VALUE

The price at which the DLJdirect Common Stock will be sold to the public
will be determined by negotiations with the underwriters. Holders of DLJ Common
Stock will suffer an immediate loss in value to the extent, if any, that the
offering price is below the inherent value of DLJdirect Common Stock. If the
offering price is exactly equal to the inherent value of DLJdirect Common
Stock, the decrease in DLJ's retained interest in DLJdirect will be initially
equal to the increase in value of DLJ's holdings of DLJdirect. For example, if
prior to the offering DLJdirect were worth $1,000 and there were 100 shares of
DLJdirect Common Stock effectively owned by DLJ through its retained interest,
the inherent value of DLJdirect Common Stock would be $10 per share
($1,000/100=$10). In this example, as long as the offering price is equal to
$10 per share, the value of DLJ's retained interest in DLJdirect will not
change regardless of the number of shares of DLJdirect Common Stock sold in the
offering -- if 10 shares are sold at $10 per share, and it is all treated as a
primary sale (i.e., the proceeds are allocated to DLJdirect and the shares are
newly issued shares of DLJdirect Common Stock), then DLJ's retained interest
will continue to be worth $1,000. Even though DLJ will own less of DLJdirect
(approximately 91% which represents 100 shares/110 shares), DLJdirect will now
be worth more -- $1,100 instead of $1,000 because the proceeds of the offering
have been allocated to it. The value of DLJ's retained interest in DLJdirect
remains unchanged (100/110 \x $1,100=$1,000).

REQUIRED APPROVAL

As of April 16, 1999, we had 124,938,455 shares of common stock issued and
outstanding, with each share entitled to one vote, and 7,500,000 shares of
non-voting preferred stock issued and outstanding. Donaldson, Lufkin &
Jenrette, Inc.'s principal stockholder, The Equitable Companies Incorporated,
controls 71.3% of the outstanding votes of Donaldson, Lufkin & Jenrette, Inc.
and has indicated that it intends to approve the tracking stock proposal by
written consent. Thus, no meeting or additional approval or consent of our
other stockholders is necessary to effect the tracking stock proposal.

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DIVIDEND POLICY

We do not expect to change our dividend policy with respect to our
currently outstanding common stock (which will become DLJ Common Stock) as a
result of the tracking stock proposal.

We do not expect to pay any dividends for the foreseeable future on
DLJdirect Common Stock.

We will, however, be permitted to pay dividends on:

o DLJ Common Stock out of the assets of Donaldson, Lufkin & Jenrette, Inc.
legally available for the payment of dividends under Delaware law, but
the total amounts paid as dividends on DLJ Common Stock cannot exceed the
available dividend amount for DLJ, and

o DLJdirect Common Stock, out of the assets of Donaldson, Lufkin &
Jenrette, Inc. legally available for the payment of dividends under
Delaware law (and transfer corresponding amounts to DLJ in respect of its
retained interest in DLJdirect), but the total of the amounts paid as
dividends on DLJdirect Common Stock and the corresponding amounts
transferred to DLJ in respect of its retained interest in DLJdirect
cannot exceed the available dividend amount for DLJdirect.

The "available dividend amount" for DLJ and DLJdirect, as the case may be,
is based on the amount that would be legally available for the payment of
dividends under Delaware law if DLJ and DLJdirect were each a single, separate
Delaware corporation. For more information on the "available dividend amount"
for DLJ and DLJdirect, see "Description of Capital Stock--Dividends". We expect
that determinations to pay dividends on DLJdirect would be based primarily upon
the financial condition, results of operations, capital requirements, any
restrictions contained in financing or other agreements binding upon us and
other factors that the board of directors deems relevant.

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CERTAIN CASH MANAGEMENT AND ALLOCATION POLICIES

From a financial reporting standpoint, Donaldson, Lufkin & Jenrette, Inc.
has allocated all of its consolidated assets, liabilities, revenue, expenses
and cash flow between DLJ and DLJdirect. In this Information Statement, each of
DLJ and DLJdirect is sometimes called a "Group". The financial statements of
DLJdirect reflect the application of certain cash management and allocation
policies adopted by the board of directors. These policies are summarized
below.

The board of directors may, in its sole discretion, modify, rescind or add
to any of these policies, although it has no present intention to do so. The
decision of the board of directors to modify, rescind or add to any of these
policies would, however, be subject to the board of directors' general
fiduciary duties. The board of directors intends to delegate its authority with
regard to these policies to its operating committee, all of whom are senior
officers of DLJ.

Even though Donaldson, Lufkin & Jenrette, Inc. has allocated all of its
consolidated assets, liabilities, revenue, expenses and cash flow between DLJ
and DLJdirect, holders of DLJdirect Common Stock will continue to be common
stockholders of Donaldson, Lufkin & Jenrette, Inc. and, as such, will be
subject to all risks associated with an investment in Donaldson, Lufkin &
Jenrette, Inc. and all of its businesses, assets and liabilities. See "Risk
Factors--Risk Factors Relating to DLJdirect Common Stock--Holders of DLJdirect
Common Stock Will Be Common Stockholders of Donaldson, Lufkin & Jenrette,
Inc.".

TREASURY ACTIVITIES

Donaldson, Lufkin & Jenrette, Inc. manages most treasury activities on a
centralized, consolidated basis. These activities include the investment of
surplus cash, the issuance, repayment and repurchase of short-term and
long-term debt, and the issuance and repurchase of common stock and preferred
stock. Each Group generally remits its cash receipts, other than receipts of
foreign operations or operations that are not wholly-owned, to Donaldson,
Lufkin & Jenrette, Inc., and Donaldson, Lufkin & Jenrette, Inc. generally funds
each Group's cash disbursements, other than disbursements of foreign operations
or operations that are not wholly-owned, on a daily basis. In certain instances
Donaldson, Lufkin & Jenrette, Inc. funds cash disbursements for Donaldson,
Lufkin & Jenrette, Inc. entities including DLJdirect.

In the combined financial statements of DLJdirect included in this
Information Statement:

o all external debt and equity transactions, and the proceeds thereof, were
attributed to DLJ,

o whenever DLJdirect held cash, substantially all of that cash was invested
in money market funds managed by an affiliate,

o whenever DLJdirect had a cash need, that cash need was funded by
Donaldson, Lufkin & Jenrette, Inc. and accounted for as a capital
contribution, i.e., as an increase of DLJdirect's division equity and
DLJ's retained interest in DLJdirect and

o all expenses of DLJdirect were paid by DLJ and reimbursed by DLJdirect.

No interest expense has been reflected in the combined financial statements of
DLJdirect for cash transfers from Donaldson, Lufkin & Jenrette, Inc. or any of
its affiliates and no interest income from DLJdirect has been reflected in the
financial statements of Donaldson, Lufkin & Jenrette, Inc. for any period prior
to the date on which DLJdirect Common Stock is issued. Interest income earned
on DLJdirect's money market funds is included in DLJdirect's financial
statements.

After the date on which DLJdirect Common Stock is first issued:

(1) Donaldson, Lufkin & Jenrette, Inc. will attribute each future
incurrence or issuance of external debt or preferred stock and the proceeds
thereof to DLJ, unless the board of directors determines otherwise. The
board of directors may, but is not required to, attribute an incurrence or
issuance of debt or preferred stock, and the proceeds thereof, to DLJdirect
to the extent that Donaldson, Lufkin & Jenrette, Inc. incurs or issues the
debt or preferred stock for the benefit of DLJdirect.

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(2) Donaldson, Lufkin & Jenrette, Inc. will attribute each future
issuance of DLJ Common Stock, and the proceeds thereof, to DLJ. Donaldson,
Lufkin & Jenrette, Inc. may attribute any future issuance of DLJdirect
Common Stock and the proceeds thereof

o to DLJ in respect of its retained interest in DLJdirect, in a manner
analogous to a secondary offering of common stock of a subsidiary owned
by a corporate parent or

o to DLJdirect, in a manner analogous to a primary offering of common
stock.

Dividends on and repurchases of DLJ Common Stock will be charged against DLJ,
and dividends on and repurchases of DLJdirect Common Stock will be charged
against DLJdirect. In addition, at the time of any dividend on DLJdirect Common
Stock, Donaldson, Lufkin & Jenrette, Inc. will credit to DLJ, and charge
against DLJdirect, a corresponding amount in respect of DLJ's retained interest
in DLJdirect. See "Description of Capital Stock--DLJ's Retained Interest in Any
Group".

(3) DLJdirect will continue to invest its excess cash. DLJ intends to
fund DLJdirect's liquidity needs in the ordinary course of business.
However, significant expenditures will be funded on a case by case basis as
determined by the board of directors. The board of directors will
determine, in its sole discretion, whether to provide any particular funds
to either DLJ or DLJdirect and will not be obligated to do so.

(4) Donaldson, Lufkin & Jenrette, Inc. will account for all cash
transfers from one Group to or for the account of the other Group, other
than transfers in return for assets or services rendered or transfers in
respect of DLJ's retained interest that correspond to dividends paid on
DLJdirect Common Stock, as inter-Group revolving credit advances unless:

o the board of directors determines that a given transfer or type of
transfer should be accounted for as a long-term loan,

o the board of directors determines that a given transfer or type of
transfer should be accounted for as a capital contribution increasing
DLJ's retained interest in DLJdirect or

o the board of directors determines that a given transfer or type of
transfer should be accounted for as a return of capital reducing DLJ's
retained interest in DLJdirect.

There are no specific criteria to determine when Donaldson, Lufkin & Jenrette,
Inc. will account for a cash transfer as a long-term loan, a capital
contribution or a return of capital rather than an inter-Group revolving credit
advance. The board of directors would make such a determination in the exercise
of its business judgment at the time of such transfer, or the first of such
type of transfer, based upon all relevant circumstances. Factors the board of
directors would consider include:

o the current and projected capital structure of each Group,

o the relative levels of internally generated funds of each Group,

o the financing needs and objectives of the recipient Group,

o the investment objectives of the transferring Group,

o the availability, cost and time associated with alternative financing
sources and

o prevailing interest rates and general economic conditions.

(5) Any cash transfer accounted for as an inter-Group revolving credit
advance will bear interest at the rate at which the board of directors, in
its sole discretion, determines Donaldson, Lufkin & Jenrette, Inc. could
borrow such funds on a revolving credit basis. Any cash transfer accounted
for as a long-term loan will have interest rate, amortization, maturity,
redemption and other terms that generally reflect the then prevailing terms
on which the board of directors, in its sole discretion, determines
Donaldson, Lufkin & Jenrette, Inc. could borrow such funds.

(6) Any cash transfer from DLJ to DLJdirect or for DLJdirect's account
accounted for as a capital contribution will correspondingly increase
DLJdirect's shareholders' equity and DLJ's retained interest in
DLJdirect. As a result, the number of shares of DLJdirect Common Stock that
Donaldson, Lufkin & Jenrette, Inc. may issue for the account of DLJ in
respect of its retained interest

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<PAGE>

(which we call the "Number of Shares Issuable with Respect to DLJ's
Retained Interest in DLJdirect") will increase by the amount of such
capital contribution divided by the Market Value of DLJdirect Common Stock
on the date of transfer.

This increase in the Number of Shares Issuable with Respect to DLJ's
Retained Interest in DLJdirect may also be expressed as follows:

Amount of Capital Contribution to DLJdirect
-------------------------------------------
Market Value of one share of DLJdirect
Common Stock on the Date of Transfer

(7) Any cash transfer from DLJdirect to DLJ, or DLJ's account, accounted
for as a return of capital will correspondingly reduce DLJdirect's equity
and DLJ's retained interest in DLJdirect. As a result, the Number of Shares
Issuable with Respect to DLJ's Retained Interest in DLJdirect will decrease
by the amount of such return of capital divided by the Market Value of
DLJdirect Common Stock on the date of transfer.

This decrease in the Number of Shares Issuable with Respect to DLJ's
Retained Interest in DLJdirect may also be expressed as follows:

Amount of Return of Capital to DLJdirect
----------------------------------------
Market Value of one share of DLJdirect
Common Stock on the Date of Transfer

CLEARING AND LICENSE ARRANGEMENTS

Pursuant to an agreement dated September 24, 1997, as amended on March 11,
1999, between the Pershing Division of DLJ and DLJdirect, Pershing acts as the
clearing agent for DLJdirect and in such capacity performs traditional
operational functions, including execution and clearance of trades and holding
customer funds and securities. Pershing carries the cash and margin accounts of
DLJdirect customers and clears transactions on a fully disclosed basis for such
accounts. Without the prior written approval of Pershing, DLJdirect may not
enter into similar services contracts with any other clearing agency. Pershing
deducts the fees for its clearing services from the commissions, mark-ups and
other charges DLJdirect establishes for each transaction. The clearance fees,
order flow payments, interest sharing and charges for other services provided
for in the agreement were negotiated between DLJdirect and Pershing with
reference to those for comparable arrangements available in the securities
industry generally. These fees include volume discounts and sliding scale
payments taking into account the size of DLJdirect's business and the levels of
services provided by Pershing. The agreement also provides for good faith
renegotiation of any provision upon the request of either party. If the parties
are unable to agree upon negotiation, the parties will be subject to the final
decision of the operating committee of the board of directors. The amounts paid
to DLJ by DLJdirect pursuant to this agreement were $15.4 million, $20.9
million, and $28.4 million in 1996, 1997 and 1998, respectively. The agreement
expires on March 10, 2009. Under the agreement, as amended, the amounts to be
paid by DLJdirect to Pershing will include the license fee for the use of
certain trademarks that are licensed to DLJdirect in the United States and
certain other jurisdictions, as more fully described below.

In March 1999, DLJdirect entered into an exclusive license agreement with
DLJ Long Term Investment Corporation. Under this agreement, DLJ Long Term
Investment Corporation has licensed certain trademarks, services marks, trade
names and other proprietary rights to various words, slogans, symbols and logos
to DLJdirect for use in its provision of financial services and sale or other
distribution of related financial goods. The nature and quality of all
financial goods and services offered by DLJdirect under the licensed marks are
subject to the control of DLJ Long Term Investment Corporation, and the use of
the marks must be consistent with specific guidelines. Fees payable under the
current license agreement for the use of the marks in the United States and
certain other jurisdictions are to be paid in accordance with the terms of the
clearing agreement with Pershing. The license fee included in the clearing fee
does not include the use of the marks in certain other foreign jurisdictions,
the use of which will be negotiated on a case by case basis. The agreement
expires on March 10, 2009. The agreement is terminable by DLJ Long Term
Investment Corporation for certain events, including, among other things, a
default by DLJdirect, the bankruptcy of DLJdirect or the sale or dissolution of
DLJdirect.

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TAXES

DLJdirect is, and after the offerings will continue to be, included in the
same consolidated tax group as DLJ for Federal income tax purposes until such
time as it ceases to be eligible for inclusion in this consolidated tax group.
In connection with the offering, DLJ and DLJdirect intend to enter into a tax
sharing agreement, effective as of January 1, 1999 and applicable to any
Federal, foreign, state, local and other taxes. Pursuant to the provisions of
such agreement, DLJdirect and DLJ will generally make payments between them
such that, with respect to any period in which DLJdirect is a member of the
same consolidated tax group as DLJ for Federal income tax purposes, the amount
of Federal income taxes to be paid by DLJdirect will be determined, with
certain exceptions, as though DLJdirect were to file for such period and all
prior periods separate Federal income tax returns (generally including any
amounts determined to be due as a result of a redetermination of the Federal
income tax liability of the DLJ consolidated group arising from an audit or
otherwise) as the common parent of an affiliated group of corporations filing a
consolidated return rather than a consolidated subsidiary of DLJ. DLJ and
DLJdirect have each agreed to remit interest to the other on any payments that
are not timely made. DLJdirect is also entitled to receive payments from DLJ in
respect of utilization of its tax assets, if any. The amount of any such
payment will generally be determined by the actual tax benefit received by the
DLJ consolidated group. Conversely, if inclusion of DLJdirect in the
consolidated group should increase the tax of other members, DLJdirect will
reimburse DLJ for such cost. Any tax benefit related to (1) the exercise of
options in DLJ Common Stock, or DLJdirect Common Stock that is attributed to
DLJ pursuant to the board of directors' cash management policy, (2) the vesting
of restricted DLJ Common Stock, or restricted DLJdirect Common Stock that is
attributed to DLJ pursuant to the board of directors' cash management policy,
(3) satisfaction of stock appreciation rights that result in a charge to DLJ's
earnings, or (4) other compensation funded by DLJ will be allocated to DLJ. If
DLJdirect Common Stock vests in or, pursuant to the exercise of an option, is
issued to an employee of DLJ, its subsidiaries or affiliates exclusive of
DLJdirect, and is attributed to DLJdirect pursuant to the board of directors'
cash management policy, or if a compensation deduction results from any other
DLJdirect Common Stock -based compensation plan that is related to an employee
of DLJ, its subsidiaries or affiliates exclusive of DLJdirect, and is
attributed to DLJdirect pursuant to the cash management policy, the resulting
tax benefit will be allocated to DLJdirect.

While DLJdirect remains part of the same consolidated group as DLJ,
Donaldson, Lufkin & Jenrette, Inc. will continue to have all the rights of a
common parent of a consolidated group, will be the sole and exclusive agent for
DLJdirect in any and all matters related to the Federal income tax liability of
DLJdirect, and will be responsible for the preparation and filing of
consolidated Federal income tax returns. In addition, each member of a
consolidated group for Federal income tax purposes is jointly and severally
liable for the Federal income tax liability of each other member of its
consolidated group. Accordingly, under the tax sharing agreement, DLJ has
agreed to indemnify DLJdirect against such liabilities to the extent that they
relate to the Federal income tax liability of the DLJ consolidated group for
periods that DLJdirect is included in the same consolidated group as DLJ,
except to the extent attributable to DLJdirect.

CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES

DLJ provides services to DLJdirect pursuant to an Intercompany Services
Agreement amended as of February 23, 1999. The agreement covers public
relations, telecommunications, tax, internal audit, insurance, employee
benefits, human resources, legal, compliance, credit, general administrative,
accounting, treasury, library and record management services, facilities,
security and custodial services. These services may be provided by an employee
of DLJ or any of its affiliates or by any third party chosen at the sole
discretion of DLJ and the costs of these services and space are allocated to
DLJdirect. The agreement may be terminated upon a change in control or upon
90-day notice by either party. Amounts paid by DLJdirect under this agreement
were $1.2 million, $1.9 million, and $2.7 million, in 1996, 1997 and 1998,
respectively.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following description is not complete and should be read with Annex II
to this Information Statement, which contains the full text of the amendment to
our amended and restated certificate of incorporation, which will be filed if
the tracking stock proposal is approved. This description uses DLJdirect Common
Stock to illustrate the amendment to our amended and restated certificate of
incorporation. Should Donaldson, Lufkin & Jenrette, Inc. decide in the future
to issue other similar series of common stock the provisions described below
would apply to such series as well unless we amend our amended and restated
certificate of incorporation at such time.

This description refers in many places to "DLJ's retained interest in
DLJdirect." This represents the ownership of DLJ in that portion of DLJdirect
that is not represented by DLJdirect Common Stock. The size of this retained
interest relative to the interest represented by DLJdirect Common Stock may
change in the future if actions are taken, such as issuances of additional
shares of DLJdirect Common Stock, repurchases of DLJdirect Common Stock, or
transfers of cash or other property between DLJ and DLJdirect, that change
either the total amount of the assets of DLJdirect or the number of shares of
DLJdirect Common Stock that is outstanding. These actions, and the effect that
they would have on holders of DLJdirect Common Stock are described further in
this section. See Annex 1, "Illustration of Certain Terms", for further
discussion of certain terms defined in this section.

GENERAL

Our current certificate of incorporation authorizes us to issue
300,000,000 shares of common stock, par value $0.10 per share, and 50,000,000
shares of preferred stock, par value $0.01 per share. Only the preferred stock
is currently issuable in series by the board of directors. As of March 1, 1999,
we had 124,320,184 shares of common stock and 7,500,000 shares of preferred
stock issued and outstanding.

Before the offering, we will file an amendment to our amended and restated
certificate of incorporation which will further amend our current amended and
restated certificate of incorporation. The amendment to our amended and
restated certificate of incorporation (together, the "restated charter") will

o authorize the board of directors to issue a total of 1.5 billion shares
of common stock in multiple series, including Donaldson, Lufkin &
Jenrette, Inc.--DLJ Common Stock ("DLJ Common Stock") and Donaldson,
Lufkin, Jenrette, Inc.--DLJdirect Common Stock ("DLJdirect Common
Stock"). The board of directors will be authorized to issue 500,000,000
shares of DLJ Common Stock and 500,000,000 shares of DLJdirect Common
Stock; and

o re-classify each outstanding share of common stock into a share of DLJ
Common Stock.

We intend DLJdirect Common Stock to reflect the performance of the online
discount brokerage and related investment services businesses of DLJdirect,
including certain activities currently conducted by DLJdirect Holdings Inc. and
one or more affiliates of Donaldson, Lufkin & Jenrette, Inc. (the "DLJdirect
Group" or "DLJdirect").

We intend DLJ Common Stock to reflect the performance of the rest of the
businesses conducted by DLJ and its affiliates (the "DLJ Group" or "DLJ"),
including DLJ's retained interest in DLJdirect.

We will allocate all of Donaldson, Lufkin & Jenrette, Inc.'s consolidated
assets, liabilities, revenue, expenses and cash flow between the DLJ Group and
DLJdirect Group.

We may decide to authorize the issuance of shares of additional series of
common stock other than DLJ Common Stock or DLJdirect Common Stock in which
case we shall designate the assets and liabilities of DLJ to which such series
of common stock relates and such assets and liabilities shall be an additional
"Group" for the purposes of our restated charter.

The full definitions of the terms "DLJ" and "DLJdirect" are set forth
under "--Mandatory Dividend, Redemption or Exchange on Disposition of All or
Substantially All of the Assets of a Group" below.

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<PAGE>

Before the time of the offering, the board of directors will designate the
initial number of shares of DLJdirect Common Stock that may be issued for the
account of DLJdirect in respect of its retained interest in DLJdirect--which we
call the "Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect". See "--DLJ's Retained Interest in Any Group" and our restated
charter for additional information about DLJ's retained interest in DLJdirect
(or in any other Group).

The board of directors will have the authority in its sole discretion to
issue authorized but unissued shares of common stock from time to time for any
proper corporate purpose. The board of directors will have the authority to do
so without stockholders approval, except as may be provided by Delaware law or
the rules and regulations of any securities exchange on which any series of
outstanding common stock may then be listed.

DIVIDENDS

The board of directors will retain the discretion whether or not to pay
dividends on any series of common stock. We do not expect to change our current
dividend policy for our outstanding common stock (which will become DLJ Common
Stock). We do not expect to pay dividends on DLJdirect Common Stock in the
future; however,

o we will be permitted to pay dividends on any series of common stock out
of the lesser of the assets of Donaldson, Lufkin & Jenrette, Inc. legally
available for the payment of dividends under Delaware law and the
Available Dividend Amount for the Group to which such series of common
stock relates.

The "Available Dividend Amount" for DLJ at any time is the amount that
would then be legally available for the payment of dividends on DLJ's common
stock under Delaware law if

o DLJ and each other Group were each a single, separate Delaware
corporation,

o DLJ had outstanding (1) a number of shares of common stock, par value
$0.10 per share, equal to the number of shares of DLJ Common Stock that
are then outstanding and (2) a number of shares of preferred stock, par
value $0.01 per share, equal to the number of shares of preferred stock
of Donaldson, Lufkin & Jenrette, Inc. that have been attributed to DLJ
that are then outstanding,

o the assumptions about each other Group set forth in the following
definition were true, and

o DLJ owned a number of shares of each series of common stock (other than
DLJ Common Stock) equal to the Number of Shares Issuable with Respect to
DLJ's Retained Interest in each Group to which each such series of common
stock relates.

Similarly, the "Available Dividend Amount" for any Group that is not DLJ at any
time is the amount that would then be legally available for the payment of
dividends on the series of common stock relating to such Group under Delaware
law if such other Group were a single, separate Delaware corporation having
outstanding:

o a number of shares of common stock, par value $0.10 per share, equal to
the number of shares of the series of common stock relating to such Group
that are then outstanding plus the Number of Shares Issuable with Respect
to DLJ's Retained Interest in such Group and

o a number of shares of preferred stock, par value $0.01 per share, equal
to the number of shares of preferred stock of Donaldson, Lufkin &
Jenrette, Inc. that have been attributed to such Group, if any, that are
then outstanding.

The amount legally available for the payment of dividends on common stock
of a corporation under Delaware law is generally limited to:

o the total assets of the corporation less its total liabilities less

o the aggregate par value of the issued shares of its common and preferred
stock, plus any amounts which the board of directors has designated as
capital in respect of such shares.

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However, if that amount is not greater than zero, the corporation may also
pay dividends out of the net profits for the corporation for the fiscal year in
which the dividend is declared and/or the preceding fiscal year. As mentioned
above, these restrictions will form the basis for calculating the Available
Dividend Amounts for DLJ and DLJdirect. Thus, net losses of either Group, and
any dividends and distributions on, or repurchases of, either series of common
stock, may reduce the assets legally available for dividends on both series of
common stock. These restrictions will also form the basis for calculating the
aggregate amount of dividends that Donaldson, Lufkin & Jenrette, Inc. as a
whole can pay on its common stock, regardless of series. Thus, for example, net
losses of the DLJ Group, and any dividends and distributions on, or repurchases
of, DLJ Common Stock, will reduce the assets legally available for dividends on
the DLJdirect Common Stock.

Subject to the foregoing limitations, applicable regulatory requirements
and to any other limitations set forth in any future series of preferred stock
or in any agreements binding on Donaldson, Lufkin & Jenrette, Inc. from time to
time, we have the right to pay dividends on all, any or no series of common
stock in equal or unequal amounts, notwithstanding the relative amounts of the
Available Dividend Amounts, the amount of dividends previously declared on any
series, the respective voting or liquidation rights of any series or any other
factor.

At the time of any dividend on the outstanding shares of any series of
common stock, including any dividend required as a result of a disposition of
All or Substantially All of the Assets (as defined herein) of the Group to
which such series of common stock relates but excluding any dividend payable in
shares of such series of common stock, we will credit to DLJ, and charge
against such Group, a corresponding amount in respect of DLJ's retained
interest in such Group. Specifically, the corresponding amount will equal (1)
the aggregate amount of such dividend times (2) the Retained Interest Amount
(as defined herein) in respect of such Group.

The board of directors may declare and pay dividends or distributions of
shares of common stock (or securities convertible into or exchangeable or
exercisable for shares of common stock) if such dividends or distributions of
shares

o of any series of common stock (or securities convertible into or
exchangeable or exercisable for shares of common stock) are on shares of
the same series of common stock, or

o are of a series of common stock other than DLJ Common Stock (or
securities convertible into or exchangeable or exercisable for shares of
a series of common stock other than DLJ Common Stock) on shares of DLJ
Common Stock and the sum of the shares of the series of common stock to
be issued and the shares of the series of common stock issuable upon
conversion, exchange or exercise of any outstanding convertible
securities attributable to the DLJ Group is less than or equal to the
Number of Shares Issuable with Respect to DLJ's Retained Interest in such
Group.

MANDATORY DIVIDEND, REDEMPTION OR EXCHANGE ON DISPOSITION OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS OF A GROUP

If we dispose of All or Substantially All of the Assets of a Group to one
or more persons or entities, in one transaction or a series of related
transactions (collectively, a "Disposition"), and the Disposition is not an
Exempt Disposition as defined below, we would be required, by the 85th Trading
Day after the consummation of such Disposition (the "Disposition Date"), to
either:

o declare and pay a dividend to holders of the series of common stock that
relates to the Group that consummated such Disposition in cash,
securities (other than common stock of Donaldson, Lufkin & Jenrette,
Inc.) or other property, or a combination thereof, in an aggregate amount
having a Fair Value (determined as of the Disposition Date) equal to the
product of the Outstanding Interest Fraction in such Group (determined as
of the record date for such dividend) and the Fair Value (determined as
of the Disposition Date) of the Net Proceeds of such Disposition,

o redeem from holders of the series of common stock that relates to the
Group that consummated such Disposition, in exchange for cash, securities
(other than common stock of Donaldson, Lufkin

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<PAGE>

& Jenrette, Inc.) or other property, or a combination thereof, in an
amount equal to the product of the Outstanding Interest Fraction with
respect to such Group (determined as of the redemption date) and the Fair
Value (determined as of the Disposition Date) of the Net Proceeds of such
Disposition, all of the outstanding shares of such series of common stock
(unless such Disposition involves substantially all (but not all) of the
assets attributed to such Group, in which case, a number of shares of
such series of common stock having an aggregate average Market Value,
during the 20 consecutive Trading Day period beginning on the 16th
Trading Day immediately following the Disposition Date, equal to such
amount) or

o issue shares of a series of common stock that does not relate to the
Group that consummated such Disposition in exchange for each outstanding
share of the series of common stock that relates to the Group that
consummated such Disposition at a 10% premium, based on the average
Market Value of the relevant series of common stock as compared to the
average Market Value of the other series of common stock during the 20
consecutive Trading Day period beginning on the 16th Trading Day
immediately following the Disposition Date.

In connection with any special dividend on, or redemption of, common stock
as described above, we will credit to DLJ, and charge against the applicable
Group, a corresponding amount in respect of DLJ's retained interest in such
Group. Specifically, the corresponding amount will equal

o the aggregate Fair Value of such dividend or redemption times

o the Retained Interest Amount in respect of such Group.

In addition, in connection with any redemption of common stock as
described above, we will decrease the Number of Shares Issuable with Respect to
DLJ's Retained Interest in such Group by the same proportion as the
proportionate decrease in outstanding shares of such Group caused by such
redemption.

At any time within one year after completing any dividend or partial
redemption of the sort referred to above, we will have the right to issue
shares of a series of common stock that does not relate to the Group in
question in exchange for each remaining outstanding share of the series of
common stock that relates to that Group at a 10% premium. The exchange ratio
that will result in a 10% premium will be calculated based on the average
Market Value of the relevant series of common stock as compared to the average
Market Value of the other series of common stock during the 20 consecutive
Trading Day period ending on the 5th Trading Day immediately preceding the date
on which Donaldson, Lufkin & Jenrette, Inc. mails the notice of exchange to
holders of the relevant series. In determining whether to effect any such
exchange following such a dividend or partial redemption, we would, in addition
to other matters, consider:

o whether the remaining assets of such Group continue to constitute a
viable business,

o the number of shares of such common stock remaining issued and
outstanding,

o the per share market price of such common stock and

o the ongoing cost of continuing to have a separate series of such common
stock outstanding.

The following terms used in this Information Statement have the meanings
specified in our restated charter and are set forth below:

"All or Substantially All of the Assets" of a Group means, with respect to
any Disposition, a portion of such assets that represents at least 80% of the
Fair Value (determined as of the Disposition Date) of the assets of such Group.

"DLJ" means:

o all of the businesses, assets and liabilities of Donaldson, Lufkin &
Jenrette, Inc. and its subsidiaries other than the businesses, assets and
liabilities that are part of any Group other than DLJ,

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<PAGE>

o the rights and obligations of DLJ under any inter-Group debt deemed to
be owed to or by DLJ, as such rights and obligations are defined in
accordance with policies established from time to time by the board of
directors, and

o a proportionate interest in any Group other than DLJ, after giving
effect to any options, preferred stock, other securities or debt issued
or incurred by Donaldson, Lufkin & Jenrette, Inc. and attributed to any
Group other than DLJ, equal to the Retained Interest Fraction in respect
of such Group; provided that:

o Donaldson, Lufkin & Jenrette, Inc. may re-allocate assets from one
Group to another Group in return for other assets or services rendered
by that other Group in the ordinary course of business or in
accordance with policies established by the board of directors from
time to time and

o if Donaldson, Lufkin & Jenrette, Inc. transfers cash, other assets or
securities to holders of shares of a series of common stock other than
DLJ Common Stock as a dividend or other distribution on shares of such
series of common stock, other than a dividend or distribution payable
in shares of such series of common stock, or as payment in a
redemption of shares of such series of common stock effected as a
result of a Disposition relating to the Group to which such series of
common stock relates, then the board of directors shall re-allocate
from such Group to DLJ cash or other assets having a Fair Value equal
to the aggregate Fair Value (in each case, determined as of the record
date for such dividend or distribution or as of the date of such
redemption) of the cash, other assets or securities so transferred
times the Retained Interest Amount in respect of such Group
(determined as of the record date for such dividend or distribution,
or as of the date of such redemption).

"DLJdirect" means:

o all of the businesses, assets and liabilities of DLJdirect Holdings Inc.
and its subsidiaries,

o the business, assets and liabilities of DLJdirect's online United Kingdom
discount brokerage service,

o any assets or liabilities acquired or incurred by DLJdirect Holdings Inc.
or any of its subsidiaries after the filing of our restated charter, in
the ordinary course of business,

o any businesses, assets or liabilities acquired or incurred by Donaldson,
Lufkin & Jenrette, Inc. or any of its subsidiaries after the filing of
our restated charter that the board of directors has specifically
allocated to DLJdirect or that Donaldson, Lufkin & Jenrette, Inc.
otherwise allocates to DLJdirect in accordance with policies established
from time to time by the board of directors, and

o the rights and obligations of DLJdirect under any inter-Group debt deemed
to be owed to or by DLJdirect, as such rights and obligations are defined
in accordance with policies established from time to time by the board of
directors; provided that:

o Donaldson, Lufkin & Jenrette, Inc. may re-allocate assets from one
Group to the other Group in return for other assets or services
rendered by that other Group in the ordinary course of business or in
accordance with policies established by the board of directors from
time to time and

o if Donaldson, Lufkin & Jenrette, Inc. transfers cash, other assets or
securities to holders of shares of DLJdirect Common Stock as a
dividend or other distribution on shares of DLJdirect Common Stock,
other than a dividend or distribution payable in shares of DLJdirect
Common Stock, or as payment in a redemption of shares of DLJdirect
Common Stock effected as a result of a DLJdirect Disposition, then the
board of directors shall re-allocate from DLJdirect to DLJ cash or
other assets having a Fair Value equal to the aggregate Fair Value (in
each case, determined as of the record date for such dividend or
distribution or as of the date of

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<PAGE>

such redemption) of the cash, other assets or securities so transferred
times the Retained Interest Amount in respect of DLJdirect (determined
as of the record date for such dividend or distribution, or as of the
date of such redemption).

"Exempt Disposition" means any of the following:

o a Disposition in connection with the liquidation, dissolution or
winding-up of Donaldson, Lufkin & Jenrette, Inc. and the distribution of
assets to stockholders,

o a Disposition to any person or entity controlled by Donaldson, Lufkin &
Jenrette, Inc., as determined by the board of directors in its sole
discretion,

o a Disposition by any Group for which Donaldson, Lufkin & Jenrette, Inc.
receives consideration primarily consisting of equity securities,
including, without limitation:

o capital stock of any kind,

o interests in a general or limited partnership,

o interests in a limited liability company or

o debt securities convertible into or exchangeable for any of the above,
or options or warrants to acquire any of the above,

in each case without regard to the voting power or other management
governance rights associated therewith, of an entity which is primarily
engaged or proposes to engage primarily in one or more businesses similar
or complementary to businesses conducted by such Group prior to the
Disposition, as determined by the board of directors in its sole
discretion,

o a dividend out of any Group's assets that is paid to holders of shares
of the series of common stock relating to such Group, and a transfer of a
corresponding amount to DLJ in respect of its retained interest in such
Group,

o a dividend out of DLJ's assets to holders of DLJ Common Stock and

o a Disposition by any Group other than DLJ or DLJdirect that is
designated to be an "Exempt Disposition" by the board of directors in the
resolution or resolutions authorizing the issuance of the shares of the
series of common stock that relates to such Group,

o any other Disposition, if

o at the time of the Disposition there are no shares of any series of
common stock outstanding other than the series of common stock
relating to the Group that consummated such Disposition,

o at the time of the Disposition there are no shares of the series of
common stock relating to the Group that consummated such Disposition
outstanding or

o before the 30th Trading Day following the Disposition we have mailed a
notice stating that we are exercising our right to exchange all of the
outstanding shares of DLJdirect Common Stock for newly issued shares
of DLJ Common Stock as contemplated under "--Optional Exchange of DLJ
Common Stock for DLJdirect Common Stock" below.

"Fair Value" means:

o in the case of cash, the amount thereof,

o in the case of capital stock that has been Publicly Traded for a period
of at least 15 months, the Market Value thereof and

o in the case of other assets or securities, the fair market value
thereof as the board of directors shall determine in good faith.

(Any good faith board of directors' determination of Fair Value shall be
conclusive and binding on all stockholders.)

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<PAGE>

"Market Capitalization" of a series of common stock on any date means the
Market Value of a share of such series on such date times the number of shares
of such series outstanding on such date. Shares issuable with respect to DLJ's
retained interest in a Group other than DLJ are not considered to be
outstanding unless and until they are in fact issued to third parties.

"Market Value" of a share of any class or series of capital stock on any
Trading Day generally means the average of the high and low reported sale
prices of a share of such class or series on such Trading Day, subject to
certain exceptions described in our restated charter.

The "Net Proceeds" of a Disposition of any assets of a Group means the
positive amount, if any, remaining from the gross proceeds of such Disposition
after any payment of, or reasonable provision for:

o any taxes payable by Donaldson, Lufkin & Jenrette, Inc. or any
subsidiary or affiliate thereof in respect of such Disposition, or which
would have been payable but for the utilization of tax benefits
attributable to the Group not the subject of the Disposition,

o any taxes payable by Donaldson, Lufkin & Jenrette, Inc. or any
subsidiary or affiliate thereof in respect of any resulting dividend or
redemption,

o any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses and

o any liabilities, contingent or otherwise, of, attributed to or related
to, such Group, including, without limitation, any liabilities for
deferred taxes, any indemnity or guarantee obligations which are
outstanding or incurred in connection with the Disposition or otherwise,
any liabilities for future purchase price adjustments and any obligations
with respect to outstanding securities, other than common stock,
attributed to such Group, as determined in good faith by the board of
directors.

"Outstanding Interest Fraction" means (i) with respect to DLJ, at any time
of determination, 1 and (ii) with respect to any other Group, at any time of
determination, a fraction the numerator of which shall be the number of shares
of the series of common stock applicable to such Group outstanding on such date
and the denominator of which shall be the sum of the number of shares of the
series of common stock applicable to such Group outstanding on such date and
the Number of Shares Issuable with Respect to DLJ's Retained Interest in such
Group.

"Publicly Traded" with respect to any security means:

o registered under Section 12 of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") or any successor provision of law, and

o listed for trading on the NYSE, or any other national securities
exchange registered under Section 7 of the Exchange Act, or any successor
provision of law, or

o listed on the Nasdaq National Market, or any successor market system.

"Retained Interest Amount" means (i) with respect to DLJ, at any time of
determination, 1 and (ii) with respect to any other Group, at any time of
determination, a fraction the numerator of which shall be the Number of Shares
Issuable with Respect to DLJ's Retained Interest in such Group and the
denominator of which shall be the number of shares of the series of common
stock relating to such Group outstanding on such date.

"Retained Interest Fraction" means (i) with respect to DLJ, at any time of
determination, 1 and (ii) with respect to any other Group, at any time of
determination, a fraction the numerator of which shall be the Number of Shares
Issuable with Respect to DLJ's Retained Interest in such Group and the
denominator of which shall be the sum of the number of shares of the series of
common stock relating to such Group outstanding on such date and the Number of
Shares Issuable with Respect to DLJ's Retained Interest in such Group.

"Trading Day" means each weekday on which the relevant security or, if
there are two relevant securities, each relevant security, is traded on the
principal national securities exchange on which it is

32
<PAGE>

listed or admitted to trading or on the Nasdaq National Market or, if such
security is not listed or admitted to trading on a national securities exchange
or quoted on the Nasdaq National Market, traded in the principal
over-the-counter market in which it trades.

OPTIONAL EXCHANGE OF DLJ COMMON STOCK FOR DLJDIRECT COMMON STOCK

We will have the right at any time to declare that each outstanding share
of DLJdirect Common Stock shall be exchanged, as of the applicable exchange
date, for a number of fully paid and nonassessable shares of DLJ Common Stock
at a premium. The premium will initially be 25%, for exchanges occurring in the
first 90 days after issuance, and will decline thereafter over a period of 3
years to 15%, as determined by the applicable exchange date.

Notwithstanding the preceding paragraph, upon the occurrence of a Tax
Event (as defined below), we will have the right to issue shares of DLJ Common
Stock in exchange for outstanding shares of DLJdirect Common Stock at a premium
of 10%.

"Tax Event" means the receipt by Donaldson, Lufkin & Jenrette, Inc. of an
opinion of tax counsel experienced in such matters, who shall not be an officer
or employee of Donaldson, Lufkin & Jenrette, Inc. or any of its affiliates, to
the effect that, as a result of any amendment to, or change in, the laws (or
any regulations thereunder) of the United States or any political subdivision
or taxing authority thereof or therein (including any proposed change in such
regulations announced by an administrative agency), or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, it is more likely than not
that for United States federal income tax purposes (1) Donaldson, Lufkin &
Jenrette, Inc., its subsidiaries or affiliates, or any of its successors or its
stockholders is or, at any time in the future, will be subject to tax upon the
issuance of shares of either DLJ Common Stock or DLJdirect Common Stock or (2)
either DLJ Common Stock or DLJdirect Common Stock is not or, at any time in the
future, will not be treated solely as stock of Donaldson, Lufkin & Jenrette,
Inc. For purposes of rendering such opinion, tax counsel shall assume that any
administrative proposals will be adopted as proposed. However, in the event a
change in law is proposed, tax counsel shall render an opinion only in the
event of enactment.

The exchange ratio that will result in the specified premium will be
calculated based on the average Market Value of DLJ Common Stock as compared to
the average Market Value of DLJdirect Common Stock during the 20 consecutive
Trading Day period ending on, and including, the 5th Trading Day immediately
preceding the date on which we mail the notice of exchange to holders of the
outstanding shares being exchanged.

OPTIONAL EXCHANGE FOR STOCK OF A SUBSIDIARY

At any time at which all of the assets and liabilities of a Group, and no
other assets or liabilities of Donaldson, Lufkin & Jenrette, Inc. or any
subsidiary thereof, are held directly or indirectly by one or more wholly owned
subsidiaries of Donaldson, Lufkin & Jenrette, Inc. (the "Group Subsidiaries"),
we may, provided that there are funds of Donaldson, Lufkin & Jenrette, Inc.
legally available, declare that all of the outstanding shares of the common
stock relating to such Group shall be exchanged, as of the applicable exchange
date, for the number of fully paid and nonassessable shares of common stock of
each of such Group Subsidiaries equal to the product of the Outstanding
Interest Fraction with respect to such Group (determined as of the applicable
exchange date) and the number of shares of common stock of each such Group
Subsidiary as will be outstanding immediately following such exchange. Such
shares of common stock of such Group Subsidiaries may be delivered by the
delivery of shares of one or more of such Group Subsidiaries that own directly
or indirectly all of the other shares that are deliverable as described in the
preceding sentence.

If the series of common stock being exchanged is DLJ Common Stock and the
Number of Shares Issuable with Respect to DLJ's Retained Interest in any Group
on the exchange date is greater than zero, we will also issue a number of
shares of the series of common stock that relates to such Group on the exchange
date equal to the then current Number of Shares Issuable with Respect to DLJ's
Retained Interest in such Group and deliver those shares to the holders of DLJ
Common Stock or to one of the DLJ Group Subsidiaries, at our option.

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<PAGE>

GENERAL DIVIDEND, EXCHANGE AND REDEMPTION PROVISIONS

If we complete a Disposition of All or Substantially All of the Assets of
a Group, other than an Exempt Disposition, we would be required, not later than
the 10th Trading Day after the applicable Disposition Date, to issue a press
release specifying:

o the Net Proceeds of such Disposition,

o the number of shares of the series of common stock related to such
Group then outstanding,

o the number of shares of such series of common stock issuable upon
conversion, exchange or exercise of any convertible or exchangeable
securities, options or warrants and the conversion, exchange or
exercise prices thereof, and

o if the Group is not DLJ, the Number of Shares Issuable with Respect to
DLJ's Retained Interest in such Group.

Not more than 40 Trading Days after such consummation, we would be required to
announce by press release which of the actions specified in the first paragraph
under "--Mandatory Dividend, Redemption or Exchange" we have determined to
take, and upon making that announcement, that determination would become
irrevocable. In addition, we would be required, not more than 40 Trading Days
after such consummation and not less than 10 Trading Days before the applicable
payment date, redemption date or exchange date, to send a notice by first-class
mail, postage prepaid, to holders of the relevant series of common stock at
their addresses as they appear on our transfer books.

o If we determine to pay a special dividend, we would be required to
specify in the notice (1) the record date for such dividend, (2) the
payment date of such dividend (which cannot be more than 85 Trading
Days after such Disposition Date), (3) the Net Proceeds of such
Disposition and (4) the aggregate amount and type of property to be
paid in such dividend (and the approximate per share amount thereof).

o If we determine to undertake a redemption, we would be required to
specify in the notice (1) the date of redemption (which cannot be more
than 85 Trading Days after such Disposition Date), (2) the Net
Proceeds of such Disposition, (3) the type of property to be paid as a
redemption price and the approximate per share amount thereof, (4) if
less than all shares of the relevant series of common stock are to be
redeemed, the number of shares to be redeemed and (5) the place or
places where certificates for shares of such series of common stock,
properly endorsed or assigned for transfer (unless we waive such
requirement), should be surrendered in return for delivery of the
cash, securities or other property to be paid by Donaldson, Lufkin &
Jenrette, Inc. in such redemption.

o If we determine to undertake an exchange, we would be required to
specify in the notice (1) the date of exchange (which cannot be more
than 85 Trading Days after such Disposition Date), (2) the number of
shares of the other series of common stock to be issued in exchange
for each outstanding share of such series of common stock and (3) the
place or places where certificates for shares of such series of common
stock, properly endorsed or assigned for transfer, unless we waive
such requirement, should be surrendered in return for delivery of the
other series of common stock to be issued by Donaldson, Lufkin &
Jenrette, Inc. in such exchange.

If we determine to complete any exchange described under "--Optional
Exchange of DLJ Common Stock for DLJdirect Common Stock" or "Optional Exchange
for Stock of a Subsidiary", we would be required, between 10 and 30 Trading
Days before the exchange date, to send a notice by first-class mail, postage
prepaid, to holders of the relevant series of common stock at their addresses
as they appear on our transfer books, specifying (1) the exchange date and the
other terms of the exchange and (2) the place or places where certificates for
shares of such series of common stock, properly endorsed or assigned for
transfer, unless we waive such requirement, should be surrendered for delivery
of the stock to be issued or delivered by Donaldson, Lufkin & Jenrette, Inc. in
such exchange.

Neither the failure to mail any required notice to any particular holder
nor any defect therein would affect the sufficiency thereof with respect to any
other holder or the validity of any dividend, redemption or exchange.

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<PAGE>

If we are redeeming less than all of the outstanding shares of a series of
common stock as described above, we would redeem such shares pro rata or by lot
or by such other method as the board of directors determines to be equitable.

No holder of shares of a series of common stock being exchanged or
redeemed will be entitled to receive any cash, securities or other property to
be distributed in such exchange or redemption until such holder surrenders
certificates for such shares, properly endorsed or assigned for transfer, at
such place as we specify, unless we waive such requirement. As soon as
practicable after our receipt of certificates for such shares, we would deliver
to the person for whose account such shares were so surrendered, or to the
nominee or nominees of such person, the cash, securities or other property to
which such person is entitled, together with any fractional payment referred to
below, in each case without interest. If less than all of the shares of common
stock represented by any one certificate were to be exchanged or redeemed, we
would also issue and deliver a new certificate for the shares of such common
stock not exchanged or redeemed.

We would not be required to issue or deliver fractional shares of any
capital stock or any other fractional securities to any holder of common stock
upon any exchange, redemption, dividend or other distribution described above.
If more than one share of common stock were held at the same time by the same
holder, we may aggregate the number of shares of any capital stock that would
be issuable or any other securities that would be distributable to such holder
upon any such exchange, redemption, dividend or other distribution. If there
are fractional shares of any capital stock or any other fractional securities
remaining to be issued or distributed to any holder, we would, if such
fractional shares or securities were not issued or distributed to such holder,
pay cash in respect of such fractional shares or securities in an amount equal
to the Fair Value thereof, without interest.

From and after the date set for any exchange or redemption, all rights of
a holder of shares of common stock that were exchanged or redeemed would cease
except for the right, upon surrender of the certificates representing such
shares, to receive the cash, securities or other property for which such shares
were exchanged or redeemed, together with any fractional payment as provided
above, in each case without interest and, if such holder was a holder of record
as of the close of business on the record date for a dividend not yet paid, the
right to receive such dividend. A holder of shares of common stock being
exchanged would not be entitled to receive any dividend or other distribution
with respect to shares of the other series of common stock until after the
shares being exchanged are surrendered as contemplated above. Upon such
surrender, we would pay to the holder the amount of any dividends or other
distributions, without interest, which theretofore became payable with respect
to a record date occurring after the exchange, but which were not paid by
reason of the foregoing, with respect to the number of whole shares of the
other series of common stock represented by the certificate or certificates
issued upon such surrender. From and after the date set for any exchange, we
would, however, be entitled to treat the certificates for shares of common
stock being exchanged that were not yet surrendered for exchange as evidencing
the ownership of the number of whole shares of the other series of common stock
for which the shares of such common stock should have been exchanged,
notwithstanding the failure to surrender such certificates.

We would pay any and all documentary, stamp or similar issue or transfer
taxes that might be payable in respect of the issue or delivery of any shares
of capital stock and/or other securities on any exchange or redemption
described herein. We would not, however, be required to pay any tax that might
be payable in respect of any transfer involved in the issue or delivery of any
shares of capital stock and/or other securities in a name other than that in
which the shares so exchanged or redeemed were registered, and no such issue or
delivery will be made unless and until the person requesting such issue pays to
Donaldson, Lufkin & Jenrette, Inc. the amount of any such tax or establishes to
our satisfaction that such tax has been paid.

We may, subject to applicable law, establish such other rules,
requirements and procedures to facilitate any dividend, redemption or exchange
contemplated as described above as the board of directors may determine to be
appropriate under the circumstances.

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<PAGE>

VOTING RIGHTS

Holders of DLJdirect Common Stock will not be entitled to vote, unless a
separate class vote is required by applicable law. Holders of DLJ Common Stock
will vote on all matters as to which common stockholders generally are entitled
to vote. On all such matters for which no separate vote is required, each
outstanding share of DLJ Common Stock entitles the holder to one vote.

The Delaware general corporation law requires a separate vote of holders
of shares of common stock of any series on any amendment to the certificate of
incorporation if the amendment would alter or change the powers, preferences or
special rights of the shares of such series so as to affect them adversely but
would not so affect the entire class.

LIQUIDATION

The holders of each series of common stock will be entitled, upon
voluntary or involuntary liquidation, dissolution or winding-up of Donaldson,
Lufkin & Jenrette, Inc., to receive their proportionate interest in the net
assets of Donaldson, Lufkin & Jenrette, Inc., if any, remaining for
distribution to stockholders after payment of or provision for all liabilities,
including contingent liabilities, of Donaldson, Lufkin & Jenrette, Inc. and
payment of the liquidation preference payable to any holders of our preferred
stock, if any such stock is outstanding. Each share of each series of common
stock will be entitled to a share of net liquidation proceeds in proportion to
the respective liquidation units per share of such class. Each share of DLJ
Common Stock shall have one liquidation unit and each share of each other
series of common stock shall have a number of liquidation units (including a
fraction of one liquidation unit) equal to the quotient of the average Market
Value of one share of such series of common stock during the 20 consecutive
Trading Day period ending on, and including, the 5th Trading Day before the
date of the first public announcement of (1) a voluntary liquidation,
dissolution or winding-up by Donaldson, Lufkin & Jenrette, Inc. or (2) the
institution of any proceeding for the involuntary liquidation, dissolution or
winding-up of Donaldson, Lufkin & Jenrette, Inc. divided by the average Market
Value of one share of DLJ Common Stock during such 20 Trading Day period.

The liquidation formula is intended to provide liquidation rights for each
series of common stock proportionate to the respective Market Values at the
time of any liquidation.

Neither the merger nor consolidation of Donaldson, Lufkin & Jenrette, Inc.
with any other entity, nor a sale, transfer or lease of all or any part of the
assets of Donaldson, Lufkin & Jenrette, Inc., would alone be deemed a
liquidation, dissolution or winding-up for these purposes.

DLJ'S RETAINED INTEREST IN ANY GROUP

In this document, the proportional interest in any Group (other than DLJ)
intended to be represented at any time by the outstanding shares of the series
of common stock that relates to such Group is represented by the "Outstanding
Interest Fraction" and the remaining proportional interest in such Group
intended to be represented at any time by DLJ's retained interest in such Group
is represented by the "Retained Interest Fraction". At any time, the
Outstanding Interest Fraction equals the number of shares of the series of
common stock that relates to such Group outstanding divided by the sum of
number of shares of such series of common stock outstanding and the Number of
Shares Issuable with Respect to DLJ's Retained Interest in such Group. The
Outstanding Interest Fraction in any Group can also be expressed as follows:

Number of Shares of such Series of Common Stock
Outstanding
----------------------------------------------
Number of Shares of such Series of Common Stock
Outstanding + Number of Shares Issuable with Respect
to DLJ's Retained Interest in such Group

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<PAGE>

The Retained Interest Fraction in respect of any Group equals the Number
of Shares Issuable with Respect to DLJ's Retained Interest in such Group
divided by the sum of the Number of Shares Issuable with Respect to DLJ's
Retained Interest in such Group and the number of shares of such series of
common stock outstanding. The Retained Interest Fraction in respect of any
Group can also be expressed as follows:

Number of Shares Issuable with Respect to DLJ's Retained
Interest in such Group
----------------------------------------------
Number of Shares Issuable with Respect to DLJ's Retained
Interest in such Group + Number of Shares of such Series of
Common Stock Outstanding

ATTRIBUTION OF ISSUANCES OF COMMON STOCK

Whenever we decide to issue shares of any series of common stock other
than DLJ Common Stock, we would determine, in our sole discretion, whether to
attribute that issuance, and the proceeds thereof:

o to DLJ in respect of its retained interest in the Group to which such
series of common stock relates, in a manner analogous to a secondary
offering of common stock of a subsidiary owned by a corporate parent,
or

o to such Group, in a manner analogous to a primary offering of common
stock.

If we issue any shares of any series of common stock other than DLJ Common
Stock and attribute that issuance, and the proceeds thereof, to DLJ in respect
of its retained interest in the Group to which such series of common stock
relates, the Number of Shares Issuable with Respect to DLJ's Retained Interest
in such Group would be reduced by the number of shares so issued, the number of
outstanding shares of such series of common stock would be increased by the
same amount, the Retained Interest Fraction in respect of such Group would be
reduced and the Outstanding Interest Fraction in respect of such Group would be
correspondingly increased. If we instead attribute that issuance (and the
proceeds thereof) to such Group, the Number of Shares Issuable with Respect to
DLJ's Retained Interest in respect of such Group would remain unchanged, the
number of outstanding shares of such series of common stock would be increased
by the number of shares so issued, the Retained Interest Fraction in respect of
such Group would be reduced and the Outstanding Interest Fraction in respect of
such Group would be correspondingly increased.

ISSUANCES OF COMMON STOCK AS DISTRIBUTIONS ON DLJ COMMON STOCK

We reserve the right to issue shares of any series of common stock other
than DLJ Common Stock as a distribution on DLJ Common Stock, although we do not
currently intend to do so. If we did so, we would attribute that distribution
to DLJ in respect of its retained interest in the Group to which such series of
common stock relates. As a result, the Number of Shares Issuable with Respect
to DLJ's Retained Interest in such Group would be reduced by the number of
shares so distributed, the number of outstanding shares of such series of
common stock would be increased by the same amount, the Retained Interest
Fraction in such Group would be reduced and the Outstanding Interest Fraction
in such Group would be correspondingly increased. If instead we issued shares
of such series of common stock as a distribution on such series of common
stock, we would attribute that distribution to such Group, in which case we
would proportionately increase the Number of Shares Issuable with Respect to
DLJ's Retained Interest in such Group. As a result, the Number of Shares
Issuable with Respect to DLJ's Retained Interest in such Group would be
increased by the same percentage as the number of outstanding shares of such
series of common stock is increased and the Retained Interest Fraction in such
Group and the Outstanding Interest Fraction in respect of such Group would
remain unchanged.

DIVIDENDS ON COMMON STOCK

At the time of any dividend on the outstanding shares of any series of
common stock other than DLJ Common Stock, including any dividend required as a
result of a Disposition of All or Substantially All of

37
<PAGE>

the Assets of the Group to which such series of common stock relates, but
excluding any dividend payable in shares of such series of common stock, we
will credit to DLJ, and charge against such Group, a corresponding amount in
respect of DLJ's retained interest in such Group. Specifically, the
corresponding amount will equal the aggregate amount of such dividend times the
Retained Interest Amount in respect of such Group.

REPURCHASES OF COMMON STOCK

If we decide to repurchase shares of any series of common stock other than
DLJ Common Stock, we would determine, in our sole discretion, whether to
attribute that repurchase and the cost thereof to DLJ, in a manner analogous to
a purchase of common stock of a subsidiary by a corporate parent, or to the
Group to which such series of common stock relates, in a manner analogous to an
issuer repurchase. If we repurchase shares of such series of common stock and
attribute that repurchase and the cost thereof to DLJ, the Number of Shares
Issuable with Respect to DLJ's Retained Interest in such Group would be
increased by the number of shares so purchased, the number of outstanding
shares of such series common stock would be decreased by the same amount, the
Retained Interest Fraction in respect of such Group would be increased and the
Outstanding Interest Fraction in respect of such Group would be correspondingly
decreased. If we instead attribute that repurchase and the cost thereof to the
Group to which such series of common stock relates, the Number of Shares
Issuable with Respect to DLJ's Retained Interest in respect of such Group would
remain unchanged, the number of outstanding shares of such series common stock
would be decreased by the number of shares so repurchased, the Retained
Interest Fraction in respect of such Group would be increased and the
Outstanding Interest Fraction in respect of such Group would be correspondingly
reduced.

TRANSFERS OF CASH OR OTHER PROPERTY BETWEEN DLJ AND ANY OTHER GROUP

We may, in our sole discretion, determine to transfer cash or other
property of any Group to DLJ in return for a decrease in DLJ's retained
interest in such Group, in a manner analogous to a return of capital, or to
transfer cash or other property of DLJ to such Group in return for an increase
in DLJ's retained interest in such Group, in a manner analogous to a capital
contribution. If we determine to transfer cash or other property of any Group
to DLJ in return for a decrease in DLJ's retained interest in such Group, the
Number of Shares Issuable with Respect to DLJ's Retained Interest in such Group
would be decreased by an amount equal to the Fair Value of such cash or other
property divided by the Market Value of a share of the series of common stock
relating to such Group on the day of transfer, the number of outstanding shares
of such series common stock would remain unchanged, the Retained Interest
Fraction in respect of such Group would be reduced and the Outstanding Interest
Fraction in respect of such Group would be correspondingly increased.

If we instead determine to transfer cash or other property of DLJ to any
other Group in return for an increase in DLJ's retained interest in such Group,
the Number of Shares Issuable with Respect to DLJ's Retained Interest in such
Group would be increased by an amount equal to the Fair Value of such cash or
other property divided by the Market Value of a share of the series of common
stock relating to such Group on the day of transfer, the number of outstanding
shares of such series of common stock would remain unchanged, the Retained
Interest Fraction in respect of such Group would be increased and the
Outstanding Interest Fraction in respect of such Group would be correspondingly
decreased.

We may not attribute issuances of any series of common stock to DLJ,
transfer cash or other property of any Group to DLJ in return for a decrease in
its retained interest in such Group or take any other action to the extent that
doing so would cause the Number of Shares Issuable with Respect to DLJ's
Retained Interest in such Group to decrease below zero.

For illustrations showing how to calculate the Retained Interest Fraction,
the Outstanding Interest Fraction and the Number of Shares Issuable with
Respect to DLJ's Retained Interest in DLJdirect after giving effect to certain
hypothetical dividends, issuances, repurchases and transfers, see "Illustration
of Certain Terms".

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<PAGE>

EFFECTIVENESS OF CERTAIN TERMS

The terms described under "--Dividends", "--Mandatory Dividend, Redemption
or Exchange on Disposition of All or Substantially All of the Assets of a
Group", "--Optional Exchange of DLJ Common Stock for DLJdirect Common Stock",
"--Optional Exchange for Stock of a Subsidiary" and "--Liquidation" above apply
only when there are shares of multiple series of common stock outstanding.

DETERMINATIONS BY THE BOARD

The restated charter will provide that, subject to applicable law, any
determinations made by the board of directors in good faith under the charter
or in any certificate of designation filed pursuant thereto would be final and
binding on all stockholders of Donaldson, Lufkin & Jenrette, Inc.

PREEMPTIVE RIGHTS

Holders of DLJ Common Stock and DLJdirect Common Stock will not have any
preemptive rights to subscribe for any additional shares of capital stock or
securities that we may issue in the future.

CERTAIN OTHER PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND BY-LAWS

PREFERRED STOCK

The restated charter, like our current charter, provides that the board of
directors may issue shares of preferred stock in one or more series from time
to time. The board of directors has the authority to fix by resolution or
resolutions the designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions thereof, of the shares of each
series of preferred stock, including without limitation, the following:

o the distinctive serial designation of such series which shall
distinguish it from other series,

o the number of shares included in such series,

o the dividend rate, or method of determining such rate, payable to
holders of the shares of such series,

o any condition upon which such dividends shall be paid and the date or
dates upon which such dividends shall be payable,

o whether dividends on the shares of such series shall be cumulative
and, in the case of shares of any series having cumulative dividend
rights, the date or dates or method of determining the date or dates
from which dividends on the shares of such series shall be cumulative,

o the amount or amounts which shall be payable out of the assets of
Donaldson, Lufkin & Jenrette, Inc. to holders of the shares of such
series upon voluntary or involuntary liquidation, dissolution or
winding-up Donaldson, Lufkin & Jenrette, Inc. and the relative rights
of priority, if any, of payment of the shares of such series,

o the price or prices at which, the period or periods within which and
the terms and conditions upon which the shares of such series may be
redeemed, in whole or in part, at the option of Donaldson, Lufkin &
Jenrette, Inc. or at the option of the holder or holders thereof or
upon the happening of a specified event or events,

o the obligation, if any, of Donaldson, Lufkin & Jenrette, Inc. to
purchase or redeem shares of such series pursuant to a sinking fund or
otherwise and the price or prices at which, the period or periods
within which and the terms and conditions upon which the shares of
such series shall be redeemed or purchased, in whole or in part,
pursuant to such obligation,

o whether or not the shares of such series shall be convertible or
exchangeable, at any time or times at the option of the holder or
holders thereof or at the option of Donaldson, Lufkin & Jenrette,

39
<PAGE>

Inc. or upon the happening of a specified event or events, into shares of
any other class or classes or any other series of the same or any other
class or classes of stock of Donaldson, Lufkin & Jenrette, Inc. and the
price or prices or rate or rates of exchange or conversion and any
adjustments applicable thereto and

o whether or not holders of the shares of such series shall have voting
rights, in addition to the voting rights provided by law, and if so
the terms of such voting rights.

SERIES A AND SERIES B FIXED ADJUSTABLE RATE PREFERRED STOCK

General. The Series A Preferred Stock is a single series consisting of
4,000,000 shares with a liquidation preference of $50 per share. The Series B
Preferred Stock is a single series consisting of 3,500,000 shares with a
liquidation preference of $50 per share. The holders of the Preferred Stock
have no preemptive rights. The Preferred Stock is not convertible into shares
of either series of common stock of Donaldson, Lufkin & Jenrette, Inc. and is
fully paid and nonassessable.

The Series A Preferred Stock ranks on a parity with the Series B Preferred
Stock and prior to both series of the common stock of Donaldson, Lufkin &
Jenrette, Inc. as to the payment of dividends and distribution of assets upon
dissolution, liquidation or winding up of Donaldson, Lufkin & Jenrette, Inc.

Dividends. Dividends on the Series A Preferred Stock are payable quarterly
at the annual rate of 5.94% or $2.97 per share through November 30, 2001. After
November 30, 2001, dividends on the Series A Preferred Stock are payable at the
Applicable Rate from time to time in effect. The Applicable Rate per annum for
each dividend period beginning November 30, 2001 will generally be equal to
0.50% plus the highest of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Thirty Year Constant Maturity Rate (each as defined by
the terms of the Series A Preferred Stock). The Applicable Rate per annum for
each dividend period beginning November 30, 2001, will not be less than 6.44%
nor greater than 12.44% (without taking into account any adjustments as
described below under "Changes in the Dividends Received Percentage").

Dividends on the Series B Preferred Stock are payable quarterly at the
annual rate of 5.30% of $2.65 per share through January 15, 2003. After January
15, 2003, dividends on the Series B Preferred Stock are payable at the
Applicable Rate from time to time in effect. The Applicable Rate per annum for
each dividend period beginning January 15, 2003 will generally be equal to
0.40% plus the highest of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Thirty Year Constant Maturity Rate (each as defined by
the terms of the Series B Preferred Stock). The Applicable Rate per annum for
each dividend period beginning January 15, 2003, will not be less than 5.70%
nor greater than 11.30% (without taking into account any adjustments as
described below under "Changes in the Dividends Received Percentage").

Dividends on the Preferred Stock are cumulative and rights accrue to the
holders of the Preferred Stock if Donaldson, Lufkin & Jenrette, Inc. fails to
declare one or more dividends on such series of Preferred Stock in any amount,
whether or not the earnings or financial condition of Donaldson, Lufkin &
Jenrette, Inc. are sufficient to pay such dividends in whole or in part.

Changes in the Dividend Received Percentage. If one or more amendments to
the Internal Revenue Code of 1986, as amended (the "Code"), are enacted which
reduce the percentage of the dividends received deduction (currently 70%) as
specified in Section 243(a)(1) of the Code or any successor provision (the
"Dividends Received Percentage"), the amount of each dividend on each share of
the Series A Preferred Stock for dividend payments made on or after the date of
enactment of such change will generally be adjusted upward pursuant to a
specified formula set forth in the terms of the Series A Preferred Stock.

In addition, if the Dividends Received Percentage is reduced to 50% or
less, Donaldson, Lufkin & Jenrette, Inc. may at its option, redeem the Series A
Preferred Stock as a whole but not in part as described below. See
"--Redemption".

If, prior to July 9, 1999, one or more amendments to the Code are enacted
which reduce the Dividends Received Percentage, the amount of each dividend on
each share of the Series B Preferred

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<PAGE>

Stock for dividend payments made on or after the date of enactment of such
change will generally be adjusted upward pursuant to a specified formula set
forth in the terms of the Series B Preferred Stock, provided, however, that if
the Dividends Received Percentage shall be less than 50%, then the Dividend
Received Percentage shall be deemed to equal 50%.

Voting Rights. The holders of the Preferred Stock are not entitled to
vote, except as set forth below or as expressly required by applicable law.

If the equivalent of six quarterly dividends payable on the Preferred
Stock or any other class or series of preferred stock are in default, the
number of directors of Donaldson, Lufkin & Jenrette, Inc. will be increased by
two, and the holders of the Preferred Stock, voting as a single class with the
holders of shares of any other class of Donaldson, Lufkin & Jenrette, Inc.'s
preferred stock ranking on a parity with the Preferred Stock upon which like
voting rights have been conferred and are exercisable, will be entitled to
elect such two directors to fill such newly-created directorships.

In addition, the affirmative vote or consent of the holders of at least
662/3% of the outstanding shares of the applicable series of Preferred Stock
will be required for any amendment of the certificate of incorporation of
Donaldson, Lufkin & Jenrette, Inc. which will adversely affect the powers,
preferences, privileges or rights of such series of Preferred Stock. The
affirmative vote or consent of the holders of at least 662/3% of the
outstanding shares of the Preferred Stock and any other series of Donaldson,
Lufkin & Jenrette, Inc.'s preferred stock ranking on a parity with the
Preferred Stock, voting as a single class without regard to series, will be
required to issue, authorize or increase the authorized amount of, or issue or
authorize any obligation or security convertible into or evidencing a right to
purchase, any additional class or series of stock ranking prior to the
Preferred Stock, or to reclassify any authorized stock of Donaldson, Lufkin &
Jenrette, Inc. into such prior shares, but such vote will not be required for
Donaldson, Lufkin & Jenrette, Inc. to take any such actions with respect to any
stock ranking on a parity with or junior to the Preferred Stock.

Redemption. Prior to November 30, 2001, the Series A Preferred Stock is
not redeemable, except under certain limited circumstances as described below.
On or after such date, each share of Series A Preferred Stock will be
redeemable, in whole or in part, at the option of Donaldson, Lufkin & Jenrette,
Inc., at $50 per share, plus accrued and unpaid dividends. However, if the
Dividends Received Percentage is equal to or less than 50% and, as a result,
the amount of dividends on the Series A Preferred Stock will be or is adjusted
as described above under "Changes in the Dividends Received Percentage,"
Donaldson, Lufkin & Jenrette, Inc., at its option, may redeem all, but not less
than all, of the outstanding shares of the Series A Preferred Stock at a
redemption price specified by the terms of the Series A Preferred Stock.

Prior to January 15, 2003, the Series B Preferred Stock is not redeemable.
On or after such date, each share of Series B Preferred Stock will be
redeemable, in whole or in part, at the option of Donaldson, Lufkin & Jenrette,
Inc., at $50 per share, plus accrued and unpaid dividends.

In addition, if the holders of the shares of Preferred Stock are entitled
to vote upon or consent to a merger or consolidation of Donaldson, Lufkin &
Jenrette, Inc., and if Donaldson, Lufkin & Jenrette, Inc. offers to purchase
all of the outstanding shares of a series of Preferred Stock (the "Offer"),
then each holder of such series of Preferred Stock who does not sell their
shares of Preferred Stock pursuant to the Offer shall be deemed irrevocably to
have voted or consented all shares of Preferred Stock owned by such holder in
favor of the merger or consolidation of Donaldson, Lufkin & Jenrette, Inc.
without any further action by the holder. The Offer shall be at a price of $50
per share, together with accrued and unpaid dividends, if any, to the date
fixed for redemption.

CERTAIN PROVISIONS OF DELAWARE LAW

Donaldson, Lufkin & Jenrette, Inc. is subject to the business combination
provisions of Section 203 of the Delaware general corporation law. In general,
such provisions prohibit a publicly-held Delaware corporation from engaging in
various business combination transactions with any interested stockholder for a
period of three years after the date of the transaction in which the person
became an interested stockholder unless:

41
<PAGE>

o the business combination transaction, or the transaction in which the
interested stockholder became an interested stockholder, is approved by
the board of directors prior to the time the interested stockholder
obtained such status,

o upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by

o persons who are directors and also officers and

o employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer or

o on or subsequent to such date the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 662/3% of the
outstanding voting stock which is not owned by the interested
stockholder.

A "business combination" is defined to include mergers, asset sales and other
transactions resulting in financial benefit to a stockholder. In general, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or, within three years, did own) 15% or more of a
corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to Donaldson, Lufkin
& Jenrette, Inc. and, accordingly, may discourage attempts to acquire
Donaldson, Lufkin & Jenrette, Inc.

NO APPRAISAL RIGHTS

Under the Delaware general corporation law, you will not have appraisal
rights in connection with the tracking stock proposal.

STOCK TRANSFER AGENT AND REGISTRAR

First Chicago Trust Company of New York is the registrar and transfer
agent for DLJ Common Stock and DLJdirect Common Stock.

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<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT

The following table sets forth, as of March 1, 1999, the total number of
shares of our existing common stock (which will become DLJ Common Stock)
beneficially owned, and the percent so owned, by each director and nominee for
director, by each person known to us to be the beneficial owner of more than 5%
of our existing common stock, by the named executive officers and by all
current directors and executive officers as a group.

<TABLE>
<CAPTION>
CURRENT BENEFICIAL OWNERSHIP(1)
----------------------------------------------------
NUMBER OF NUMBER OF
SHARES PERCENT SHARES PERCENT
------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
AXA(2) ...................................................... 90,440,006 72.7% 90,440,006 59.1%
9 Place Vendome
75001 Paris, France
The Equitable Companies Incorporated ("EQ")(3) .............. 88,603,337 71.3 88,603,337 57.9
1290 Avenue of the Americas
New York, New York 10104
The Equitable Life Assurance Society of the United
States ("Equitable Life")(4) ............................... 39,961,542 32.1 39,961,542 26.1
1290 Avenue of the Americas
New York, New York 10104
Joe L. Roby(5) .............................................. 1,692,524 1.3 1,993,726 1.3
John S. Chalsty(6) .......................................... 1,931,263 1.5 1,999,532 1.3
Anthony F. Daddino(7) ....................................... 781,402 * 834,848 *
David DeLucia(8) ............................................ 180,000 * 470,000 *
Hamilton E. James(9) ........................................ 1,001,751 * 1,287,308 *
Richard S. Pechter(10) ...................................... 1,442,524 1.1 1,668,726 1.1
Stuart M. Robbins(11) ....................................... 591,052 * 762,386 *
Theodore P. Shen(12) ........................................ 1,300,424 1.0 1,351,626 *
Michael A. Boyd(13) ......................................... 119,609 * 123,876 *
Michael M. Bendik(14) ....................................... 60,104 * 62,238 *
Henri de Castries(15) ....................................... 2,000 * 2,000 *
Denis Duverne(16) ........................................... 2,000 * 2,000 *
Jane Mack Gould ............................................. 0 * 0 *
Louis Harris(17) ............................................ 8,880 * 22,880 *
Michael Hegarty(18) ......................................... 0 * 0 *
Henri G. Hottinguer(19) ..................................... 14,000 * 28,000 *
W. Edwin Jarmain(20) ........................................ 20,048 * 34,048 *
Francis Jungers(21) ......................................... 12,000 * 26,000 *
Edward D. Miller(22) ........................................ 0 * 0 *
Stanley B. Tulin(23) ........................................ 1,000 * 1,000 *
W.J. Sanders III(24) ........................................ 12,810 * 26,810 *
John C. West(25) ............................................ 31,600 * 45,600 *
All directors and executive officers as a group(26) ......... 9,204,991 7.0 10,802,090 7.1
</TABLE>

- ----------
* Less than 1.0%.

(1) The table provides certain information regarding the beneficial ownership
of our existing common stock by AXA, EQ, Equitable Life, each of our
directors and all directors and executive officers as a group assuming,
in the case of the Total column, the issuance of all of our existing
common stock pursuant to outstanding restricted stock units and options.
In connection with our initial public offering in 1995, approximately 500
employees exchanged an aggregate of $100.0 million of their interests
under certain cash compensation arrangements, including our 1991-1993
Long Term

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<PAGE>

Incentive Plan and our 1994-1996 Long Term Incentive Plan for restricted
stock units representing an aggregate of approximately 10.4 million shares
of our existing common stock. Approximately 90% of these units have vested
as of February 1, 1999 and are included in the Current Beneficial
Ownership column. The balance of these units, located in the Total column,
will vest in February 2000.

In connection with the initial public offering by Donaldson, Lufkin &
Jenrette, Inc. in 1995, employees acquired options to purchase an
aggregate of approximately 18.4 million shares of our existing common
stock at a price of $13.50 per share by foregoing an aggregate of $55.7
million of their future interests under cash compensation arrangements
(the "LTI Option Exchange"). As of February 1, 1998, all outstanding
options received in the LTI Option Exchange have vested and are included
in the Current Beneficial Ownership column. In addition, Mr. Roby was
granted an option to purchase 500,000 shares of our existing common stock
in 1996 and Messrs. Harris, Hottinguer, Jungers, Jarmain, Sanders and West
have each been granted options to purchase 24,000 shares of our existing
common stock under our 1996 Non-Employee Directors Stock Plan.

(2) AXA is EQ's largest stockholder, beneficially owning approximately 59% of
EQ's outstanding common stock. As of March 1, 1999, a group of four French
mutual insurance companies (the "Mutuelles AXA") owned, directly or
indirectly through various holding companies, approximately 23.9% of the
issued shares representing 37.6% of the voting power of AXA. For insurance
regulatory purposes the shares of capital stock of EQ beneficially owned by
AXA and its subsidiaries have been deposited into a voting trust to ensure
that certain of the indirect minority shareholders of AXA do not exercise
control over EQ or certain of its insurance subsidiaries.

(3) The number listed includes shares of our existing common stock beneficially
owned by EQ's wholly-owned subsidiary, Equitable Life.

(4) The number listed includes shares of our existing common stock beneficially
owned through its wholly-owned subsidiary, Equitable Holdings, L.L.C.

(5) The Current Beneficial Ownership column for Mr. Roby includes 476,546 vested
restricted stock units and 1,198,384 option shares exercisable within 60
days. The Total column includes 51,202 unvested restricted stock units and
250,000 stock options that become exercisable more than 60 days after March
1, 1999. In addition, Mr. Roby holds an option to purchase 50,000 shares of
common stock of EQ which is exercisable within 60 days, 2,500 American
Depositary Receipts ("ADRs") of AXA and 2,500 option shares of AXA which are
exercisable within 60 days.

(6) The Current Beneficial Ownership column for Mr. Chalsty includes 2,500
shares owned by Mr. Chalsty's wife, 650,649 vested restricted stock units
and 1,272,714 option shares exercisable within 60 days. The Total column
includes 68,269 unvested restricted stock units. In addition, Mr. Chalsty
beneficially owns 116,000 shares of common stock of EQ, including 100,000
option shares exercisable within 60 days, 2,500 ADRs of AXA and 5,000 option
shares of AXA which are exercisable within 60 days.

(7) The Current Beneficial Ownership column for Mr. Daddino includes 198,755
vested restricted stock units and 530,298 option shares exercisable within
60 days. The Total column includes 28,446 unvested restricted stock units
and 25,000 stock options that become exercisable more than 60 days after
March 1, 1999. Mr. Daddino beneficially owns 100 shares of common stock of
EQ which are held in an insurance trust for the benefit of his wife and
children and also holds an option to purchase 50,000 shares of common stock
of EQ which is exercisable within 60 days.

(8) The Current Beneficial Ownership column for Mr. DeLucia includes 180,000
option shares exercisable within 60 days. The Total column includes 470,000
stock options that become exercisable more than 60 days after March 1, 1999.

(9) The Current Beneficial Ownership column for Mr. James includes 662,872
option shares exercisable within 60 days. The Total column includes 35,557
unvested restricted stock units and 250,000 stock options that become
exercisable more than 60 days after March 1, 1999. Mr. James also holds an
option to purchase 50,000 shares of common stock of EQ which is exercisable
within 60 days and 1,000 ADRs of AXA.

44
<PAGE>

(10) The Current Beneficial Ownership column for Mr. Pechter includes 954,536
option shares exercisable within 60 days. The Total column includes 51,202
unvested restricted stock units and 175,000 stock options that become
exercisable more than 60 days after March 1, 1999. Mr. Pechter also holds
an option to purchase 50,000 shares of common stock of EQ which is
exercisable within 60 days.

(11) The Current Beneficial Ownership column for Mr. Robbins includes 397,724
option shares exercisable within 60 days. The Total column includes 21,334
unvested restricted stock units and 150,000 stock options that become
exercisable more than 60 days after March 1, 1999.

(12) The Current Beneficial Ownership column for Mr. Shen includes 954,536
option shares exercisable within 60 days. The Total column includes 51,202
unvested restricted stock units. Mr. Shen also holds an option to purchase
50,000 shares of common stock of EQ which is exercisable within 60 days and
1,000 ADRs of AXA.

(13) The Current Beneficial Ownership column for Mr. Boyd includes 79,544 option
shares exercisable within 60 days. The Total column includes 4,267 unvested
restricted stock units.

(14) The Current Beneficial Ownership column for Mr. Bendik includes 39,772
option shares exercisable within 60 days. The Total column includes 2,134
unvested restricted stock units.

(15) Mr. de Castries also beneficially owns 13,333 shares of common stock of EQ,
all of which are option shares exercisable within 60 days, and 70,188
shares of common stock of AXA, including 69,188 option shares exercisable
within 60 days.

(16) Mr. Duverne also owns 10,333 shares of EQ, including 8,333 option shares
exercisable within 60 days. Of his EQ holding, 2,000 shares are owned with
his wife. Mr. Duverne also beneficially owns 11,042 shares of common stock
of AXA, of which 1,000 shares are owned with his wife and 10,000 are option
shares of AXA which are exercisable within 60 days.

(17) The Current Beneficial Ownership column for Mr. Harris includes 6,000
option shares exercisable within 60 days. The Total column includes 14,000
stock options that become exercisable more than 60 days after March 1,
1999.

(18) Mr. Hegarty beneficially owns 48,228 shares of common stock of EQ,
including 48,039 option shares exercisable within 60 days.

(19) The Current Beneficial Ownership column for Mr. Hottinguer includes 10,000
option shares exercisable within 60 days. The Total column includes 14,000
stock options that become exercisable more than 60 days after March 1,
1999.

(20) The Current Beneficial Ownership column for Mr. Jarmain includes 10,000
option shares exercisable within 60 days. The Total column includes 14,000
option shares that become exercisable more than 60 days after March 1,
1999. Mr. Jarmain also beneficially owns 10,545 shares of common stock of
EQ.

(21) The Current Beneficial Ownership column for Mr. Jungers includes 10,000
option shares exercisable within 60 days. The Total column includes 14,000
stock options that become exercisable more than 60 days after March 1,
1999.

(22) Mr. Miller beneficially owns 142,745 shares of common stock of EQ, all of
which are option shares exercisable within 60 days.

(23) The 1,000 shares shown are owned with his wife. Mr. Tulin also beneficially
owns 87,437 shares of common stock of EQ, including 82,819 option shares
exercisable within 60 days. Of these shares, 4,000 are owned with his wife.
In addition, Mr. Tulin owns 2,000 ADRs of AXA and 2,500 option shares of
AXA which are exercisable within 60 days.

(24) The Current Beneficial Ownership column for Mr. Sanders includes 10,000
option shares exercisable within 60 days. The Total column includes 14,000
stock options that become exercisable more than 60 days after March 1,
1999.

(25) The Current Beneficial Ownership column for Mr. West includes 10,000 option
shares exercisable within 60 days. The Total column includes 14,000 option
shares that become exercisable more than

45
<PAGE>

60 days after March 1, 1999. Of the common stock beneficially owned by Mr.
West, 11,000 shares are held on his behalf by a profit sharing plan. In
addition, 400 shares are owned directly by his wife, as to which shares Mr.
West disclaims beneficial ownership.

(26) The Current Beneficial Ownership column includes 1,325,950 vested
restricted stock units and 6,326,380 option shares exercisable within 60
days and the Total column includes 316,458 unvested restricted stock units
and 1,404,000 stock options that become exercisable more than 60 days after
March 1, 1999. All directors and executive officers as a group also
beneficially own 678,721 shares of common stock of EQ, 91,230 shares of
common stock of AXA and 9,000 ADRs of AXA.

46
<PAGE>

ANNEX I

ILLUSTRATION OF CERTAIN TERMS

The following illustrations show how to calculate the Retained Interest
Percentage, the Outstanding Interest Percentage and the Number of Shares
Issuable with Respect to DLJ's Retained Interest in DLJdirect after giving
effect to certain hypothetical dividends, issuances, repurchases and transfers,
in each case based on the assumptions set forth herein. In these illustrations,
the Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect is initially assumed to be 100. Unless otherwise specified, each
illustration below should be read independently as if none of the other
transactions referred to below had occurred. Actual calculations may be
slightly different due to rounding.

At any given time, the percentage interest in DLJdirect intended to be
represented by the outstanding shares of DLJdirect Common Stock (i.e., the
Outstanding Interest Percentage) is represented by the Outstanding Interest
Fraction, calculated as follows:

Outstanding Shares of DLJdirect Common Stock
------------------------------------------------------
Outstanding Shares of DLJdirect Common Stock + Number of Shares
Issuable with Respect to DLJ's Retained Interest in DLJdirect

and the remaining percentage interest in DLJdirect intended to be represented
by DLJ's retained interest in DLJdirect (i.e., the Retained Interest
Percentage) is represented by the Retained Interest Fraction calculated as
follows:

Number of Shares Issuable with Respect to DLJ's Retained
Interest in DLJdirect
------------------------------------------------------
Outstanding Shares of DLJdirect Common Stock + Number of Shares
Issuable with Respect to DLJ's Retained Interest in DLJdirect

The sum of the Outstanding Interest Percentage and the Retained Interest
Percentage would always equal 100%. In our example, before the first issuance
the Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect is equal to 100, the Retained Interest Percentage is 100% and the
Outstanding Interest Percentage is 0%.

THE OFFERING

The following illustration reflects an assumed issuance by Donaldson,
Lufkin & Jenrette, Inc. of 15 shares of DLJdirect Common Stock in the offering.

OFFERING FOR ACCOUNT OF DLJDIRECT

Assume the issuance is attributed to DLJdirect as an increase in its
equity, with the net proceeds credited solely to DLJdirect.

<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding ................. 0
Newly issued shares for account of DLJdirect ............. 15
--
Total issued and outstanding after the offering ......... 15
==
</TABLE>

I-1

<PAGE>

o The Number of Shares Issuable with Respect to DLJ's Retained Interest
in DLJdirect (100) would remain unchanged.

o As a result, the issued and outstanding shares (15) would represent an
Outstanding Interest Percentage of approximately 13%, calculated as
follows:

15
------
15 + 100

The Retained Interest Percentage would accordingly be about 87%.

o In this case, in the event of any dividend or other distribution paid
on the outstanding shares of DLJdirect Common Stock (other than a
dividend or other distribution payable in shares of DLJdirect Common
Stock), DLJ would be credited, and DLJdirect would be charged, with an
amount equal to 667% (representing the ratio of the Number of Shares
Issuable with Respect to DLJ's Retained Interest in DLJdirect (100) to
the total number of shares of DLJdirect Common Stock issued and
outstanding following the offering (15)) of the aggregate amount of such
dividend or distribution.

ADDITIONAL OFFERINGS OF DLJDIRECT COMMON STOCK

The following illustrations reflect an assumed issuance of an additional
15 shares of DLJdirect Common Stock after the assumed initial issuance of 15
shares attributed to DLJdirect as an increase in its equity.

ADDITIONAL OFFERING FOR ACCOUNT OF DLJ

Assume the issuance is attributed to DLJ in respect of its retained
interest, with the net proceeds credited solely to DLJ.

<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding ........................ 15
Newly issued shares for account of DLJ .......................... 15
--
Total issued and outstanding after additional offering ......... 30
==
</TABLE>

o The Number of Shares Issuable with Respect to DLJ's Retained Interest
in DLJdirect would decrease by the number of shares of DLJdirect Common
Stock issued for the account of DLJ.

<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to the additional offering ......................... 100
Newly issued shares for account of DLJ ............................... 15
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after the additional offering ........................... 85
===
</TABLE>

o As a result, the total issued and outstanding shares (30) would in the
aggregate represent an Outstanding Interest Percentage of approximately
26%, calculated as follows:

30
------
30 + 85

The Retained Interest Percentage would accordingly be reduced to
approximately 74%.

o In this case, in the event of any dividend or other distribution paid
on DLJdirect Common Stock (other than a dividend or other distribution
payable in shares of DLJdirect Common Stock), DLJ would be credited, and
DLJdirect would be charged, with an amount equal to 283% (representing
the ratio of the Number of Shares Issuable with Respect to DLJ's Retained
Interest in DLJdirect (85) to the total number of shares of DLJdirect
Common Stock issued and outstanding following the additional offering
(30)) of the aggregate amount of such dividend or distribution.

I-2
<PAGE>

ADDITIONAL OFFERING FOR ACCOUNT OF DLJDIRECT

Assume the issuance is attributed to DLJdirect as an increase in its
equity, with the net proceeds credited solely to DLJdirect.

<TABLE>
<S> <C>
Shares previously issued and outstanding ............................ 15
Newly issued shares for account of DLJdirect ........................ 15
--
Total issued and outstanding after the additional offering ......... 30
==
</TABLE>

o The Number of Shares Issuable with Respect to DLJ's Retained Interest
in DLJdirect (100) would remain unchanged.

o As a result, the total issued and outstanding shares (30) would in the
aggregate represent an Outstanding Interest Percentage of
approximately 23%, calculated as follows:

30
------
30 + 100

The Retained Interest Percentage would accordingly be reduced to
approximately 77%.

o In this case, in the event of any dividend or other distribution paid on
DLJdirect Common Stock (other than a dividend or the distribution
payable in shares of DLJdirect Common Stock), DLJ would be credited,
and DLJdirect would be charged, with an amount equal to approximately
333% (representing the ratio of the Number of Shares Issuable with
Respect to DLJ's Retained Interest in DLJdirect (100) to the total
number of shares of DLJdirect Common Stock issued and outstanding
following the additional offering (30)) of the aggregate amount of
such dividend or distribution.

OFFERINGS OF CONVERTIBLE SECURITIES

If Donaldson, Lufkin & Jenrette, Inc. were to issue any securities
convertible into or exercisable for shares of DLJdirect Common Stock, the
Outstanding Interest Fraction and the Retained Interest Fraction would be
unchanged at the time of such issuance. If any shares of DLJdirect Common Stock
were issued upon conversion or exercise of such securities, however, then the
Outstanding Interest Fraction and the Retained Interest Fraction would be
affected as shown above under "Additional Offering for Account of DLJ", if such
securities were attributed to DLJ, or under "Additional Offering for Account of
DLJdirect", if such securities were attributed to DLJdirect.

REPURCHASES OF DLJDIRECT COMMON STOCK

The following illustrations reflect an assumed repurchase by Donaldson,
Lufkin & Jenrette, Inc. of 5 shares of DLJdirect Common Stock after the assumed
initial issuance of 15 shares of DLJdirect Common Stock attributed to DLJdirect
as an increase in its equity.

REPURCHASE FOR THE ACCOUNT OF DLJ

Assume the repurchase is attributed to DLJ as an increase in its retained
interest in DLJdirect, with the cost charged solely against DLJ.

<TABLE>
<S> <C>
Shares previously issued and outstanding ............... 15
Shares repurchased for account of DLJ .................. 5
--
Total issued and outstanding after repurchase ......... 10
==
</TABLE>

o The Number of Shares Issuable with Respect to DLJ's Retained Interest
in DLJdirect would be increased by the number of any shares of DLJdirect
Common Stock repurchased for the account of DLJ.

I-3
<PAGE>

<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to repurchase ...................................... 100
Number of shares repurchased for the account of DLJ ................. 5
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after repurchase ........................................ 105
===
</TABLE>

o As a result, the total issued and outstanding shares (10) would in the
aggregate represent an Outstanding Interest Percentage of approximately
9%, calculated as follows:

10
------
10 + 105

The Retained Interest Percentage would accordingly be increased to
approximately 91%.

REPURCHASE FOR ACCOUNT OF DLJDIRECT WITHOUT PARTICIPATION BY DLJ

Assume the repurchase is attributed to DLJdirect, with the cost being
charged solely against DLJdirect. Further assume that the board of directors
does not determine to transfer assets from DLJdirect to DLJ to hold constant
the Outstanding Interest Fraction and Retained Interest Fraction.

<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding ............... 15
Shares repurchased for account of DLJdirect ............ 5
--
Total issued and outstanding after repurchase ......... 10
==
</TABLE>

o The Number of Shares Issuable with Respect to DLJ's Retained Interest
in DLJdirect (100) would remain unchanged.

o As a result, the total issued and outstanding shares (10) would in the
aggregate represent an Outstanding Interest Percentage of approximately
9%, calculated as follows:

10
------
10 + 100

The Retained Interest Percentage would accordingly be increased to
approximately 91%.

REPURCHASE FOR ACCOUNT OF DLJDIRECT WITH PARTICIPATION BY DLJ

Assume the repurchase is attributed to DLJdirect, with the cost being
charged solely against DLJdirect. Further assume that the repurchase is made in
connection with a tender offer for 5, or 33%, of the then outstanding shares at
a price of $20 per share, and that the board of directors determines to
transfer cash or other assets from DLJdirect to DLJ to hold constant the
Outstanding Interest Fraction and Retained Interest Fraction.

o In order to hold constant the Outstanding Interest Fraction and
Retained Interest Fraction, the board of directors determines that the
Market Value of a share of DLJdirect Common Stock in this context is $20
and transfer from DLJdirect to DLJ an amount of cash or other assets
equal to about 667% (representing the ratio of the Number of Shares
Issuable with Respect to DLJ's Retained Interest in DLJdirect (100) to
the total number of shares of DLJdirect Common Stock issued and
outstanding (15), in each case immediately prior to the repurchase) of
the aggregate amount of the cash paid in the tender offer to holders of
outstanding shares of DLJdirect Common Stock ($100), for a total of $667.

I-4
<PAGE>

o In that case, the Number of Shares Issuable with Respect to DLJ's
Retained Interest in DLJdirect (100) would be decreased to reflect the
amount of cash so transferred ($667) divided by the Market Value per
share of DLJdirect Common Stock ($20).

<TABLE>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to transfer .............................................. 100
Adjustment in respect of DLJ's retained interest to reflect transfer to DLJ
of funds theretofore allocated to DLJdirect .............................. 33
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after transfer ............................................... 67
===
</TABLE>

o As a result, the total issued and outstanding shares (10) would in the
aggregate continue to represent an Outstanding Interest Percentage of
13%, calculated as follows:

10
------
10 + 67

The Retained Interest Percentage would accordingly continue to remain
87%.

o Assuming that the board of directors transferred only half of the $667
amount, or $333.50, from DLJdirect to DLJ, the Number of Shares Issuable
with Respect to DLJ's Retained Interest in DLJdirect (100) would decrease
by the amount of cash so transferred ($333.50) divided by the Market
Value per share of DLJdirect Common Stock ($20).

<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to transfer .............................................. 100
Adjustment in respect of DLJ's retained interest to reflect transfer to DLJ
of cash theretofore allocated to DLJdirect ............................... 17
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after transfer ................................................ 83
===
</TABLE>

o In that case, as a result, the total issued and the outstanding shares
(10) would in the aggregate represent an Outstanding Interest Percentage
of about 11%, calculated as follows:

10
------
10 + 83

The Retained Interest Percentage would accordingly be increased to
approximately 89%.

DLJDIRECT COMMON STOCK DIVIDENDS

The following illustrations reflect assumed dividends of DLJdirect Common
Stock on outstanding shares of DLJ Common Stock and outstanding shares of
DLJdirect Common Stock, respectively, after the assumed initial issuance of 15
shares of DLJdirect Common Stock attributed to DLJdirect as an increase in its
equity.

DLJDIRECT COMMON STOCK DIVIDEND ON DLJ COMMON STOCK

Assume 1,000 shares of DLJ Common Stock are outstanding and Donaldson,
Lufkin & Jenrette, Inc. declares a dividend of 1/20 of a share of DLJdirect
Common Stock on each outstanding share of DLJ Common Stock.

<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding .............. 15
Newly issued shares for account of DLJ ................ 50
--
Total issued and outstanding after dividend ......... 65
==
</TABLE>

I-5
<PAGE>

o Any dividend of shares of DLJdirect Common Stock to the holders of
shares of DLJ Common Stock would be treated as a reduction in the Number
of Shares Issuable with Respect to DLJ's Retained Interest in DLJdirect.

<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to dividends ....................................... 100
Number of shares distributed on outstanding shares of DLJ Common Stock
for account of DLJ ................................................. 50
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after dividend .......................................... 50
===
</TABLE>

o As a result, the total issued and outstanding shares (65) would in the
aggregate represent an Outstanding Interest Percentage of 57%, calculated
as follows:

65
------
65 + 50

The Retained Interest Percentage would accordingly be reduced to 43%.
Note, however, that after the dividend, the holders of DLJ Common Stock
would also hold 50 shares of DLJdirect Common Stock, which would be
intended to represent a 50% interest in the value attributable to
DLJdirect.

DLJDIRECT COMMON STOCK DIVIDEND ON DLJDIRECT COMMON STOCK

Assume Donaldson, Lufkin & Jenrette, Inc. declares a dividend of 1/5 of a
share of DLJdirect Common Stock on each outstanding share of DLJdirect Common
Stock.

<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding .............. 15
Newly issued shares for account of DLJdirect .......... 3
--
Total issued and outstanding after dividend ......... 18
==
</TABLE>

o The Number of Shares Issuable with Respect to DLJ's Retained Interest
in DLJdirect would reflect the stock dividend payable in shares of
DLJdirect Common Stock to holders of shares of DLJdirect Common Stock.
That is, the Number of Shares Issuable with Respect to DLJ's Retained
Interest in DLJdirect would be increased by a number equal to 667%
(representing the ratio of the Number of Shares Issuable with Respect to
DLJ's Retained Interest in DLJdirect (100) to the number of shares of
DLJdirect Common Stock issued and outstanding (15), in each case
immediately prior to such dividend) of the aggregate number of shares
issued in connection with such dividend (3), or 20.

<TABLE>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to dividend ............................................ 100
Adjustment in respect of DLJ's retained interest to reflect shares
distributed on outstanding shares of DLJdirect Common Stock ............ 20
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after dividend .............................................. 120
===
</TABLE>

o As a result, the total issued and outstanding shares (18) would in the
aggregate represent an Outstanding Interest Percentage of approximately
13%, calculated as follows:

18
--------
18 + 120

I-6
<PAGE>

The Retained Interest Percentage would accordingly remain 87%.

CAPITAL TRANSFERS OF CASH OR OTHER ASSETS BETWEEN DLJ AND DLJDIRECT

CAPITAL CONTRIBUTION OF CASH OR OTHER ASSETS FROM DLJ TO DLJDIRECT

The following illustration reflects the assumed contribution by DLJ to
DLJdirect, after the assumed initial issuance of 15 shares of DLJdirect Common
Stock attributed to DLJdirect as an increase in its equity, of $40 of assets
allocated to DLJ at a time when the Market Value of the DLJdirect Common Stock
is $20 per share.

<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding .................. 15
Newly issued shares ....................................... 0
--
Total issued and outstanding after contribution ......... 15
==
</TABLE>

o The Number of Shares Issuable with Respect to DLJ's Retained Interest
in DLJdirect would increase to reflect the contribution to DLJdirect of
assets theretofore allocated by DLJ by a number equal to the value of the
assets contributed ($40) divided by the Market Value of DLJdirect Common
Stock at that time ($20), or 2 shares.

<TABLE>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to contribution ........................................ 100
Increase to reflect contribution to DLJdirect of assets allocated to DLJ 2
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after contribution .......................................... 102
===
</TABLE>

o As a result, the total issued and outstanding shares (15) would in the
aggregate represent an Outstanding Interest Percentage of approximately
13%, calculated as follows:

15
------
15 + 102

The Retained Interest Percentage would accordingly increase to slightly
more than 87%.

RETURN OF CAPITAL TRANSFER OF CASH OR OTHER ASSETS FROM DLJDIRECT TO DLJ

The following illustration reflects the assumed transfer by DLJdirect to
DLJ, after the assumed initial issuance of 15 shares of DLJdirect Common Stock
attributed to DLJdirect as an increase in its equity of $40, of assets
allocated to DLJdirect on a date on which the Market Value of DLJdirect Common
Stock is $20 per share.

o The Number of Shares Issuable with Respect to DLJ's Retained Interest
in DLJdirect would decrease to reflect the transfer to DLJ of assets
theretofore allocated to DLJdirect by a number equal to the value of the
assets transferred ($40) divided by the Market Value of DLJdirect Common
Stock at that time ($20), or 2 shares.

<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to contribution .................................... 100
Decrease to reflect transfer to DLJ of assets allocated to DLJdirect . 2
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after contribution ...................................... 98
===
</TABLE>

I-7
<PAGE>

o As a result, the total issued and outstanding shares (15) would in the
aggregate represent an Outstanding Interest Percentage of approximately
13%, calculated as follows:

15
------
15 + 98

The Retained Interest Percentage would accordingly decrease to slightly
less than 87%.

I-8
<PAGE>

ANNEX II

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

It is hereby certified that:

1. The name of the corporation (hereinafter called the "CORPORATION") is
Donaldson, Lufkin & Jenrette, Inc.

2. The amended and restated certificate of incorporation of the
Corporation is hereby amended by replacing the second paragraph of Article
FOURTH in its entirety with the following provisions:

"Section A. Provisions Relating to Common Stock

1. Issuance of Common Stock in Series: Designation;
Re-Classification. Subject to the provisions of Section B of this Article
FOURTH and provisions of law, the Corporation shall have the authority to issue
shares of Common Stock in multiple series. The total number of shares of Common
Stock which the Corporation shall have the authority to issue shall initially
be 1,500 million. One series of Common Stock shall be designated as Donaldson,
Lufkin & Jenrette, Inc.--DLJ Common Stock par value $0.10 per share ("DLJ
COMMON STOCK"). The second series of Common Stock shall be designated as
Donaldson, Lufkin & Jenrette, Inc.--DLJdirect Common Stock par value $0.10 per
share ("DLJDIRECT COMMON STOCK"). When the filing of this Amendment to the
amended and restated certificate of incorporation becomes effective, each share
of Common Stock outstanding immediately prior thereto shall thereupon
automatically be re-classified as one share of DLJ Common Stock (and
outstanding certificates that had theretofore represented shares of Common
Stock shall thereupon represent an equivalent number of shares of DLJ Common
Stock despite the absence of any indication thereon to that effect).

The total number of shares of DLJ Common Stock which the Corporation shall
have the authority to issue shall initially be 500 million, and the total
number of shares of DLJdirect Common Stock which the Corporation shall have the
authority to issue shall initially be 500 million. The number of authorized
shares of any class or series of Common Stock of the Corporation may be
increased or decreased (but not below the number of shares then outstanding) by
the affirmative vote of the holders of a majority of the voting power of the
stock of the Corporation entitled to vote generally in the election of
directors. The Board of Directors shall have the authority to designate, prior
to the time of the first issuance of the DLJdirect Common Stock, the number
which, immediately prior to such first issuance, will constitute the Number of
Shares Issuable with Respect to DLJ's Retained Interest in DLJdirect and any
other terms which are consistent with applicable law and the provisions of this
Article Fourth. The voting powers, preferences and relative, participating,
optional or other special rights of the DLJ Common Stock and DLJdirect Common
Stock, and the qualifications and restrictions thereon, shall be as set forth
in this Section A.

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 or more
additional series of Common 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 series of Common Stock and the number of shares constituting each such
series, and to increase or decrease the number of shares of any such series to
the extent permitted by the General Corporation Law of the State of Delaware,
as amended from time to time.

2. Dividends. Subject to any preferences and relative, participating,
optional or other special rights of any outstanding class or series of
preferred stock of the Corporation and any qualifications or restrictions on
any class of Common Stock created thereby, dividends may be declared and paid
upon any series of Common Stock, upon the terms with respect to each such
series, and subject to the limitations provided for below in this Section
(A)(2), as the Board of Directors may determine.

II-1
<PAGE>

(a) Dividends on any series of Common Stock may be declared and paid only
out of the lesser of (i) the funds of the Corporation legally available
therefor and (ii) the Available Dividend Amount for the Group to which such
series of Common Stock relates.

(b) Discrimination in Dividends Between Series of Common Stock. The Board
of Directors, subject to the provisions of Section (A)(2)(a), may at any time
declare and pay dividends exclusively on a single series of Common Stock, or on
one or more series of Common Stock, in equal or unequal amounts,
notwithstanding the relative amounts of the Available Dividend Amount with
respect to any Group, the amount of dividends previously declared on any
series, the respective voting or liquidation rights of any series or any other
factor.

(c) Share Distributions. Except as permitted by Section (A)(3), the Board
of Directors may declare and pay dividends or distributions of shares of any
series of Common Stock (or securities convertible into or exchangeable or
exercisable for shares of any series of Common Stock) on shares of a series of
Common Stock or on shares of a class or series of preferred stock of the
Corporation only as follows:

(i) dividends or distributions of shares of a series of Common Stock (or
securities convertible into or exchangeable or exercisable for shares of a
series of Common Stock) on shares of the same series of Common Stock or on
shares of preferred stock attributed to the same Group to which such series
of Common Stock relates; and

(ii) dividends or distributions of shares of a series of Common Stock
other than DLJ Common Stock (or securities convertible into or exchangeable
or exercisable for shares of a series of Common Stock other than DLJ Common
Stock) on shares of DLJ Common Stock or on shares of preferred stock
attributed to DLJ, but only if the sum of (1) the number of shares of the
series of Common Stock to be so issued (or the number of such shares which
would be issuable upon conversion, exchange or exercise of any securities
to be so issued) and (2) the number of shares of such series of Common
Stock which are issuable upon conversion, exchange or exercise of any
securities then outstanding that are attributed to DLJ is less than or
equal to the Number of Shares Issuable with Respect to DLJ's Retained
Interest in such Group.

For purposes of this Section (A)(2)(c), any outstanding securities that
are convertible into or exchangeable or exercisable for any other securities
which are themselves convertible into or exchangeable or exercisable for any
series of Common Stock (or other securities that are so convertible,
exchangeable or exercisable) shall be deemed to have been converted, exchanged
or exercised in full for such securities.

3. Mandatory Dividend, Redemption or Exchange on Disposition of All or
Substantially All of the Assets of a Group; Exchange of DLJ Common Stock for
DLJdirect Common Stock at the Option of the Corporation; Exchange of a Series
of Common Stock for Stock of a Subsidiary at the Option of the Corporation.
(a)(i) In the event of a Disposition (other than an Exempt Disposition), the
Corporation shall, on or prior to the 85th Trading Day after the Disposition
Date, provided that the funds of the Corporation are legally available
therefor, either:

(x) declare and pay a dividend to holders of the series of Common Stock
that relates to the Group that consummated such Disposition (in cash,
securities (other than Common Stock) or other property, or a combination
thereof), subject to the limitations on dividends set forth under Section
(A)(2) of this Article FOURTH, in an aggregate amount having a Fair Value
(determined as of the Disposition Date) equal to the product of the
Outstanding Interest Fraction with respect to such Group (determined as of
the record date for such dividend) and the Fair Value (determined as of the
Disposition Date) of the Net Proceeds of such Disposition;

(y) redeem from holders of the series of Common Stock that relates to the
Group that consummated such Disposition, in exchange for cash, securities
(other than Common Stock) or other property (or a combination thereof) in
an amount equal to the product of the Outstanding Interest Fraction with
respect to such Group (determined as of the redemption date) and the Fair
Value (determined as of the Disposition Date) of the Net Proceeds of such
Disposition, all of the outstanding shares of such series of Common Stock
(unless such Disposition involves substantially all

II-2
<PAGE>

(but not all) of the assets attributed to such Group, in which case, a
number of shares of such series of Common Stock (rounded, if necessary, to
the nearest whole number) having an aggregate average Market Value, during
the 20 consecutive Trading Day period beginning on (and including) the 16th
Trading Day immediately following the Disposition Date, equal to such
amount); or

(z) issue, in exchange for each outstanding share of the series of Common
Stock that relates to the Group that consummated such Disposition, a number
of shares of a series of Common Stock that does not relate to that Group
(calculated to the nearest five decimal places) having an aggregate value
equal to 110% of the value of a share of the series of Common Stock that
relates to that Group (where in each case value is based on the average
Market Value of a share of the relevant series of Common Stock during the
20 consecutive Trading Day period beginning on (and including) the 16th
Trading Day immediately following the Disposition Date).

(ii) At any time within one year after completing any dividend or partial
redemption pursuant to (x) or (y) of the preceding sentence, the Corporation
may issue, in exchange for each remaining outstanding share of the series of
Common Stock that relates to the Group that consummated the applicable
Disposition, a number of shares of a series of Common Stock that does not
relate to that Group (calculated to the nearest five decimal places) having an
aggregate value equal to 110% of the value of a share of the series of Common
Stock that relates to that Group (where in each case value is based on the
average Market Value of a share of the relevant series of Common Stock during
the 20 consecutive Trading Day period ending on (and including) the 5th Trading
Day immediately preceding the date on which the Corporation mails the notice of
exchange to holders of the relevant series).

(iii) For purposes of this Section (A)(3), if a Group consummates a
Disposition in a series of related transactions, such Disposition shall not be
deemed to have been completed until consummation of the last of such
transactions.

(b) Optional Exchange of DLJ Common Stock for DLJdirect Common Stock. The
Board of Directors may, at any time, declare that each outstanding share of
DLJdirect Common Stock shall be exchanged, as of the exchange date described
below, for a number of fully paid and nonassessable shares of DLJ Common Stock
having an aggregate value (calculated to the nearest five decimal places) equal
to the percentage of the aggregate value of an outstanding share of DLJdirect
Common Stock (the "APPLICABLE PERCENTAGE") specified for the applicable date of
exchange below (where in each case value is based on the average Market Value
of a share of DLJ Common Stock compared to the average Market Value of
DLJdirect Common Stock during the 20 consecutive Trading Day period ending on
(and including) the 5th Trading Day immediately preceding the date on which the
Corporation mails the notice of exchange to holders of the DLJdirect Common
Stock).

THE APPLICABLE PERCENTAGE

<TABLE>
<CAPTION>
IF THE EXCHANGE DATE FALLS DURING THE PERCENTAGE SPECIFIED FOR SUCH
PERIOD INDICATED BELOW PERIOD
- --------------------------------------- ------------------------------
<S> <C>
First Quarter ......................... 125%
Second Quarter ........................ 124.166667%
Third Quarter ......................... 123.333333%
Fourth Quarter ........................ 122.5%
Fifth Quarter ......................... 121.666667%
Sixth Quarter ......................... 120.833333%
Seventh Quarter ....................... 120%
Eighth Quarter ........................ 119.166667%
Ninth Quarter ......................... 118.333333%
Tenth Quarter ......................... 117.5%
Eleventh Quarter ...................... 116.666667%
Twelfth Quarter ....................... 115.833333%
After Twelfth Quarter ................. 115%
</TABLE>

For purposes of the foregoing chart, (x) the first "Quarter" is the period
from and including the date of first issuance of shares of DLJdirect Common
Stock to but excluding the third month anniversary of

II-3
<PAGE>

such date (provided that, if the date of first issuance of shares of DLJdirect
Common Stock is the 29th, 30th or 31st day of any month, the first "Quarter"
will be the period from and including such date of first issuance to but
excluding the third month anniversary of the first day of the month immediately
following the month in which such date of first issuance falls) and (y) each
subsequent "Quarter" is the period from and including the day after the end of
the prior Quarter to but excluding the third month anniversary of such day.

However, if a Tax Event has occurred, the Applicable Percentage shall
equal 110% irrespective of whether the exchange occurs within three years. "Tax
Event" means the receipt by the Corporation of an opinion of tax counsel
experienced in such matters, who shall not be an officer or employee of the
Corporation or any of its affiliates, to the effect that, as a result of any
amendment to, or change in, the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof or
therein (including any announced proposed change by an administrative agency in
such regulations), or as a result or any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, it is more likely than not that for United States federal
income tax purposes (1) the Corporation, its subsidiaries or affiliates, or any
of its successors or its stockholders is or, at any time in the future, will be
subject to tax upon the issuance of shares of either DLJ Common Stock or
DLJdirect Common Stock or (2) either DLJ Common Stock or DLJdirect Common Stock
is not or, at any time in the future, will not be treated solely as stock of
the Corporation. For purposes of rendering such opinion, tax counsel shall
assume that any administrative proposals will be adopted as proposed. However,
in the event a change in law is proposed, tax counsel shall render an opinion
only in the event of enactment.

(c) Optional Exchange for Stock of a Subsidiary. (i) At any time at which
all of the assets and liabilities of a Group (and no other assets or
liabilities of the Corporation or any subsidiary thereof) are held directly or
indirectly by one or more wholly-owned subsidiaries of the Corporation (the
"GROUP SUBSIDIARIES"), the Board of Directors may, provided that there are
funds of the Corporation legally available therefor, declare that all of the
outstanding shares of the series of Common Stock relating to such Group shall
be exchanged, as of the exchange date described below, for the number of fully
paid and nonassessable shares of common stock of each of such Group
Subsidiaries as is equal to the product of the Outstanding Interest Fraction
with respect to such Group (determined as of the exchange date) and the number
of shares of common stock of each such Group Subsidiary as will be outstanding
immediately following such exchange. Such shares of common stock of such Group
Subsidiaries may be delivered directly or indirectly through the delivery of
shares of one or more of such Group Subsidiaries that own directly or
indirectly all of the other shares that are deliverable pursuant to the
preceding sentence.

(ii) If the series of Common Stock being exchanged pursuant to Section
(A)(3)(c)(i) above is DLJ Common Stock and the Number of Shares Issuable with
Respect to DLJ's Retained Interest in any Group on the exchange date is greater
than zero, the Corporation shall also issue a number of shares of each series
of Common Stock that relates to each such Group on the exchange date equal to
the then current Number of Shares Issuable with Respect to DLJ's Retained
Interest in each such Group and deliver those shares to the holders of DLJ
Common Stock or to one of the Group Subsidiaries, at the option of the
Corporation.

(d) General Dividend, Exchange and Redemption Provisions. If the
Corporation completes a Disposition (other than an Exempt Disposition), the
Corporation shall, not later than the tenth Trading Day after the applicable
Disposition Date, issue a press release specifying (w) the Net Proceeds of such
Disposition, (x) the number of shares of the series of Common Stock related to
such Group then outstanding, (y) the number of shares of such series of Common
Stock issuable upon conversion, exchange or exercise of any convertible or
exchangeable securities, options or warrants and the range of conversion,
exchange or exercise prices thereof and (z) if the Group is not DLJ, the Number
of Shares Issuable with Respect to DLJ's Retained Interest in such Group. The
Corporation shall, not more than 40 Trading Days after such consummation,
announce by press release which of the actions specified in Section
(A)(3)(a)(i) of this Article FOURTH it has determined to take, and upon making
that announcement, that determination will be irrevocable. In addition, the
Corporation shall, not more than

II-4
<PAGE>

40 Trading Days after such consummation and not less than 10 Trading Days
before the applicable payment date, redemption date or exchange date, send a
notice by first-class mail, postage prepaid, to holders of the relevant series
of Common Stock at their addresses as they appear on the transfer books of the
Corporation, specifying:

(A) if the Corporation has determined to pay a special dividend, the
record date for such dividend, the payment date of such dividend (which
cannot be more than 85 Trading Days after such Disposition Date), (3) the
Net Proceeds of such Disposition and (4) the type of property to be paid in
such dividend and the approximate per share amount thereof;

(B) if the Corporation has determined to undertake a redemption, the date
of redemption (which cannot be more than 85 Trading Days after such
Disposition Date), the Net Proceeds of such Disposition, the type of
property to be paid as a redemption price and the approximate per share
amount thereof, if less than all shares of the relevant series of Common
Stock are to be redeemed, the approximate number of shares to be redeemed
and the place or places where certificates for shares of such series of
Common Stock, properly endorsed or assigned for transfer (unless the
Corporation waives such requirement), should be surrendered in return for
delivery of the cash, securities or other property to be paid by the
Corporation in such redemption; and

(C) if the Corporation has determined to undertake an exchange, the date
of exchange (which cannot be more than 85 Trading Days after such
Disposition Date), the number of shares of the other series of Common Stock
to be issued in exchange for each outstanding share of such series of
Common Stock and the place or places where certificates for shares of such
series of Common Stock, properly endorsed or assigned for transfer (unless
the Corporation waives such requirement), should be surrendered in return
for delivery of the other series of Common Stock to be issued by the
Corporation in such exchange.

(ii) If the Corporation has determined to complete any exchange described
in Section (A)(3)(b) or (c) of this Article FOURTH, the Corporation shall, not
less than 10 Trading Days and not more than 30 Trading Days before the exchange
date, send a notice by first-class mail, postage prepaid, to holders of the
relevant series of Common Stock at their addresses as they appear on the
transfer books of the Corporation, specifying (x) the exchange date and the
other terms of the exchange and (y) the place or places where certificates for
shares of such series of Common Stock, properly endorsed or assigned for
transfer (unless the Corporation waives such requirement), should be
surrendered for delivery of the stock to be issued or delivered by the
Corporation in such exchange.

(iii) Neither the failure to mail any notice required by this Section
3(d) to any particular holder nor any defect therein would affect the
sufficiency thereof with respect to any other holder or the validity of any
dividend, redemption or exchange contemplated hereby.

(iv) If the Corporation is redeeming less than all of the outstanding
shares of a series of Common Stock pursuant to Section (A)(3)(a)(i) of this
Article FOURTH, the Corporation shall redeem such shares pro rata or by lot or
by such other method as the Board of Directors determines to be equitable.

(v) No holder of shares of a series of Common Stock being exchanged or
redeemed shall be entitled to receive any cash, securities or other property to
be distributed in such exchange or redemption until such holder surrenders
certificates for such shares, properly endorsed or assigned for transfer, at
such place as the Corporation shall specify (unless the Corporation waives such
requirement). As soon as practicable after the Corporation's receipt of
certificates for such shares, the Corporation shall deliver to the person for
whose account such shares were so surrendered, or to the nominee or nominees of
such person, the cash, securities or other property to which such person shall
be entitled, together with any fractional payment referred to below, in each
case without interest. If less than all of the shares of Common Stock
represented by any one certificate is exchanged or redeemed, the Corporation
shall also issue and deliver a new certificate for the shares of such Common
Stock not exchanged or redeemed.

(vi) The Corporation shall not be required to issue or deliver fractional
shares of any capital stock or any other fractional securities to any holder of
Common Stock upon any exchange, redemption, dividend or other distribution
described above. If more than one share of Common Stock shall be held

II-5
<PAGE>

at the same time by the same holder, the Corporation may aggregate the number
of shares of any capital stock that would be issuable or any other securities
that would be distributable to such holder upon any such exchange, redemption,
dividend or other distribution. If there are fractional shares of any capital
stock or any other fractional securities remaining to be issued or distributed
to any holder, the Corporation shall, if such fractional shares or securities
are not issued or distributed to such holder, pay cash in respect of such
fractional shares or securities in an amount equal to the Fair Value thereof
(without interest).

(vii) From and after the date set for any exchange or redemption
contemplated by this Section (A)(3), all rights of a holder of shares of Common
Stock being exchanged or redeemed shall cease except for the right, upon
surrender of the certificates theretofore representing such shares, to receive
the cash, securities or other property for which such shares were exchanged or
redeemed, together with any fractional payment as provided above, in each case
without interest (and, if such holder was a holder of record as of the close of
business on the record date for a dividend not yet paid, the right to receive
such dividend). A holder of shares of Common Stock being exchanged shall not be
entitled to receive any dividend or other distribution with respect to shares
of the other series of Common Stock until after certificates theretofore
representing the shares being exchanged are surrendered as contemplated above.

Upon such surrender, the Corporation shall pay to the holder the amount of
any dividends or other distributions (without interest) which theretofore
became payable with respect to a record date occurring after the exchange, but
which were not paid by reason of the foregoing, with respect to the number of
whole shares of the other series of Common Stock represented by the certificate
or certificates issued upon such surrender. From and after the date set for any
exchange, the Corporation shall, however, be entitled to treat the certificates
for shares of a series of Common Stock being exchanged that were not yet
surrendered for exchange as evidencing the ownership of the number of whole
shares of the other series of Common Stock for which the shares of such Common
Stock should have been exchanged, notwithstanding the failure to surrender such
certificates.

(viii) The Corporation shall pay any and all documentary, stamp or
similar issue or transfer taxes that might be payable in respect of the issue
or delivery of any shares of capital stock and/or other securities on any
exchange or redemption contemplated by this Section (A)(3); provided, however,
that the Corporation shall not be required to pay any tax that might be payable
in respect of any transfer involved in the issue or delivery of any shares of
capital stock and/or other securities in a name other than that in which the
shares so exchanged or redeemed were registered, and no such issue or delivery
will be made unless and until the person requesting such issue pays to the
Corporation the amount of any such tax, or establishes to the satisfaction of
the Corporation that such tax has been paid.

(ix) The Corporation may, subject to applicable law, establish such other
rules, requirements and procedures to facilitate any dividend, redemption or
exchange contemplated by this Section (A)(3) as the Board of Directors may
determine to be appropriate under the circumstances.

4. Voting Rights. At every meeting of stockholders, the holders of DLJ
Common Stock will vote on all matters as to which common stockholders generally
are entitled to vote. Holders of DLJdirect Common Stock will not be entitled to
vote, unless a separate class vote is required by applicable law. On all such
matters for which no separate vote is required, each outstanding share of DLJ
Common Stock entitles the holder to one vote.

5. Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, holders of each
series of Common Stock shall be entitled to receive their proportionate
interests in the net assets of the Corporation, if any, remaining for
distribution to stockholders, after payment of or provision for all
liabilities, including contingent liabilities of the Corporation and payment of
the liquidation preference payable to any holders of the Corporation's
Preferred Stock, if any such stock is outstanding. Each share of each series of
Common Stock will be entitled to a share of net liquidation proceeds in
proportion to the respective liquidation units per share of such class. Each
share of DLJ Common Stock shall have one liquidation unit and each share of
each other series of Common Stock shall have a number of liquidation units
(including a fraction of one liquidation unit) equal to the quotient (rounded
to the nearest five decimal places) of the average Market

II-6
<PAGE>

Value of one share of such series of Common Stock during the 20 consecutive
Trading Day period ending on, and including, the 5th Trading Day before the
date of the first public announcement of (1) a voluntary liquidation,
dissolution or winding-up of the Corporation or (2) the institution of any
proceeding for the involuntary liquidation, dissolution or winding-up of the
Corporation divided by the average Market Value of one share of DLJ Common
Stock during such 20 Trading Day period. Neither the merger nor consolidation
of the Corporation with any other entity, nor a sale, transfer or lease of all
or any part of the assets of the Corporation, would, alone, be deemed a
liquidation, dissolution or winding-up for purposes of this Section (A)(5).

6. Adjustments to Number of Shares Issuable with Respect to DLJ's
Retained Interest in Any Group. The Number of Shares Issuable with Respect to
DLJ's Retained Interest in any Group, as in effect from time to time, shall,
automatically without action by the Board of Directors or any other person, be:

(a) adjusted in proportion to any changes in the number of outstanding
shares of the series of Common Stock related to such Group caused by
subdivisions (by stock split reclassification or otherwise) or combinations
(by reverse stock split, reclassification or otherwise) of shares of such
series of Common Stock or by dividends or other distributions of shares of
such series of Common Stock on shares of such series of Common Stock (and,
in each such case, rounded, if necessary, to the nearest whole number);

(b) decreased by, if the Corporation issues any shares of the series of
Common Stock related to such Group and the Board of Directors attributes
that issuance (and the proceeds thereof) to DLJ, the number of shares of
such series of Common Stock so issued, and if the Board of Directors
re-allocates to DLJ any cash or other assets theretofore allocated to such
Group in connection with a redemption of shares of the series of Common
Stock that relates to such Group (as required pursuant to clause (ii) of
the proviso to the definition of DLJ below) or in return for a decrease in
the Number of Shares Issuable with Respect to DLJ's Retained Interest in
such Group, the number (rounded, if necessary, to the nearest whole number)
equal to (x) the aggregate Fair Value of such cash or other assets divided
by (y) the Market Value of one share of the series of Common Stock that
relates to such Group, in each case, as of the date of such re-allocation;
and

(c) increased by, if the Corporation repurchases any shares of the series
of Common Stock related to such Group and the Board of Directors attributes
that repurchase (and the consideration therefor) to DLJ, the number of
shares of such series of Common Stock so repurchased and if the Board of
Directors re-allocates to such Group any cash or other assets theretofore
allocated to DLJ in return for an increase in the Number of Shares Issuable
with Respect to DLJ's Retained Interest in such Group the number (rounded,
if necessary, to the nearest whole number) equal to (x) the Fair Value of
such cash or other assets divided by (y) the Market Value of one share of
the series of Common Stock that relates to such Group, in each case, as of
the date of such re-allocation.

Neither the Corporation nor the Board of Directors shall take any action
that would, as a result of any of the foregoing adjustments, reduce the Number
of Shares Issuable with Respect to DLJ's Retained Interest in any Group to
below zero. Subject to the preceding sentence, the Board of Directors may
attribute the issuance of any shares of any series of Common Stock (and the
proceeds therefrom) or the repurchase of any series of Common Stock (and the
consideration therefor) to DLJ or to the Group to which such series of Common
Stock relates, as the Board of Directors determines in its sole discretion;
provided, however, that the Board of Directors must attribute to DLJ the
issuance of any shares of any series of Common Stock that are issued (1) as a
dividend or other distribution on, or as consideration for the repurchase of,
shares of DLJ Common Stock or (2) as consideration to acquire any assets or
satisfy any liabilities attributed to DLJ.

7. Additional Definitions. As used in this Article FOURTH, the following
terms shall have the following meanings (with terms defined in singular having
comparable meaning when used in the plural and vice versa), unless the context
otherwise requires:

"ALL OR SUBSTANTIALLY ALL OF THE ASSETS" of any Group means, with respect
to any Disposition, a portion of such assets that represents at least 80% of
the Fair Value (determined as of the Disposition Date) of the assets of such
Group.

II-7
<PAGE>

"AVAILABLE DIVIDEND AMOUNT" for DLJ, on any day on which dividends are
paid on shares of DLJ Common Stock, is the amount that would, immediately prior
to the payment of such dividends, be legally available for the payment of
dividends on shares of DLJ's Common Stock under Delaware law if (a) DLJ and
each other Group were each a single, separate Delaware corporation, (b) DLJ had
outstanding (i) a number of shares of common stock, par value $0.10 per share,
equal to the number of shares of DLJ Common Stock that are then outstanding and
(ii) a number of shares of preferred stock, par value $0.01 per share, equal to
the number of shares of Preferred Stock that have been attributed to DLJ and
are then outstanding, (c) the assumptions about each Group that is not DLJ set
forth in the next sentence were true and (d) DLJ owned a number of shares of
each series of Common Stock (other than DLJ Common Stock) equal to the Number
of Shares Issuable with Respect to DLJ's Retained Interest in each Group to
which each such series of Common Stock relates.

"AVAILABLE DIVIDEND AMOUNT" for any Group other than DLJ, on any day on
which dividends are paid on shares of the series of Common Stock relating to
such Group, is the amount that would, immediately prior to the payment of such
dividends, be legally available for the payment of dividends on shares of such
series of Common Stock under Delaware law if such Group were a single, separate
Delaware corporation having outstanding (a) a number of shares of common stock,
par value $0.10 per share, equal to the number of shares of such series of
Common Stock that are then outstanding plus the Number of Shares Issuable with
Respect to DLJ's Retained Interest in such Group and (b) a number of shares of
preferred stock, par value $0.01 per share, equal to the number of shares of
Preferred Stock that have been attributed to such Group and are then
outstanding.

"DISPOSITION" means a sale, transfer, assignment or other disposition
(whether by merger, consolidation, sale or otherwise) of All or Substantially
All of the Assets of a Group to one or more persons or entities, in one
transaction or a series of related transactions.

"DISPOSITION DATE" means, with respect to any Disposition, the date of
consummation of such Disposition.

"DLJ" means (a) all of the businesses, assets and liabilities of the
Corporation and its subsidiaries, other than the businesses, assets and
liabilities that are part of any Group other than DLJ, (b) the rights and
obligations of DLJ under any inter-Group debt deemed to be owed to or by DLJ
(as such rights and obligations are defined in accordance with policies
established from time to time by the Board of Directors) and (c) a
proportionate interest in any Group other than DLJ (after giving effect to any
options, Preferred Stock, other securities or debt issued or incurred by the
Corporation and attributed to any Group other than DLJ) equal to the Retained
Interest Fraction; provided, however, that: (i) the Corporation may re-allocate
assets from one Group to another Group in return for other assets or services
rendered by that other Group in the ordinary course of business or in
accordance with policies established by the Board of Directors from time to
time, and (ii) if the Corporation transfers cash, other assets or securities to
holders of shares of a series of Common Stock other than DLJ Common Stock as a
dividend or other distribution on shares of such series of Common Stock (other
than a dividend or distribution payable in shares of such series of Common
Stock), or as payment in a redemption required by Section (A)(3)(a) of this
Article FOURTH, then the Board of Directors shall re-allocate from such Group
to DLJ cash or other assets having a Fair Value equal to the aggregate Fair
Value of the cash, other assets or securities so transferred times the Retained
Interest Amount with respect to such Group as of the record date for such
dividend or distribution, or on the date of such redemption, as the case may
be.

"DLJDIRECT" means (a) all of the businesses, assets and liabilities of
DLJdirect Holdings, Inc. and its subsidiaries, (b) the assets and liabilities
of DLJdirect's online United Kingdom discount brokerage service, (c) any assets
or liabilities acquired or incurred by DLJdirect Holdings, Inc. or any of its
subsidiaries after the Effective Date in the ordinary course of business and
attributable to DLJdirect, (d) any businesses, assets or liabilities acquired
or incurred by the Corporation or any of its subsidiaries after the Effective
Date that the Board of Directors has specifically allocated to DLJdirect or
that the Corporation otherwise allocates to DLJdirect in accordance with
policies established from time to time by the Board of Directors and (e) the
rights and obligations of DLJdirect under any inter-Group debt deemed to be
owed to or by DLJdirect (as such rights and obligations are defined in
accordance with

II-8
<PAGE>

policies established from time to time by the Board of Directors); provided,
however, that: (i) the Corporation may re-allocate assets from one Group to the
other Group in return for other assets or services rendered by that other Group
in the ordinary course of business or in accordance with policies established
by the Board of Directors from time to time, and (ii) if the Corporation
transfers cash, other assets or securities to holders of shares of DLJdirect
Common Stock as a dividend or other distribution on shares of DLJdirect Common
Stock (other than a dividend or distribution payable in shares of DLJdirect
Common Stock), or as payment in a redemption required by Section (A)(3)(a) of
this Article FOURTH, then the Board of Directors shall re-allocate from
DLJdirect to DLJ cash or other assets having a Fair Value equal to the
aggregate Fair Value of the cash, other assets or securities so transferred
times the Retained Interest Amount with respect to such Group as of the record
date for such dividend or distribution, or on the date of such redemption, as
the case may be.

"EFFECTIVE DATE" means the date on which this amendment to the Amended and
Restated Certificate of Incorporation becomes effective under Delaware law.

"EXEMPT DISPOSITION" means any of the following:

(a) a Disposition in connection with the liquidation, dissolution or
winding-up of the Corporation and the distribution of assets to
stockholders,

(b) a Disposition to any person or entity controlled by the Corporation
(as determined by the Board of Directors in its sole discretion),

(c) a Disposition by any Group for which the Corporation receives
consideration primarily consisting of equity securities (including, without
limitation, capital stock of any kind, interests in a general or limited
partnership, interests in a limited liability company or debt securities
convertible into or exchangeable for, or options or warrants to acquire,
any of the foregoing, in each case without regard to the voting power or
other management or governance rights associated therewith) of an entity
which is primarily engaged or proposes to engage primarily in one or more
businesses similar or complementary to businesses conducted by such Group
prior to the Disposition, as determined by the Board of Directors in its
sole discretion,

(d) a dividend, out of any Group's assets, to holders of the related
series of Common Stock (and a re-allocation of a corresponding amount of
such Group's assets to DLJ as required pursuant to clause (ii) of the
proviso to the definition of DLJ above),

(e) a dividend, out of DLJ's assets, to holders of DLJ Common Stock,

(f) a Disposition by any Group other than DLJ or DLJdirect that is
designated to be an "Exempt Disposition" by the Board of Directors in the
resolution or resolutions authorizing the issuance of the shares of the
series of common stock that relates to such Group, and

(g) any other Disposition, if (i) at the time of the Disposition there
are no shares of any series of Common Stock outstanding other than the
series of Common Stock relating to the Group that consummated such
Disposition, (ii) at the time of the Disposition there are no shares of the
series of Common Stock relating to the Group that consummated such
Disposition outstanding or (iii) before the 30th Trading Day following the
Disposition the Corporation has mailed a notice stating that it is
exercising its right to exchange all of the outstanding shares of the
series of Common Stock relating to the Group that consummated such
Disposition for newly issued shares of DLJ Common Stock as contemplated
under Section 3(b) of this Article FOURTH.

"FAIR VALUE" means (a) in the case of cash, the amount thereof, (b) in the
case of capital stock that has been Publicly Traded for a period of at least 15
months, the Market Value thereof and (c) in the case of other assets or
securities, the fair market value thereof as the Board of Directors shall
determine in good faith (which determination shall be conclusive and binding on
all stockholders).

"GROUP" initially means DLJ or DLJdirect; provided that if the Board of
Directors authorizes the issuance of shares of a series of Common Stock other
than DLJ Common Stock or DLJdirect Common Stock, the Board of Directors shall
designate the assets and liabilities of DLJ to which such series of Common
Stock relates, which assets and liabilities shall be an additional "Group" for
all purposes of this Article FOURTH.

II-9
<PAGE>

"MARKET CAPITALIZATION" of any series of Common Stock on any date means
the Market Value of a share of such series on such date times the number of
shares of such series outstanding on such date. Shares issuable with respect to
DLJ's retained interest in any Group shall not be considered outstanding unless
and until they are in fact issued to third parties.

"MARKET VALUE" of a share of any class or series of capital stock on any
Trading Day means the average of the high and low reported sales prices of such
class or series on such Trading Day or, in case no such reported sale takes
place on such Trading Day, the average of the reported closing bid and asked
prices regular way of a share of such class or series on such Trading Day, in
either case as reported on the New York Stock Exchange ("NYSE") Composite Tape
or, if the shares of such class or series are not listed or admitted to trading
on the NYSE on such Trading Day, on the principal national securities exchange
on which the shares of such class or series are listed or admitted to trading
or, if not listed or admitted to trading on any national securities exchange on
such Trading Day, on The Nasdaq National Market System of the Nasdaq Stock
Market ("NASDAQ NMS") or, if the shares of such class or series are not listed
or admitted to trading on any national securities exchange or quoted on the
Nasdaq NMS on such Trading Day, the average of the closing bid and asked prices
of a share of such class or series in the over-the-counter market on such
Trading Day as furnished by any NYSE member firm selected from time to time by
the Corporation or, if such closing bid and asked prices are not made available
by any such NYSE member firm on such Trading Day, the fair market value of a
share of such class or series as the Board of Directors shall determine in good
faith (which determination shall be conclusive and binding on all
stockholders); provided, that, for purposes of determining the average Market
Value of a share of any class or series of capital stock for any period, (a)
the "Market Value" of a share of any class or series of capital stock on any
day prior to any "ex-dividend" date or any similar date occurring during such
period for any dividend or distribution (other than any dividend or
distribution contemplated by clause (b)(ii) of this sentence) paid or to be
paid with respect to such capital stock shall be reduced by the Fair Value of
the per share amount of such dividend or distribution and (b) the "Market
Value" of a share of any class or series of capital stock on any day prior to
(i) the effective date of any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of outstanding shares of such
class or series of capital stock occurring during such period or (ii) any
"ex-dividend" date or any similar date occurring during such period for any
dividend or distribution with respect to such capital stock to be made in
shares of such class or series of capital stock shall be appropriately
adjusted, as determined by the Board of Directors, to reflect such subdivision,
combination, dividend or distribution; and provided further, if (a) the
Corporation repurchases outstanding shares of any series Common Stock other
than DLJ Common Stock and the Board of Directors attributes that repurchase
(and the consideration therefor) to the Group to which such series of Common
Stock relates and (b) the Board of Directors determines to re-allocate to DLJ
cash or other assets theretofore allocated to the Group to which such series of
Common Stock relates in order to avoid a change in the Retained Interest
Fraction, the "Market Value" of a share any series Common Stock other than DLJ
Common Stock used to compute the corresponding reduction in the Number of
Shares Issuable with Respect to DLJ's Retained Interest in the Group to which
such series of Common Stock relates will equal the Fair Value of the
consideration paid per share of Common Stock so repurchased; and provided
further, if the Corporation redeems a portion of the outstanding shares of any
of series of Common Stock other than DLJ Common Stock (and the Board of
Directors re-allocates to DLJ cash or other assets theretofore allocated to the
Group to which such series of Common Stock relates in the manner required by
clause (ii) of the proviso to the definition of DLJ above), the "Market Value"
of a share of such series of Common Stock used to compute the corresponding
reduction in the Number of Shares Issuable with Respect to DLJ's Retained
Interest in the Group to which such series of Common Stock relates will equal
the Fair Value of the consideration paid per share of such series of Common
Stock so redeemed.

"NET PROCEEDS" of a Disposition of any of the assets of a Group means the
positive amount, if any, remaining from the gross proceeds of such Disposition
after any payment of, or reasonable provision (as determined in good faith by
the Board of Directors, which determination will be conclusive and binding on
all stockholders) for, (a) any taxes payable by the Corporation or any
subsidiary or affiliate thereof in respect of such Disposition or which would
have been payable but for the utilization of tax benefits attributable to the
Group not the subject of the Disposition, (b) any taxes payable by the
Corporation in

II-10
<PAGE>

respect of any resulting dividend or redemption, (c) any transaction costs,
including, without limitation, any legal, investment banking and accounting
fees and expenses and (d) any liabilities (contingent or otherwise) of,
attributed to or related to, such Group, including, without limitation, any
liabilities for deferred taxes or any indemnity or guarantee obligations which
are outstanding or incurred in connection with the Disposition or otherwise,
any liabilities for future purchase price adjustments and any obligations with
respect to outstanding securities (other than Common Stock) attributed to such
Group as determined in good faith by the Board of Directors.

"NUMBER OF SHARES ISSUABLE WITH RESPECT TO DLJ'S RETAINED INTEREST" means,
with respect to any Group, initially the number the Board of Directors
designates prior to the time the Corporation first issues shares of the series
of Common Stock applicable to such Group as the number of shares of such series
of Common Stock that could be issued by the Corporation for the account of DLJ
in respect of its retained interest in such Group, as authorized by Section
(A)(1); provided, however, that such number as in effect from time to time
shall automatically be adjusted as required by Section 6 of this Article IV(A).

"OUTSTANDING INTEREST FRACTION" means (i) with respect to DLJ, at any time
of determination, 1 and (ii) with respect to any other Group, at any time of
determination, a fraction the numerator of which shall be the number of shares
of the series of Common Stock applicable to such Group outstanding on such date
and the denominator of which shall be the sum of the number of shares of the
series of Common Stock applicable to such Group outstanding on such date and
the Number of Shares Issuable with Respect to DLJ's Retained Interest in such
Group.

"PUBLICLY TRADED" with respect to any security means (a) registered under
Section 12 of the Securities Exchange Act of 1934, as amended (or any successor
provision of law), and (b) listed for trading on the NYSE (or any other
national securities exchange registered under Section 7 of the Securities
Exchange Act of 1934, as amended (or any successor provision of law)) or listed
on the Nasdaq NMS (or any successor market system).

"RETAINED INTEREST AMOUNT" means (i) with respect to DLJ, at any time of
determination, 1 and (ii) with respect to any other Group, at any time of
determination, a fraction the numerator of which shall be the Number of Shares
Issuable with Respect to DLJ's Retained Interest in such Group and the
denominator of which shall be the number of shares of the series of common
stock relating to such Group outstanding on such date.

"RETAINED INTEREST FRACTION" means (i) with respect to DLJ, at any time of
determination, 1 and (ii) with respect to any Group that is not DLJ, at any
time of determination, a fraction the numerator of which shall be the Number of
Shares Issuable with Respect to DLJ's Retained Interest in such Group and the
denominator of which shall be the sum of the number of shares of the series of
common stock applicable to such Group outstanding on such date and the Number
of Shares Issuable with Respect to DLJ's Retained Interest in such Group.

"TRADING DAY" means each weekday on which the relevant security (or, if
there are two relevant securities, each relevant security) is traded on the
principal national securities exchange on which it is listed or admitted to
trading or on the Nasdaq NMS or, if such security is not listed or admitted to
trading on a national securities exchange or quoted on the Nasdaq NMS, traded
in the principal over-the-counter market in which it trades.

8. Effectiveness of Sections (A)(2), (A)(3), (A)(5), (A)(6) and (A)(7) of
This Article FOURTH. The terms of Sections (A)(2), (A)(3), (A)(5), (A)(6) and
(A)(7) of this Article FOURTH shall apply only when there are shares of
multiple series of Common Stock outstanding.

Section B. Provisions Relating to Preferred Stock

II-11
<PAGE>

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

3. This amendment of the amended and restated certification of
incorporation herein certified has been fully adopted in accordance with the
provisions of Sections 227 and 242 of the General Corporation Law of the State
of Delaware.

Signed and Attested to on , 1999.

By:_________________________
Name:
Title:

Attest:

_________________________
Name:
Title:

II-12
<PAGE>

ANNEX III

SELECTED COMBINED FINANCIAL INFORMATION OF DLJDIRECT

The following selected combined financial information is qualified by
reference to, and should be read in conjunction with DLJdirect's combined
financial statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of DLJdirect"
contained elsewhere in this prospectus. The selected combined statements of
operations data for the years ended December 31, 1996, 1997 and 1998 and the
combined statements of financial condition data as of December 31, 1997 and
1998 are derived from DLJdirect's audited combined financial statements which
are included elsewhere in this prospectus. The selected combined statements of
operations data for the three months ended March 31, 1998 and 1999 and the
combined statements of financial condition data as of March 31, 1999 are
derived from DLJdirect's unaudited combined financial statements which are also
included elsewhere in this prospectus. The unaudited three-month selected
combined financial information reflects all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results of the interim periods. The
operating results for the three months ended March 31, 1998 and 1999 are not
necessarily indicative of the results to be expected for any other interim
period or any other future fiscal year. The selected combined statements of
operations data for the years ended December 31, 1994 and 1995 are derived from
the unaudited combined financial statements of DLJdirect which are not included
in this prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ------------ ---------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues: ..............................
Commissions ........................... $28,491 $40,358 $54,166 $ 50,948 $ 78,717 $ 16,130 $32,054
Fees .................................. 3,797 5,067 6,426 12,109 25,484 5,140 9,596
Interest .............................. 1,858 1,846 2,569 4,160 13,723 2,787 5,552
------- ------- ------- -------- -------- -------- -------
Total revenues ...................... 34,146 47,271 63,161 67,217 117,924 24,057 47,202
------- ------- ------- -------- -------- -------- -------
Costs and Expenses:
Compensation and benefits ............. 5,422 7,362 11,202 17,174 28,260 5,759 10,683
Brokerage, clearing, exchange and
other fees .......................... 9,567 11,709 15,422 20,909 28,423 6,071 8,854
Advertising ........................... 1,971 4,183 9,093 13,137 25,146 9,010 6,101
Occupancy and equipment ............... 1,175 1,437 1,923 3,352 5,045 1,081 1,503
Communications ........................ 791 1,025 1,468 2,844 5,564 1,189 2,705
Technology costs ...................... 4,400 5,431 5,205 5,082 4,084 1,103 1,280
Other operating expenses .............. 3,164 4,507 5,567 10,844 18,934 3,660 4,815
------- ------- ------- -------- -------- -------- -------
Total costs and expenses ............ 26,490 35,654 49,880 73,342 115,456 27,873 35,941
------- ------- ------- -------- -------- -------- -------
Income (loss) before income tax
provision (benefit) ................... 7,656 11,617 13,281 (6,125) 2,468 (3,816) 11,261
Income tax provision (benefit) ......... 3,128 4,746 5,425 (2,502) 1,008 (1,559) 4,088
------- ------- ------- -------- -------- -------- -------
Net income (loss) ...................... $ 4,528 $ 6,871 $ 7,856 $ (3,623) $ 1,460 $ (2,257) $ 7,173
======= ======= ======= ======== ======== ======== =======
</TABLE>

III-1
<PAGE>

<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
---------------------- ----------
1997 1998 1999
--------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENTS OF FINANCIAL CONDITION DATA:
Cash and cash equivalents ............. $ 8,881 $26,654 $47,825
Total assets .......................... $11,871 $29,751 $52,429
Long-term liabilities ................. $ -- $ -- $ --
Total equity .......................... $ 5,964 $21,924 $30,097
</TABLE>

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31, AS OF OR FOR THE
------------------------------------------------------------------- THREE MONTHS
ENDED
MARCH 31,
1994 1995 1996 1997 1998 1998
------------- ------------- ------------- ------------ ------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Total trades ....................... 475,000 660,000 929,000 1,535,000 2,875,000 580,000
Average trades per day ............. 1,900 2,600 3,700 6,100 11,400 9,500
Total customer assets .............. $1,300,000 $1,900,000 $2,500,000 $4,600,000 $8,900,000 $5,900,000
Total accounts ..................... 153,000 207,000 280,000 390,000 529,000 428,000
Total active accounts(2) ........... N/A N/A 113,000 144,000 210,000 161,000
Total employees .................... 95 139 174 283 374 287
Total technology employees ......... 12 14 34 82 119 86

<CAPTION>
AS OF OR FOR
THE THREE
MONTHS ENDED
MARCH 31,
1999
-------------
<S> <C>
OTHER DATA:
Total trades ....................... 1,230,000
Average trades per day ............. 20,200
Total customer assets .............. $11,200,000
Total accounts ..................... 590,000
Total active accounts(2) ........... 243,000
Total employees .................... 466
Total technology employees ......... 128
</TABLE>

- ----------
(1) Pro forma basic and diluted earnings per common share amounts have been
calculated by dividing net income applicable to common shares by the pro
forma weighted average common shares outstanding.

(2) Active accounts consist of those accounts at the end of the related
period with activity in the last twelve months or with a balance at
period end.

III-2
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF DLJDIRECT

The following discussion of the financial condition and results of
operations of DLJdirect should be read in conjunction with the combined
financial statements and notes thereto included elsewhere in this prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties. DLJdirect's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, those set forth under "Risk Factors" and
elsewhere in this prospectus.

OVERVIEW

The online discount brokerage industry is experiencing substantial
competition from established financial services firms as well as new entrants
who are trying to establish their presence in the market quickly. As a result
of intense competitive pressures, the industry has experienced a significant
increase in brand development costs, a lowering of commission pricing and an
increase in content development costs. DLJdirect expects to spend significant
amounts in the future to develop much greater brand recognition within its
targeted market, to stay competitively priced and to develop new
state-of-the-art products and services. In particular, DLJdirect expects to
spend approximately $65 million on advertising in 1999. As a result, DLJdirect
believes that its advertising fees as a percentage of revenues will increase
significantly in 1999, and accordingly, that its financial results in the near
future will be adversely affected. It is expected that advertising costs will
increase during each remaining quarter of 1999, with the largest increases
expected to occur in the second half of the year. While the longer-term goal of
advertising will be to increase brand awareness and revenues, it is likely that
advertising costs as a percentage of revenues will increase throughout 1999.

The largest portion of DLJdirect's revenues consist of brokerage
commissions for acting as agent in securities transactions, including Nasdaq
and exchange-listed equities, options and mutual fund transactions. In June
1997, in order to increase significantly its customer base as well as overall
account activity, DLJdirect made a strategic decision to lower its base
commission for equity trades from $39.95 to $20.00 per trade. As a result,
commission revenues fell slightly in 1997 compared to 1996, but the average
number of trades per day increased 64.9% from 3,700 in 1996 to 6,100 in 1997.
In 1998 compared to 1997, commission revenues increased 54.6% to $78.7 million
and the average number of trades per day increased 86.9% to 11,400. DLJdirect
regularly reviews its commission rates as part of its ongoing strategy to
maintain its competitive position. DLJdirect believes that the recent increase
in trading activity is also due to the extensive growth in Internet commerce,
DLJdirect's advertising initiatives and increased activity in the securities
markets.

DLJdirect also earns fee income, which increased from $6.4 million in 1996
to $25.5 million in 1998. Fee income includes technology fees, order flow fees
and money market fund distribution fees, all of which are earned from
affiliates. Although the technology group at DLJdirect primarily serves the
growing needs of DLJdirect's business, DLJdirect also offers technology
products and services to third parties through DLJ as a means of reducing
internal development costs. Revenues from technology development are derived
from sales of Internet-based technology applications primarily to DLJ.
DLJdirect also earns fees for order flow through arrangements with Pershing to
receive cash payments in exchange for routing all of its orders to Pershing for
execution. Order flow payments on a per trade basis have declined in recent
periods due to regulatory changes imposing new order handling rules and there
can be no assurance that order flow revenues will continue.

DLJdirect also earns interest income, which increased from $2.6 million in
1996 to $13.7 million in 1998. Interest income consists of interest on margin
debt, free credit and short sale balances and earnings on its own cash
balances. DLJdirect participates in the interest spread on its customers' debit
and credit balances through its clearing agreement with Pershing. DLJdirect's
interest revenues increased significantly in 1998 due to significant growth in
client assets as well as more favorable interest sharing arrangements with
Pershing.

III-3
<PAGE>

Prior to 1999, DLJdirect received a nominal fee for the distribution of
IPO products, but it now receives customary selling concessions. As a result,
DLJdirect expects revenues associated with its distribution activities to
increase significantly in the remainder of 1999.

Brokerage, clearing, exchange and other fees represented 24.1% of
DLJdirect's total revenue in 1998. Clearing costs per trade were reduced under
the terms of an amendment to the clearing agreement between DLJdirect and DLJ
effective January 1, 1999. The amended agreement provides for volume discounts
and sliding scale payments taking into account the size of DLJdirect's business
and the level of services provided by Pershing. In particular, the per trade
clearing fee declines by 5.0% for clearing volumes in excess of 4,000,000
trades per year and by an additional 5.0% for clearing volumes in excess of
6,000,000 trades per year. The amended agreement also provides that such costs
will include an amount that represents payment to DLJ Long Term Investment
Corporation for the use of certain trademarks in the United States and certain
other jurisdictions. Brokerage, clearing, exchange and other fees as a
percentage of revenues declined significantly for the three months ended March
31, 1999, principally as a result of the amendment to the clearing agreement.
As a result of the revised clearing agreement as well as expected increases in
trading activity, DLJdirect expects that clearing costs will continue to
decline as a percentage of revenue in 1999.

Technology costs consist primarily of network access fees paid to online
service providers and fees related to systems maintenance and support. Although
the expenses included under "technology costs" are decreasing, the technology
services originally included in this expense category are increasingly provided
internally rather than by third-party service providers. Technology costs do
not include compensation of employees related to technology development. The
number of technology employees increased from 34 at December 31, 1996 to 119 at
December 31, 1998.

Other operating expenses include amounts allocated to DLJdirect by DLJ for
public relations, telecommunications, tax, internal audit, insurance, employee
benefits, human resources, legal, compliance, credit, general administrative,
accounting, treasury, library and record management, facilities, security and
custodial services. DLJ allocates these expenses using a proportional cost
methodology based on the relative number of employees and square foot usage of
DLJdirect or on actual costs incurred. Management believes that the amounts
allocated to DLJdirect are reasonable.

In January 1999, DLJdirect began operations in a 24,000 square foot
investor services facility in Charlotte, North Carolina. In April 1999,
DLJdirect entered into a lease for approximately 100,000 square feet in Jersey
City, New Jersey. DLJdirect intends to move its current Jersey City, New Jersey
headquarters to that space in the beginning of the third quarter of 1999 upon
the scheduled completion of renovation. As a result, DLJdirect expects to incur
an annual increase in occupancy costs of over $3.0 million, a portion of which
will be realized in 1999. The two moves are designed to accommodate a portion
of planned increases in business activity. In this connection, DLJdirect is in
the process of developing plans to acquire additional space to increase its
call center capacity significantly by the end of 1999. In addition, DLJdirect
is currently implementing fully redundant technology centers in order to
increase both system reliability and capacity. The centers are expected to be
operational in the third quarter of 1999. As a result, DLJdirect expects to
incur an additional annual increase in equipment costs of over $3.0 million, a
portion of which also will be realized in 1999.

III-4
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth the percentage of total revenues
represented by certain items on DLJdirect's combined statement of operations
for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions ........................... 85.7% 75.8% 66.8% 67.0% 67.9%
Fees .................................. 10.2 18.0 21.6 21.4 20.3
Interest .............................. 4.1 6.2 11.6 11.6 11.8
----- ----- ----- ----- -----
Total revenues ....................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and Expenses:
Compensation and benefits ............. 17.8 25.6 24.0 23.9 22.6
Brokerage, clearing, exchange and
other fees ............................ 24.5 31.1 24.1 25.2 18.8
Advertising ........................... 14.4 19.5 21.3 37.5 12.9
Occupancy and equipment ............... 3.0 5.0 4.3 4.5 3.2
Communications ........................ 2.3 4.2 4.7 4.9 5.7
Technology costs ...................... 8.2 7.6 3.4 4.6 2.7
Other operating expenses .............. 8.8 16.1 16.1 15.3 10.2
----- ----- ----- ----- -----
Total costs and expenses ............. 79.0 109.1 97.9 115.9 76.1
----- ----- ----- ----- -----
Income (loss) before income tax
provision (benefit) .................... 21.0 (9.1) 2.1 (15.9) 23.9
Income tax provision (benefit) ......... 8.6 (3.7) 0.9 (6.5) 8.7
----- ----- ----- ----- -----
Net income (loss) ...................... 12.4% (5.4)% 1.2% (9.4)% 15.2%
===== ===== ===== ===== =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998

DLJdirect experienced strong operating results for the three months ended
March 31, 1999 compared to the three months ended March 31, 1998, reflecting
primarily an increase in active accounts of 50.9% and customer trading volume
of 112.6%. Total revenues of $47.2 increased $23.1 million or 95.9% for the
three months ended March 31, 1999 from $24.1 million for the three months ended
March 31, 1998. Net income increased $9.5 million to $7.2 million from a net
loss of $2.3 million, primarily resulting from strong revenue growth and modest
expense growth.

Commissions increased $16.0 million or 99.4% to $32.1 million. Commissions
represented 67.9% of total revenues for the three months ended March 31, 1999
and 67.0% of total revenues for the three months ended March 31, 1998. The
increase in commissions was due primarily to significant increases in customer
trading volume. Average trades per day increased 112.6% from 9,500 for the
three months ended March 31, 1998 to 20,200 for the three months ended March
31, 1999.

Fees increased $4.5 million or 88.2% to $9.6 million. Fees represented
20.3% of total revenues for the three months ended March 31, 1999 and 21.4% of
total revenues for the three months ended March 31, 1998. Payments for routing
orders increased $1.2 million or 56.0% to $3.2 million. The increase in
payments for routing orders was due primarily to significant increases in
customer trading volume, offset in part by a decline in the amount of revenue
per trade that DLJdirect receives for routing orders. Fees for technology
development increased $1.7 million or 68.0% to $4.2 million primarily due to
increased demand for Internet-based technology applications. Revenue from money
market fund distribution fees increased $511,000 or 86.8% to $1.1 million. This
growth was due to an increase in customer money market fund balances of $395.0
million or 83.8% to $866.2 million. The remaining fees for the three months
ended March 31, 1999 include payments in connection with public offerings,
subscription fees and account-related fees.

Interest increased $2.8 million or 100.0% to $5.6 million. Interest
represented 11.8% of total revenues for the three months ended March 31, 1999
and 11.6% of total revenues for the three months ended

III-5
<PAGE>

March 31, 1998. The increase was due primarily to more favorable interest
sharing arrangements with Pershing and to increases in margin debits, free
credits and short sale balances. Margin debits increased $306.3 million or
85.0% to $666.8 million. Free credits increased $226.0 million or 91.5% to
$473.1 million and short sale balances increased $11.4 million or 39.3% to
$39.7 million.

Compensation and benefits increased $4.9 million or 84.5% to $10.7
million. The increase in compensation and benefits was due primarily to growth
in the number of employees from 287 to 466. These additional employees were
added in DLJdirect's investor services area to accommodate increased customer
activity, as well as in DLJdirect's technology group to develop new products
including MarketSpeed (Trade Mark) .

Brokerage, clearing, exchange and other fees increased $2.8 million or
45.9% to $8.9 million. The increase in brokerage, clearing, exchange and other
fees was primarily due to significant increases in customer trading volume,
offset in part by lower clearing fees per trade resulting from reduced clearing
rates.

Advertising decreased $2.9 million or 32.2% to $6.1 million. The decrease
in advertising was due primarily to unusually large advertising expenditures
for the three months ended March 31, 1998. However, DLJdirect expects
advertising to increase sinificantly in the latter half of 1999. See "--
Overview".

Occupancy and equipment costs increased $422,000 or 39.1% to $1.5 million.
Occupancy and equipment expense includes rent and operating expenses for
facilities, expenditures for repairs and maintenance, and the expense for
furniture, fixtures, leasehold improvements as well as business and computer
equipment. The increase in occupancy cost was due to the opening of the
Charlotte, North Carolina investor services facility. The increase in equipment
costs was due primarily to additional investment in technology systems
infrastructure and equipment expenditures for the increased staff.

Communications costs increased $1.5 million or 125.0% to $2.7 million.
Communications expense includes quotation expenses, expenses related to
customer toll-free phone calls and Internet connections. Quotation expenses and
expenses related to customer toll-free phone calls both increased due to the
increased volume of transactions.

Technology costs increased $177,000 or 15.8% to $1.3 million. Technology
costs are comprised primarily of network access fees paid to online service
providers and fees related to systems infrastructure. Network access fees paid
to online service providers were reduced by $529,000 or 90.6% to $55,000 during
the three months ended March 31, 1999 due to renegotiated rates and due to
their partial reclassification to advertising expenses resulting from the
modified structure of an agreement. Fees related to systems maintenance and
support grew $706,000 or 142.9% to $1.2 million during the three months ended
March 31, 1999 due to increased business activity and initial support in the
United Kingdom.

Other operating expenses increased $1.1 million or 29.7% to $4.8 million.
Operating expenses are comprised of professional fees, printing and stationery,
economic and investment research, allocated corporate overhead and
miscellaneous expenses. For the three months ended March 31, 1998, other
operating expenses also included license fees of $927,000 paid to DLJ Long Term
Investment Corporation for licensing trademarks and similar intellectual
property. Commencing January 1, 1999, the license fees are included in
brokerage, clearing, exchange and other fees because such license fees are
included in amounts paid by DLJdirect to Pershing under its clearing agreement.
Professional fees primarily include payments made to technology and marketing
consultants, and for legal services. Professional fees increased $1.2 million
or 171.4% to $1.9 million primarily due to the development of advertising
strategies and the start-up operations in the UK and Japan. Miscellaneous
expenses increased $795,000 or 131.4% to $1.4 million. Miscellaneous expenses
consisted primarily of accruals for bad expenses, employee registration fees
and expenses for new account credit checks.

Income before income tax provision increased $15.1 million from a loss
$(3.8) million for the three months ended March 31, 1998 to income of $11.3
million for the three months ended March 31, 1999. The provision (benefit) for
income taxes for the three months ended March 31, 1998 and for the three months
ended March 31, 1999 was $(1.6) million, representing a 40.9% effective tax
rate, and $4.1 million, representing a 36.3% effective tax rate, respectively.

III-6
<PAGE>

As a result of the foregoing factors, net income increased to $7.2 million
for the three months ended March 31, 1999 from a net loss of $2.3 million for
the three months ended March 31, 1998.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

DLJdirect experienced strong operating results in 1998 compared to 1997,
reflecting primarily an increase in active accounts of 45.8%. For 1998, total
revenues of $117.9 increased $50.7 million or 75.4%. Net income of $1.5 million
increased $5.1 million from a net loss of $3.6 million, primarily resulting
from strong revenue growth.

Commissions increased $27.8 million or 54.6% to $78.7 million. Commissions
represented 66.8% of total revenues in 1998 and 75.8% of total revenues in
1997. The increase in commissions was due primarily to significant increases in
customer trading volume attributable in part to a full year of activity at the
reduced $20 commission rate. Average trades per day increased 86.9% from 6,100
in 1997 to 11,400 in 1998.

Fees increased $13.4 million or 110.7% to $25.5 million. Fees represented
21.6% of total revenues in 1998 and 18.0% of total revenues in 1997. Payments
for order flow increased $3.4 million or 61.8% to $8.9 million. The increase in
payments for order flow was due primarily to significant increases in customer
trading volume. Increases in payments for order flow were offset in part by a
decline in the amount of revenue per trade that DLJdirect receives for order
flow. Fees for technology development increased $8.6 million or 179.2% to $13.4
million. The increase in fees for technology development reflects 1998 being
the first full year that such fees were collected. Revenue from money market
fund distribution fees increased $1.6 million or 100.0% to $3.2 million. This
growth was due to an increase in customer money market fund balances of $345.8
million or 84.7% to $754.3 million.

Interest increased $9.6 million or 234.1% to $13.7 million. Interest
represented 11.6% of total revenues in 1998 and 6.2% of total revenues in 1997.
The increase was due primarily to more favorable interest sharing arrangements
with Pershing and to increases in margin debits, free credits and short sale
balances. Margin debits increased $143.1 million or 43.8% to $469.8 million.
Free credits increased $201.5 million or 103.2% to $396.8 million and short
sale balances increased $19.4 million or 107.2% to $37.5 million.

Compensation and benefits increased $11.1 million or 64.5% to $28.3
million. The increase in compensation and benefits was due primarily to growth
in the number of employees from 283 to 374. These additional employees were
added in DLJdirect's investor services area to accommodate increased customer
activity, as well as in DLJdirect's technology group to develop new products
such as MarketSpeed (Trade Mark) .

Brokerage, clearing, exchange and other fees increased $7.5 million or
35.9% to $28.4 million. The increase in brokerage, clearing, exchange and other
fees was primarily due to significant increases in customer trading volume,
offset in part by lower clearing fees per trade resulting from reduced clearing
rates.

Advertising increased $12.0 million or 91.6% to $25.1 million. The
increase in advertising was due to increased expenditures on advertising
placement and creative development. DLJdirect increased its advertising
expenditures to continue developing the DLJdirect brand name, which was
launched in September 1997, and to continue acquiring new accounts. Advertising
expenditures were targeted at investors through a broad range of media
including television, radio, and print as well as significant online service
providers and popular Web sites such as America Online, the Microsoft Network
and Yahoo!.

Occupancy and equipment costs increased $1.7 million or 51.5% to $5.0
million. Occupancy and equipment expense includes rent and operating expenses
for facilities, expenditures for repairs and maintenance, and the expense for
furniture, fixtures, leasehold improvements as well as business and computer
equipment. The increase in equipment costs was due primarily to additional
investment in technology systems infrastructure and equipment expenditures for
the increased staff.

III-7
<PAGE>

Communications costs increased $2.7 million or 93.1% to $5.6 million.
Communications expense includes quotation expenses, expenses related to
customer toll-free phone calls and Internet connections. Quotation expenses and
expenses related to customer toll-free phone calls both increased due to the
volume of transactions.

Technology costs decreased $1.0 million or 19.6% to $4.1 million.
Technology costs are comprised primarily of network access fees paid to online
service providers and fees related to systems infrastructure. Network access
fees paid to online service providers were reduced by $2.2 million or 59.5% to
$1.5 million in 1998 due to renegotiated rates and due to their partial
reclassification to advertising expenses resulting from the modified structure
of an agreement. Fees related to systems maintenance and support grew $1.3
million or 100.0% to $2.6 million in 1998 due to increased system capacity.

Other operating expenses increased $8.1 million or 75.0% to $18.9 million
and are comprised primarily of a license fee, professional fees, printing and
stationery, economic and investment research, allocated corporate overhead, and
miscellaneous expenses. The license fee expense increased $4.0 million or
333.3% to $5.2 million. The license fee is paid to DLJ Long Term Investment
Corporation for licensing trademarks and similar intellectual property. License
fee payments were initiated in September 1997. Commencing January 1, 1999,
amounts paid by DLJdirect to Pershing include the license fee for the use of
certain of DLJ Long Term Investment Corporation's trademarks that are licensed
to DLJdirect in the United States and in certain other jurisdictions.

Professional fees primarily include payments made to technology and
marketing consultants, and employee recruiting expenses. Professional fees
increased $883,000 or 25.8% to $4.3 million due to increased advertising and
headcount. Printing and stationery decreased $158,000 or 7.7% to $1.9 million.
In 1997 printing and stationery expenses were increased in conjunction with the
renaming of the service from PC Financial Network to DLJdirect, which
necessitated the redesign and reprinting of all marketing materials and
customer correspondence stock. Economic and investment research increased $1.0
million or 333.3% to $1.3 million reflecting the fact that DLJdirect first
began paying for this research in the fourth quarter of 1997. Allocated
corporate overhead increased $841,000 or 45.2% to $2.7 million due primarily to
expenses related to the increased headcount. Miscellaneous expenses increased
$1.4 million or 70.0% to $3.4 million. Miscellaneous expenses consisted
primarily of accruals for bad debt expense, employee registration fees and
expenses for new account credit checks.

Income before income tax provision increased $8.6 million from a loss of
$6.1 million in 1997 to income of $2.5 million in 1998. The provision (benefit)
for income taxes for 1997 and 1998 was $(2.5) million and $1.0 million,
respectively, which represented a 40.9% effective tax rate for each period.

As a result of the foregoing factors, net income increased to $1.5 million
in 1998 from a net loss of $3.6 million in 1997.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Total revenues increased $4.1 million or 6.5% to $67.2 million, reflecting
primarily an increase in active accounts of 27.4%. Total revenues increased
primarily as a result of fees and net interest income, partially offset by
decreases in commissions due to a change in DLJdirect's base commission rate.

Commissions decreased $3.3 million or 6.1% to $50.9 million. In June 1997,
DLJdirect lowered its base commission for equity trades from $39.95 to $20.00.
Although this significantly lowered the average commission charged to
customers, the increased new account generation and increased trading volume
brought commission revenues back to 1996 levels by fourth quarter 1997.

Fees increased $5.7 million or 89.1% to $12.1 million. Payments for order
flow increased $124,000 or 2.3% to $5.5 million. Although trading volume
increased significantly during 1997 from 929,000 trades in 1996 to 1,535,000 in
1997, the order flow payment on a per trade basis decreased due to regulatory
changes imposing new order handling rules. Revenue from money market fund
distribution fees increased $609,000 or 61.5% to $1.6 million. This increase
was due to an increase in customer money market fund balances from $115.5
million or 39.4% to $408.5 million. Fees for technology development, collected
for the first time in mid-1997, generated $4.8 million during the year.

III-8
<PAGE>

Interest increased $1.6 million or 61.5% to $4.2 million. The increase was
due primarily to more favorable interest sharing arrangements with Pershing and
to increases in margin debits, free credits and short sale balances. Margin
debits increased $187.0 million or 133.9% to $326.7 million, free credits
increased $64.8 million or 49.7% to $195.3 million and short sale balances
increased $2.2 million or 13.8% to $18.1 million.

Compensation and benefits increased $6.0 million or 53.6% to $17.2
million. The increase in compensation and benefits was due primarily to growth
in the number of employees from 174 to 283, a 62.6% increase.

Brokerage, clearing, exchange and other fees increased $5.5 million or
35.7% to $20.9 million. The increase in brokerage, clearing, exchange and other
fees was primarily due to significant increases in customer trading volume. On
a per trade basis, however, brokerage, clearing, exchange and other fees
decreased due to a reduction in the fee for clearing trades.

Advertising increased $4.0 million or 44.0% to $13.1 million. The increase
in advertising was due to increased expenditures on advertising placement and
creative development. DLJdirect spent $6.8 million in the fourth quarter of
1997 to launch the new brand name, "DLJdirect," and new products and services
including its redesigned Web site and access to DLJ Research and DLJ-managed
IPOs.

Occupancy and equipment increased $1.4 million or 70.0% to $3.4 million.
The increase in occupancy and equipment was due primarily to additional
equipment expenditures for increased staff from 174 to 283, a 62.6% increase.

Communications increased $1.3 million or 86.7% to $2.8 million. Quotation
expenses and expenses related to customer toll-free phone calls both increased
due to the growth of the business.

Technology costs decreased $123,000 or 2.5% to $5.1 million. Network
access fees paid to online service providers were $3.7 million in 1997 compared
to $4.4 million in 1996. Fees related to systems maintenance and support grew
to $1.4 million in 1997 from $800,000 in 1996 due to increased system capacity.

Other operating expenses increased $5.2 million or 92.9% to $10.8 million
and represented 16.1% of total revenues in 1997 and 8.8% of total revenues in
1996. The license fee expense, first paid in September 1997, was $1.2 million.

Professional fees increased $1.8 million or 112.5% to $3.4 million due to
increased expenditures for outside consultants and marketing services. Printing
and stationery increased $1.5 million or 250.0% to $2.1 million. In 1997
printing and stationery expenses were increased in conjunction with the
renaming of the service from PC Financial Network to DLJdirect which
necessitated the redesign and reprinting of all marketing materials and
customer correspondence stock. Economic and investment research expenses, first
incurred in the fourth quarter of 1997, were $307,000. Allocated corporate
overhead increased $730,000 or 62.4% to $1.9 million due primarily to expenses
related to the increased headcount. Miscellaneous expenses decreased $254,000
or 11.3% to $2.0 million.

Income before income tax provision decreased $19.4 million from $13.3
million in 1996 to a loss of $6.1 million in 1997. The (benefit) provision for
income taxes for 1996 and 1997 was $5.4 and $(2.5) million, respectively. This
represented a 40.9% effective tax rate for each period.

As a result of the foregoing factors, net income decreased to a net loss
of $3.6 million in 1997 from income of $7.9 million in 1996.

LIQUIDITY AND CAPITAL RESOURCES

The principal sources of liquidity for DLJdirect's operations have been
paid-in capital, leases of fixed assets through an affiliate and revenues from
operations. Capital contributions amounted to $10.5 million in 1997, $14.5
million in 1998 and $1.0 million for the three months ended March 31, 1999. The
value of equipment acquired through leases of fixed assets through an affiliate
totaled $5.3 million in 1997,

III-9
<PAGE>

$5.0 million in 1998 and $1.6 million for the three months ended March 31,
1999. These fixed assets were comprised primarily of computers and related
systems, furniture and leasehold improvements. DLJdirect generally leases its
fixed assets and therefore does not incur significant capital expenditures.

Although DLJdirect maintains substantial money market accounts and bank
accounts consistent with regulatory requirements, DLJdirect continues to be
substantially dependent on DLJ for almost all of its daily financial,
administrative and operational services and related support functions including
cash management, the receipt of payments from third parties and the
distribution of payments to third parties. In this connection, inter-company
receivables/payables are settled periodically through cash transfers to and
from DLJdirect's accounts. However, after the issuance of the DLJdirect common
stock, cash transfers from DLJ to DLJdirect will be revolving credit advances
unless the board of directors decides, in its sole discretion, to account for
such transfers as long-term loans or capital contributions. Donaldson, Lufkin &
Jenrette, Inc. is not obligated to advance any amounts to DLJdirect. See
"Certain Cash Management and Allocation Policies".

Applicable law and regulations require minimum levels of capital to be
maintained by DLJdirect Inc., the broker-dealer subsidiary of DLJdirect
Holdings Inc. Consequently, the cash balances of DLJdirect Inc. may not be
available as a source of liquidity to support other aspects of the business of
DLJdirect. The SEC's Net Capital Rules are the primary regulatory restrictions.
DLJdirect continually reviews the capital in its broker-dealer subsidiary to
ensure that it meets these regulatory requirements and can appropriately
support the anticipated capital needs of the business. DLJdirect's right to
participate in the assets of any subsidiary is also subject to prior claims of
the subsidiary's customers and other creditors.

Cash provided by (used in) operating activities totaled $(600,000) and
$2.0 million in 1997 and 1998, respectively. The increase from 1997 to 1998 was
primarily due to an increase in transaction volume related to growth in the
discount brokerage operations. In 1997, receivables from brokers, dealers and
others increased $1.9 million. This increase in assets was offset by increases
in operating liabilities including payables to parent/affiliates, net of $2.0
million and accounts payable and accrued expenses of $2.6 million. In 1998,
there were increased assets including receivables from brokers, dealers and
others of $1.2 million. These increases were offset by an increase in payables
to parent/affiliates, net of $2.2 million. Cash provided by operating
activities totalled $20.2 million for the three months ended March 31, 1999.

In 1997 and 1998, net cash provided by financing activities totaled $9.6
million and $14.5 million, respectively. In 1997 and 1998, respectively, $10.5
million and $14.5 million was provided by capital contributions from DLJ. In
1997, DLJdirect paid $900,000 to DLJ for the return of equity. For the three
months ended March 31, 1999 net cash provided by financing activities totalled
$1.0 million.

DLJdirect believes that the net proceeds from this offering (after paying
the note to an affiliate), together with its current cash, cash equivalents and
cash generated from operations will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures through at least the end of
2000.

YEAR 2000

DLJdirect has been actively engaged in addressing Year 2000 issues. Such
issues relate to potential problems resulting from non-Year 2000 compliant
systems processing transactions using two-digit date fields rather than four
digit date fields for the year of a transaction. 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 DLJdirect's business.

DLJdirect has undertaken a Year 2000 Project to identify and modify or
replace any non-Year 2000-compliant systems. The Year 2000 Project is focused
on both information technology and non-information technology systems. A
written Year 2000 Plan has been developed and DLJdirect believes it is taking
all steps necessary to achieve Year 2000 compliance.

DLJdirect has retained the services of three independent consulting firms
having considerable expertise in advising corporations on and remediating Year
2000 issues. The consultants were hired to address issues involving both
information and non-information technology systems.

III-10
<PAGE>

The current state of DLJdirect's Year 2000 Project is as follows:

In the case of information technology, DLJdirect's internal computer codes
have been identified, assessed and remediated. The converted codes have been
running successfully in the current systems environment. The codes are further
tested monthly to insure continuing Year 2000 compliance; this testing will be
maintained until a date after December 31, 1999. An independent consultant, PKS
Systems Integration LLC, was contracted by DLJ's Pershing Division to perform
further application code assessment and code conversion. PKS reviewed all code
and produced analysis reports for DLJdirect to review. DLJdirect then approved
the code for conversion, and DLJdirect and PKS converted the code which is
being used in production as described above.

DLJdirect defines "significant third parties" as those parties that, if
lost or degraded by Year 2000-related failure, would cause an immediate
stoppage or significant impairment to business areas of DLJdirect. DLJdirect
has identified all significant third parties, such as vendors, online partners
and facility operators, and has formally communicated with significant third
parties asking them to report their state of readiness for Year 2000 use. All
significant third parties have responded, and approximately 56% of the
significant third parties claim their products and/or services are currently
Year 2000 compliant. DLJdirect believes that the remaining 44% of significant
third parties will be Year 2000 compliant by August 31, 1999. DLJdirect intends
to have in place a Year 2000 compliant back-up provider for products or
services it deems still in question. All significant third parties have
provided assurances that they are taking necessary steps to be Year 2000
compliant. Pershing has informed DLJdirect that it is taking steps to be Year
2000 compliant by August 31, 1999.

DLJdirect reviews all significant third party responses and technical data
about their Year 2000 efforts published on their Web sites to determine its
comfort with such parties progress in addressing their Year 2000 issues.
DLJdirect also participates whenever possible in point-to-point tests (i.e.
tests in which data is sent from DLJdirect to the third party and/or is sent
from the third party to DLJdirect) to ensure the compatibility of significant
third party systems with those of DLJdirect. DLJdirect is evaluating the
possibility of obtaining alternate vendors for back-up service in cases where
point-to-point testing is unavailable or produces unacceptable results.

DLJdirect has in general not sought representations or warranties from
third parties about their products or services' abilities to handle the Year
2000 issue without error. It has sought direct statements about a product's or
service's readiness and has accepted in-progress status reports. Some third
parties have stated, with conditions, that their services and/or products are
Year 2000 compliant. DLJdirect believes that these statements are likely to be
actionable if a failure of the product or service occurs within the limits of
the conditions stated. However, DLJdirect's main focus has been on
participating in testing programs, including testing with significant third
parties, as a means to addressing Year 2000 issues. DLJdirect's conclusion,
based upon its review of significant third party response to date, is that
DLJdirect must continue to test significant third-party products and services
up to and beyond December 31, 1999 and alternate services and products
available, if necessary.

In the case of non-information technology systems, analysis and testing by
Carlson Design/Construct Corp. has started but has not yet been completed; the
tests will be followed by the remediation, replacement, or back-up of all
non-information technology systems in order to render DLJdirect's
non-information technology systems Year 2000 compliant. Electronic Data
Services ("EDS") was hired to perform non-compute assessment, inventory, and
certification of DLJdirect's non-information technology systems.

DLJdirect has initiated and is actively involved in various types of
testing, including the Securities Industry Association's industry-wide beta
testing and vendor-supplied business applications and equipment testing. For
each of the tests in which it has participated, DLJdirect has achieved
successful results. Throughout 1999, internal and external systems will
continue to be tested to ensure that all remediated systems remain compliant.
To date, DLJdirect has spent less than $1 million on the Year 2000-related
remediation of its sytems.

The Year 2000 issue includes many risks including the possibility that
DLJdirect's computer and non-information technology systems will fail.
DLJdirect cannot ensure that the schedule for compliance

III-11
<PAGE>

outlined above will be met or that the systems of other companies on which
DLJdirect depends will be converted in a timely manner. Due to this
uncertainty, DLJdirect is unable to determine whether the Year 2000 will have a
material impact on DLJdirect's business, results of operations or financial
condition.

DLJdirect's worst case Year 2000 scenario would involve the loss of the
most significant of DLJdirect's critical functions, their back-ups and
alternate service and product choices coupled with loss of access to most
physical locations. This scenario would include, but not be limited to,
substantial loss of utilities in all three of DLJdirect's physical facilities,
its clearing services, the exchanges and Depository Trust Company, and the
failure of most of DLJdirect's telephone, data, and Internet connections.
DLJdirect, however, continues to regard this scenario as being highly unlikely.
DLJdirect is requiring key employees to be on site before, during and after
December 31, 1999. DLJdirect has a written contingency plan that addresses a
significant portion of the above referenced scenarios.

PricewaterhouseCoopers was retained as an independent consultant to update
DLJdirect's Year 2000 Contingency plan. DLJdirect is taking steps to implement
PricewaterhouseCoopers' recommendations by December 31, 1999.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

DLJdirect's primary financial instruments are cash and cash equivalents.
This includes cash in banks and highly rated, liquid money market investments.
DLJdirect believes that such instruments are not subject to material potential
near-term losses in future earnings from reasonably possible near-term changes
in market rates or prices.

RECENT ACCOUNTING DEVELOPMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
requires all derivatives to be recognized in the statement of financial
condition at fair value. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999 and should be applied prospectively. The adoption of the
statement is not expected to have a material adverse effect on DLJdirect's
combined financial statements.

III-12
<PAGE>

BUSINESS OF DLJDIRECT

OVERVIEW

DLJdirect is a leading provider of online discount brokerage and related
investment services, offering customers automated securities order placement
and information and research capabilities through the Internet and online
service providers. DLJdirect's broad range of investment services is targeted
at self-directed, sophisticated online investors, who on average have higher
account balances than other online investors.

DLJdirect was one of the pioneers of online investing. DLJdirect started
in the online brokerage business in September 1988 under the name PC Financial
Network. In September 1997, PC Financial Network changed its name to DLJdirect
and relaunched its Internet site as DLJdirect
(www. DLJdirect.com). In its 10-year history, DLJdirect has frequently been
recognized as a high-quality provider of online brokerage services. Recent
industry awards include the following:

o Barron's 1999 Annual Survey of Online Brokers -- DLJdirect is rated the
number one online broker, based on criteria including trade execution,
reliability and range of services

o Gomez Advisors, Inc. -- DLJdirect was rated the number one overall
Internet broker for five of the last seven quarters, including the most
recent quarter

o TheStreet.com -- DLJdirect was selected the number one online broker for
reliability and ease of use in TheStreet.com's November 1998 reader survey

DLJdirect's investment services and products include:

o online order entry for stocks, options, mutual funds and U.S. Treasury
securities

o access to selected DLJ-managed initial public offerings and other
public equity offerings

o company and industry research from DLJ

o DLJdirect MarketSpeed (Trade Mark) , its proprietary software with
enhanced graphics and greater ease of use permitting DLJdirect's customers
to access DLJdirect's online services an average of five times faster than
other major Internet brokers

o stock and mutual fund evaluation tools, including its proprietary
StockScan (Trade Mark) for screening over 9,500 public companies and its
proprietary FundScan (Trade Mark) for analyzing over 7,000 mutual funds

o research and analysis from independent research organizations, including
Standard & Poor's, Zacks Investment Research Incorporated and Thomson
Investors Network

o daily market commentary from TheStreet.com and Briefing.com

DLJdirect has experienced rapid growth in recent years:

o revenues increased 75.4% from $67.2 million in 1997 to $117.9 million in
1998 and were $47.2 million during the first quarter of 1999

o the average number of trades executed each day increased 86.9% from 6,100
in 1997 to 11,400 in 1998 and was 20,200 during the first quarter of 1999

o customer assets increased 93.5% from $4.6 billion in 1997 to $8.9 billion
in 1998 and were $11.2 billion at March 31, 1999

The key elements of DLJdirect's strategy are as follows:

INCREASE PENETRATION OF DLJDIRECT'S TARGETED CUSTOMER BASE -- DLJdirect
focuses on self-directed, sophisticated online investors, who on average
maintain higher account balances than other online investors. DLJdirect
believes it can continue to attract targeted customers by:

III-13
<PAGE>

o building on the reputation of DLJ as a leading Wall Street firm,

o providing a wider range of DLJ financial products and services and

o maintaining high-quality investor service.

BUILD AND ENHANCE DLJDIRECT BRAND -- DLJdirect intends to increase the
awareness of the DLJdirect brand. As part of this strategy, DLJdirect plans
to increase significantly the amount it spends on marketing, from $25
million in 1998 to $65 million in 1999.

MAINTAIN LEADING TECHNOLOGY -- DLJdirect intends to upgrade its technology
continually to increase capacity, provide greater functionality and ease of
use and offer additional services.

CONTINUE TO BROADEN PRODUCT OFFERINGS -- While DLJdirect's primary products
and services will continue to be equity securities and mutual funds,
DLJdirect intends to broaden its offerings continually with additional
products and services offered by DLJ and its affiliated companies,
including AXA S.A., The Equitable Companies Incorporated, Alliance Capital
Management, L.P., DLJ Asset Management Group and The Sprout Group, as well
as unaffiliated financial services providers. DLJdirect also intends to
expand its relationships with online service and content providers to offer
additional products, including insurance, credit and mortgage products.

EXPAND ROLE AS AN INTERNET-BASED DISTRIBUTOR OF UNDERWRITTEN SECURITIES --
DLJdirect intends to increase its access to public offerings and use its
distribution capability by becoming an underwriter and manager of
securities offerings, including offerings that may not include DLJ.

EXPAND GLOBALLY -- DLJdirect intends to enter international markets
selectively, either directly or through alliances or joint ventures with
local partners. DLJdirect entered into a 10-year joint venture agreement
with Sumitomo Bank, the second largest bank in Japan, and expects to
commence operations in the UK during the second quarter of 1999.
DLJdirect's focus will be on large developed markets that permit it to
continue to capitalize on its relationship with DLJ, AXA and Equitable.

As used in this prospectus, the term "DLJdirect" does not represent a
separately incorporated entity but rather means those businesses, assets and
liabilities intended to represent Donaldson, Lufkin & Jenrette, Inc.'s online
discount brokerage and related investment services businesses.

INDUSTRY OVERVIEW

According to International Data Corporation, the total number of online
brokerage accounts has grown from a small number at the end of 1994 to 1.6
million at the end of 1996 and 3.7 million at the end of 1997. International
Data Corporation estimates that there were more than 6.4 million online
accounts at the end of 1998, representing $324.0 billion in assets and over
300,000 trades per day.

DLJdirect believes that the online brokerage industry is experiencing
rapid growth largely as a result of:

o the growing consumer acceptance of the Internet as a convenient, secure
and reliable method of conducting retail financial transactions;

o an increasing desire on the part of investors to take greater personal
control of their financial future;

o the lowering of commission prices for online brokerage transactions;

o an increasing amount of high-quality investment research and information
available on the Internet to assist investors in making their trading
decisions;

o the extensive media attention focused on the online brokerage industry;

o increasing interest by retail investors in purchasing individual stocks;
and

o a favorable investing environment.

III-14
<PAGE>

SERVICES AND PRODUCTS

DLJdirect's existing services and product offerings are described below:

Stock, Options, Mutual Fund and Fixed Income Trading

Customers can directly place orders to buy and sell Nasdaq and
exchange-listed securities, as well as equity and index options, mutual funds
and fixed income securities, through DLJdirect's automated order processing
system. System intelligence automatically checks the parameters of an order,
together with the customer's available cash balance and positions held, prior
to executing an order. All transaction and portfolio records are updated to
reflect trading activity. Buy and sell orders placed when the markets are
closed are automatically submitted prior to the next day's market opening.

To date, DLJdirect has the only online account application submission and
approval process in the industry. After an online credit check, credit-approved
customers may buy securities of up to $15,000 in value without first depositing
any money into their accounts. In all instances, however, customers are
required to pay for purchases or post margin as required by Regulation T and
the rules of the NYSE.

Orders to trade Nasdaq and exchange-listed securities constituted 89.1% of
DLJdirect's total customer orders in 1998 and 91.5% of DLJdirect's total
customer orders in the first quarter of 1999. DLJdirect supports a range of
order types, including market orders, limit orders (good-till-canceled or day),
stop orders and short sales. Customers placing orders can use DLJdirect's
equity research tool, StockScan (Trade Mark) , to search, screen and profile
over 9,500 stocks from approximately 100 different industries online. Customers
can customize screening criteria and identify investment opportunities.
DLJdirect also offers an investment tool which suggests an asset allocation
between different types of equity and fixed income investments based on the
customer's investment objectives, risk tolerance, investment time-frame, and
income requirements.

Customer orders to buy and sell options constituted 9.5% of DLJdirect's
total customer orders in 1998 and 7.3% of DLJdirect's total customer orders in
the first quarter of 1999. DLJdirect typically does not offer option trading
involving the writing of uncovered puts or calls or the establishment of option
spreads or straddles to the majority of its customer base. DLJdirect does
maintain a few accounts that have been approved for this type of trading after
taking into consideration the high equity level within the accounts as well as
the customers' trading experience and investment objectives.

Customer orders to buy and sell mutual funds comprised 1.3% of DLJdirect's
total customer orders in 1998 and 1.2% of DLJdirect's total customer orders in
the first quarter of 1999. Customers can use DLJdirect's mutual fund research
tool, FundScan (Trade Mark) , to search, screen and profile over 7,000 mutual
funds, over 850 of which are available without transaction fees. As with
StockScan (Trade Mark) , customers can customize screening criteria and
identify investment opportunities.

DLJdirect offers its customers the opportunity to buy and sell fixed
income investment products including government, municipal and corporate bonds,
commercial paper, unit investment trusts, certificates of deposit and
collateralized mortgage obligations. Some bond trades may be placed directly
via computer, but other fixed income transactions may only be effected by
speaking with an investor service representative. Fixed income transactions
currently comprise less than 1% of all of DLJdirect's trade executions.

Market Data and Financial Information

During trading hours, DLJdirect continuously receives a direct feed of
detailed quote data, market information and news. Customers can create
personalized lists of stocks, options and mutual funds for quick access to
current pricing information. DLJdirect provides its customers free real-time
quotes, including stocks, options, major market indices, most active issues,
and largest gainers and losers for the major exchanges. DLJdirect also offers
customers subscription access to real-time streaming quotes which allow them to
monitor stock prices as they fluctuate -- without having to reenter a stock
symbol or refresh the screen. Customers can also stay informed at a glance
using their own personal scrolling stock ticker. In addition, customers can
monitor stocks they own and stocks in their model portfolios as well as display

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news headlines from a variety of sources. Customers are alerted when there is
current news on an identified stock or when a stock has reached a pre-selected
price threshold. Through its alliances, DLJdirect also provides immediate
access to breaking news, charts, market commentary and analysis and company
financial information. DLJdirect's Web site provides links to other business
and financial Web sites, including access to SEC filings of public companies.

DLJ provides DLJdirect with exclusive online access to select DLJ research
products pursuant to a three year agreement effective as of April 28, 1999.
DLJdirect can provide access to this research to all accounts for a 60-day
trial period and thereafter to customers who qualify by maintaining at least
$100,000 in aggregate assets in their DLJdirect accounts. DLJ provides company
and industry reports, economic, global and market-related research as well as
DLJ's select list of recommended securities.

Portfolio Tracking and Records Management

Customers have online access to a listing of all their portfolio assets
held in their DLJdirect accounts. Customers using MarketSpeed (Trade Mark) may
receive a real-time listing of all their portfolio assets, including current
price and current market value. Detailed account balance and transaction
information includes cash and money fund balances, buying power, net market
value, dividends received, interest earned, deposits and withdrawals. Customers
can also create "model" portfolios to include most financial instruments a
customer is interested in tracking. These model portfolios can include stocks,
options, and most mutual funds. Customers also receive quarterly account and
annual tax statements and active customers receive monthly account statements
summarizing account activity, including asset valuation, transaction history,
interest income and distribution summary. DLJdirect's "Select Client Group"
customers (customers who meet minimum balance criteria) receive enhanced
statements including realized and unrealized gains on their investments.
DLJdirect's systems support the Open Financial Exchange (OFX) standard so that
customers may download their online account information into personal financial
software programs such as Intuit's Quicken 98 and 99, Microsoft's MSN
MoneyCentral Investor Portfolio, and Microsoft's Money 99.

Participation in Public Offerings

Customers maintaining accounts with aggregate assets of at least $100,000
have been eligible to gain access to IPOs managed by Donaldson, Lufkin &
Jenrette Securities Corporation since June 1997. Through April 20, 1999,
DLJdirect has participated in 38 DLJ-managed IPOs and two DLJ-managed
additional equity offerings. Prior to 1999, DLJdirect received a nominal fee
for distribution of IPO products but is now compensated as a regular member of
the selling group. DLJdirect intends to increase its staff and enhance its
capabilities in this area in response to increasing demand from retail
customers and from companies seeking electronic distribution of shares in their
own initial public offering.

DLJdirect is also looking to participate in selling groups for offerings
that may not be managed by DLJ. In addition, in April 1999, DLJdirect obtained
the necessary regulatory approvals to act as an underwriter of securities
offerings. DLJdirect may also consider in the future acting as an underwriter
for a broader array of securities offerings, including secondary equity
offerings, preferred stock offerings, and investment grade and high yield bond
offerings. DLJdirect intends to rely in large part upon DLJ investment banking
professionals in developing its underwriting capacity. DLJdirect believes that
relying upon DLJ as opposed to hiring and developing a complete investment
banking group internally will minimize costs, unless and until underwriting
volumes justify development of complete internal capacity.

Cash Management Services

DLJdirect offers several cash management options. Customers may
participate in an asset management account, AssetMasterSM, combining their
brokerage account with free check writing and access to a Gold MasterCard debit
card. DLJdirect also provides free check writing drawn against money market
funds, cash or margin balances. Funds in the AssetMasterSM and brokerage
checking accounts can be invested in one of 11 money market funds managed by
Alliance Capital Management, L.P. Customers may also earn interest on
uninvested funds by investing in a money market fund or participating in a
credit interest program.

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Mortgage Center

DLJdirect provides access to mortgage services for its customers through
an agreement with E-LOAN, Inc., an online mortgage broker. Users can take
advantage of efficient, easy-to-use tools to search for mortgage loan rates,
obtain customized quotes, compare loans and apply for a mortgage online. The
service operates through hyperlinks to the E-LOAN Web site.

Access and Delivery of Services

DLJdirect's services are widely accessible through multiple channels.

Personal Computer. Customers using personal computers can access DLJdirect
services and products through the Internet, online service providers, such as
America Online and Prodigy, or DLJdirect's proprietary Windows-based investing
software, DLJdirect MarketSpeed (Trade Mark) . The DLJdirect Web site combines
easy-to-use graphics with the trading capabilities, investing tools and
resources that sophisticated investors demand.

DLJdirect created its proprietary Windows-based investing software,
DLJdirect MarketSpeed (Trade Mark) , in order to enhance its customers'
experience with its Internet-based service. The software caches formatted data,
thus eliminating the need for constant Web page reloads, making DLJdirect
MarketSpeed (Trade Mark) an average of five times faster than other major Web
brokerage sites, according to Corporate Insight, Inc., an independent online
market research firm. Designed to be user-friendly, the software may be used
with real-time streaming quotes and market data by customers who qualify for
them by filling out an online application and agreeing to pay the exchange fees
for these quotes. The product enables DLJdirect's customers to use a variety of
customizable features and tools with better graphics and greater ease of use.

Touch-tone Telephone. TradeTalkSM, DLJdirect's touch-tone trading service,
provides customers with a convenient way to access quotes, place orders and
access portfolio information over toll-free lines from any touch-tone
telephone, 24 hours a day, 7 days a week.

Investor Services Telephone. DLJdirect's trading and investor service
centers may also be accessed 24 hours a day, 7 days a week, via a toll-free
telephone line staffed by licensed investor services representatives who will
take orders for securities transactions, and provide securities quotes, account
and portfolio information, customer service and technical support.

All orders placed via computer or interactive voice response are
automatically passed through system intelligence. This intelligence screens the
parameters of the order to ensure that DLJdirect can accept the order and route
it to the appropriate exchange or third party market maker.

TECHNOLOGY

DLJdirect maintains proprietary technology that automates traditionally
labor-intensive transactions. Because it was custom-tailored for electronic
marketplace use, the DLJdirect system provides customers with efficient service
and has the added advantage of being scalable and adaptable as usage increases
and service offerings are expanded.

DLJdirect also designs systems and software on a fee basis for DLJ and its
affiliates and, through them, for their customers. In addition, DLJdirect has
designed and developed Web sites for a number of leading financial
institutions. The technology group had 128 associates at March 31, 1999 who are
experienced in building easy-to-use, high performance, scalable systems and
have skills in a number of systems and programming technologies, including IBM
mainframe, Unix, Oracle, NT, C++, Java, and HTML. DLJdirect believes that there
is significant potential to exploit the technology developed by this group
commercially both through product sales and advisory services.

DLJdirect has built proprietary financial services engines that can
interface with many technologies within a variety of delivery platforms such as
AOL, Prodigy, PDAs (personal digital assistants, or palm top devices), screen
phones, and touch-tone telephones. DLJdirect has also used these engines to
provide

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services and build products for DLJ, AXA and Equitable and other financial
institutions such as registered investment advisors and full-service brokers.
The infrastructure and the software components to support DLJdirect have been
applied in other contexts to minimize the technological costs to DLJdirect.

The DLJdirect System

The primary components of DLJdirect include presentation layers,
middleware, application servers, system monitors, a compliance rules engine and
a customer server workstation.

Presentation Layer. The presentation layer provides DLJdirect with the
ability to offer its services on many platforms without the need to modify the
rest of its applications for each platform. Products using the presentation
layer include its Web site, DLJdirect MarketSpeed (Trade Mark) , FundScan
(Trade Mark) , StockScan (Trade Mark) and TradeTalkSM.

Middleware. DLJdirect's middleware connects all of the different
components of the environment and establishes language among the different
components. DLJdirect's proprietary technology allows these components to
function in different languages, hardware platforms and protocols. By load
balancing among different instances of the same component providing a specific
service, DLJdirect's middleware allows more reliability and makes the systems
environment more scalable. This technology also makes it easier for DLJdirect
to add capacity and maintain servers.

Application Servers. These servers provide DLJdirect's various services
and are optimized for each specific service. They can be configured in the same
machine, across multiple machines, or machines in multiple locations.

System Monitor. The system monitor is an expert system that monitors all
the different components every few minutes to make sure all are working
correctly. If it finds a problem, it can alert the appropriate DLJdirect
personnel and can, if possible, take actions to rectify the problem
automatically.

Compliance Rules Engine. The rules engine makes it possible to route
orders to the exchanges and market makers, and to approve accounts online
automatically without manual intervention.

Investor Service Workstation. The investor service workstation platform
provides the ability to process exceptions and answer e-mail effectively and
provides integrated access to information about customers and market data.

DLJdirect is making significant investments in systems technology and has
established technology centers in Jersey City, New Jersey, and, through its
relationship with an affiliate, in Florham Park, New Jersey. DLJdirect also
maintains three investor service centers in Jersey City and Parsippany, New
Jersey, and Charlotte, North Carolina. These facilities support systems,
network services, trading, investor services and backup capabilities between
the multiple locations. DLJdirect is currently implementing fully redundant
technology centers which are expected to be operational in the third quarter of
1999. To provide for system continuity during potential outages, DLJdirect also
has equipped its computer facilities with uninterruptible power supply units,
as well as back-up generators.

A significant risk to online commerce and communication is the insecure
transmission of confidential information over public networks. DLJdirect relies
on encryption and authentication technology, including public key cryptography
technology licensed from RSA Data Security and Netscape Communications
Corporation, to provide the security and authentication necessary to effect
secure transmission of confidential information. Features ranging from
firewalls to routers and servers are used in many layers to prevent
unauthorized access.

MARKETING

DLJdirect's marketing strategy is based on an integrated marketing model
which employs a mix of communications media. The goals of DLJdirect's marketing
programs are to increase its brand name recognition, attract new customers,
increase the retention and value of existing customers, and activate currently
inactive accounts. In particular, its brand strategy strives to communicate a
consistent message

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to consumers through multiple marketing venues. DLJdirect pursues its marketing
goals through advertising, marketing on its own and other Web sites, direct
one-on-one marketing, public relations, and co-marketing programs.

DLJdirect targets its services at the self-directed, sophisticated
investor who currently has an account with a full-service broker. The DLJdirect
target investor generally has online access either at home or at the workplace
and tends to track portfolio performances online. DLJdirect believes that its
targeted investors value the types of services and benefits that DLJdirect has
to offer, such as access to DLJ research reports and DLJ-managed public
offerings.

Advertising

DLJdirect's advertising focuses on building awareness of the DLJdirect
brand, products and services and positions DLJdirect as a better way of
executing securities transactions, accessing financial and market data, and
managing portfolios for the individual investor. Print advertisements are
placed in a broad range of business, technology and financial publications,
including Barron's, Forbes, Forbes ASAP, Investor's Business Daily, Money,
Smart Money, The Wall Street Journal and Fortune. DLJdirect also advertises
regularly on national cable and television networks such as CNBC, CNN Headline
News, CNNfn and on national radio networks including National Public Radio.
DLJdirect also advertises online on the America Online service and on sites
such as MSN.com, CBS.MarketWatch.com and TheStreet.com. Through the DLJdirect
Web site, prospective customers can get detailed information on DLJdirect's
services, use an interactive demonstration system, request additional
information and complete an account application online.

STRATEGIC RELATIONSHIPS

DLJdirect pursues strategic relationships to increase its access to online
consumers, build brand name recognition and expand the products and services
DLJdirect can provide to its online investors.

CORE BUSINESS EXPANSION

DLJdirect has secured or is actively pursuing alliances with (1) Internet
access and service providers, (2) Internet content providers, (3) providers of
online banking services, and (4) electronic commerce companies. These alliances
are intended to increase DLJdirect's core customer base, transaction volume and
operational efficiency and to enhance further its brand name recognition. While
a majority of DLJdirect's customers access its services directly through the
Internet, direct modem access or touch-tone telephone, many use online service
providers, such as America Online and Prodigy. Strategic relationships with
service providers allow DLJdirect to access a greater number of potential
customers and allow the online service providers to offer their subscribers a
broader range of service options. DLJdirect's partnerships with leading content
providers fulfill customers' information needs and help drive transaction
volume.

NEW ACCOUNT DEVELOPMENT AND DISTRIBUTION

DLJdirect has developed alliances with key online services and popular Web
sites to increase account development and expand distribution. These include
proprietary online services, Internet service providers, search engines and
financial content providers. They attract significant numbers of users, and
DLJdirect's relationships provide access to expanded market opportunities. Set
forth below are descriptions of several of DLJdirect's key alliances:

America Online. In 1995, DLJdirect entered into a business relationship
with America Online ("AOL"), a provider of Internet access and content that
allows access to DLJdirect's Web site from the AOL Personal Finance channel.
DLJdirect is one of four exclusive brokerage sponsors of that channel and the
only online brokerage firm to build a customized platform within AOL's
proprietary Remote Managed Gateway technology. The agreement with AOL provides
for extensive marketing and promotional programs across AOL properties.

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Prodigy. DLJdirect has had a business relationship with Prodigy
Communications, Inc., a provider of Internet access and content, since 1988.
Currently, DLJdirect maintains a presence on the Prodigy Classic service,
acting as an information and transaction provider. DLJdirect advertises on
Prodigy Internet, including a position on its home page, to market its
financial services to Prodigy's approximately 500,000 users. DLJdirect's
Prodigy Classic service will terminate in the third quarter of 1999 and
DLJdirect intends to encourage customers to adopt other means of access.

MSN.com. DLJdirect has developed a number of key relationships with
Microsoft Corporation that are designed to promote DLJdirect's online investing
services on the Microsoft Network. In January 1999, DLJdirect entered into a
one-year advertising agreement, pursuant to which MSN.com provides for
advertising of DLJdirect's brokerage services on the MSN Web site and for a
direct link to DLJdirect's Web site. DLJdirect is one of three exclusive broker
participants in the "MSN Broker Package."

TheStreet.com. In 1997, DLJdirect entered into an agreement with
TheStreet.com, an Internet site which provides financial news and commentary.
Pursuant to the agreement, DLJdirect displays TheStreet.com's market report
titles on its Internet sites, AOL site, and MarketSpeed (Trade Mark) software,
through which DLJdirect users can link directly to The Street.com's Web site
containing the full text of market reports. In return, TheStreet.com offers
DLJdirect's account holders discounted subscriptions for its Internet services.

MarketWatch.com. DLJdirect has entered into an agreement with
MarketWatch.com, Inc., a leading Web-based provider of real-time business news,
financial programming and financial analysis tools. The agreement provides for
a direct link to DLJdirect's Web site from MarketWatch.com, Inc. and
advertising on both MarketWatch.com, Inc. and the CBS television network.

CONTENT

Content such as news, quotes, charts and fundamental data helps provide
investors with the information necessary to make investment decisions.
DLJdirect believes that these information services fulfill customers'
information needs, facilitate new ideas and increase transaction volume.

Bridge Information Systems America. Bridge Information Systems America,
Inc. (formerly Telesphere Corporation) provides DLJdirect with delayed and
real-time quotes on U.S. securities.

Business Wire. Business Wire provides DLJdirect with company press
releases for use on its Web site.

Charter Media/Briefing.Com. Charter Media/Briefing.Com provides DLJdirect
with daily financial data, reports, and services which support its online
market commentary and stock analysis areas.

ILX Systems. Through one of its affiliates, DLJdirect has a relationship
with ILX Systems, Inc. to provide real-time quotes on U. S. securities.

Iverson Financial Systems. Iverson Financial Systems Inc. provides
DLJdirect with securities data that support its online historical indices and
historical charts areas.

Lipper. Lipper Inc. provides DLJdirect with quarterly and monthly mutual
fund data.

PR Newswire. PR Newswire Association, Inc. provides DLJdirect with company
press releases for use on its Web site.

Reuters NewMedia. DLJdirect has an agreement with Reuters NewMedia, Inc.
to provide Reuters news on DLJdirect's Web site.

Standard & Poor's. Standard & Poor's provides DLJdirect with securities
data and reports.

Thomson Investors Network. Thomson Investors Network provides DLJdirect
with securities data regarding insider/institutional holdings and insider
trading along with financial commentary and analysis.

Zacks Investment Research. Zacks Investment Research Incorporated provides
DLJdirect with securities research data.

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INTERNATIONAL

DLJdirect intends to enter international markets selectively, either
directly or through alliances or joint ventures with local partners.
DLJdirect's focus will be on large developed markets that permit it to
capitalize on its relationship with DLJ and AXA.

DLJdirect Japan. In March 1999, DLJdirect entered into a 10-year joint
venture agreement with Sumitomo Bank, the second largest bank in Japan.
Pursuant to the agreement, a Japanese corporation ("DLJdirect SFG Securities
Inc.") was formed, and it commenced operations as of April 1, 1999. DLJdirect
has a 50% interest in the joint venture and in DLJdirect Japan.

Through DLJdirect Japan, DLJdirect intends to offer online discount
brokerage, including securities trading, investment trusts and money market
funds to Japanese investors. DLJdirect Japan is initially expected to provide
investors with the ability to invest in Japanese securities. However, over the
longer term DLJdirect expects to offer Japanese investors access to U.S.
securities, including investment products offered by DLJ and its affiliates.
DLJdirect Japan initially will be capitalized with an aggregate of
approximately -3 billion (estimated to be $25 million at March 12, 1999) from
the member companies.

DLJdirect UK. DLJdirect expects that its online UK discount brokerage
service ("DLJdirect UK") will begin operations in the second quarter of 1999.
DLJdirect UK has contracted with an affiliate, Pershing Securities Limited, for
execution and clearing services. DLJdirect UK intends initially to provide
investors with the ability to invest in UK equities. Additional UK financial
products are expected to be added later. Over the longer term, DLJdirect UK
intends to offer UK investors access to U.S. and continental European
securities as well, including investment products offered by DLJ and its
affiliates.

Other. Outside of the UK and Japan, DLJdirect is exploring alliance and
joint venture opportunities in a number of key international markets, including
Australia, Belgium, Canada, France, Germany, Hong Kong, Israel, Italy, Korea,
South Africa and Taiwan.

SERVICES TO INVESTMENT ADVISORS

DLJdirect believes that a market for its services exists among registered
investment advisors who seek online access to the securities markets in order
to execute transactions for client accounts. DLJdirect intends to explore this
business opportunity in the future by either

o building the capacity itself;

o purchasing it from an affiliate of DLJ; or

o purchasing it from a third party.

The registered investment advisor services business is extremely competitive
and there can be no assurance that entry by DLJdirect, if undertaken at all,
will be successful.

CUSTOMER SERVICE

DLJdirect believes that providing excellent service to its customers is
crucial to its success. DLJdirect believes that it has achieved an excellent
record of effective investor service. DLJdirect's investor service team helps
investors access its service online, handles product and service inquiries, and
deals with all brokerage and technical questions. Investor service
representatives assist investors in placing trades both online and by
telephone. At any time of the day or night, investors may access their accounts
and make investment decisions even when they are away from their PCs.

DLJdirect is highly dependent on Internet-based technologies and services,
and DLJdirect has from time to time experienced significant interruptions in
these technologies and services which have adversely affected overall investor
service. The extremely high trading volumes of 1998 and to date in 1999
continue to challenge DLJdirect's investor service capacity. DLJdirect has on
occasion fallen short of its target response time for investor service calls
and e-mails, especially during peak trading hours. See "Risk Factors -- System
limitations and failures could harm DLJdirect's business".

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Telephone and E-mail Support and Technology

Telephone support is available 24 hours a day, 7 days a week, and
currently there are no additional fees charged to investors for this service.
DLJdirect maintains toll-free 800 numbers, and callers may request to speak
with investor service representatives on either a trading team or an investor
service team, or choose to use DLJdirect's proprietary interactive voice
response system, TradeTalkSM. DLJdirect's trained investor service
representatives are based in three state-of-the art investor service centers in
Jersey City and Parsippany, New Jersey, and Charlotte, North Carolina. The
geographic distribution of the investor service centers helps to minimize the
risk that telecommunications or other technology failures, or weather-related
or other natural or man-made disasters will interfere with the investor's rapid
access to an investor service representative. At April 1, 1999, 288
representatives made up DLJdirect's investor service team, and DLJdirect plans
to expand this number to 800 by the end of 1999.

The telephone systems in all three investor service centers are
state-of-the-art and designed along "open architecture" lines that permit
continual upgrades of both hardware and software with a minimum of disruption
and expense. New releases of both programs and equipment are integrated into
the investor service line only after adequate testing and training to insure
continuity of operations. DLJdirect's TradeTalkSM currently handles
approximately 50% of incoming calls and thus greatly reduces the volume of
calls which must be handled by representatives. This in turn reduces wait times
during high volume trading hours and helps to reduce overall investor service
costs. Investors can get their account balances, check on order status, get
delayed securities quotes, and place trades through this automated system.

Among the advanced features of DLJdirect's Automated Call Distribution
system is skill-based routing, which allows investors to follow telephone
prompts which then route their calls to the investor service team which
specializes in the appropriate area. The quality of service is thus improved,
as the investor is more likely to receive help from a representative who has
the particular expertise required to handle each individual call. The ACD
system also automatically produces routing and management reports that aid
supervisors in optimizing the efficiency of their manpower allocations.

Electronic mail is the other principal method of providing investor
support. All investor service representatives are trained to respond to
investor requests using both pre-composed and original e-mails. Further,
DLJdirect has installed an enhanced state-of-the-art automated e-mail response
system, to be fully operational by May 1999, which will save on personnel costs
and improve response times. The enhanced system will respond to many types of
customer investor e-mails with a high degree of accuracy and appropriateness.
As an important safeguard, all e-mail responses, whether generated by the
automated system or an investor service representative, will be reviewed by an
investor service manager, as is done under DLJdirect's current, non-automated
e-mail protocols. By the end of 1999, DLJdirect expects that the enhanced
automated system will respond to all e-mails routed through it promptly but in
any event within 12 hours, and that a significant percentage of all customer
e-mails will be handled entirely by the automated system.

Personnel and Training

DLJdirect believes that a key component of an efficient and motivated
investor service team is its training. It is committed to providing the best
available training to its investor service representatives in an ongoing
program that focuses on career development and therefore aids in the retention
of skilled and motivated personnel.

New investor service employees take a 3-month initial course that trains
them in DLJdirect's products, services, and policies. All investor service
representatives are required to be appropriately licensed or to enter
DLJdirect-sponsored training to receive that license. Both the team members and
their supervisors receive continuing training to enable them to become
qualified in specialized areas, such as Select Client Services, Customer
Retention and IRA accounts. In 1998, DLJdirect implemented a mandatory training
program for all investor service representatives, under which DLJdirect staff
must attend a minimum of 20 hours of DLJdirect-sponsored training programs per
year in customer service, securities, and technology subjects.

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Investor service managers silently monitor investor service calls and
remotely monitor investor service e-mails as a means of improving training and
customer satisfaction. All investor service representatives undergo both
monthly and annual performance reviews which gauge their knowledge of
DLJdirect's products and services, their level of teamwork, their work ethic
and personal objectives, and above all their ability to deliver customer
satisfaction. DLJdirect pays performance-based bonuses that reflect training
evaluations and performance reviews.

DLJdirect has experienced periods of staffing shortages in various areas
within its investor service team, along with substandard performance on the
part of individual investor service representatives. Given the current
extremely high levels of competition to hire competent personnel within the
U.S. brokerage, online, and financial services industry sectors, absent a
strong and sustained effort on DLJdirect's part to identify, hire, train, and
retain the best available people for its investor service operations, there
exists substantial risk to DLJdirect's ability to maintain and increase its
overall business. See "Risk Factors -- DLJdirect depends on key personnel".

OPERATIONS

Clearing

DLJdirect is an introducing broker-dealer, clearing through the Pershing
Division of DLJ on a fully disclosed basis. Pershing and its affiliates provide
execution and clearance services for equities, options, corporate bonds,
municipal bonds, treasury bonds, government agency bonds, precious metals,
mortgage backed bonds, mutual funds and unit investment trusts. In addition,
Pershing provides certain record keeping and operational services, including
custody of securities and cash balances settlement of securities transactions
and custody of securities and cash balances. Pershing receives and delivers
cash and securities for accounts and records such receipts and deliveries
according to information provided by DLJdirect. Pershing holds in custody
securities and cash received for accounts, collects and disburses dividends and
interest, and processes reorganization and voting instructions with respect to
securities held in custody. Pershing is responsible for the custody of the
funds and securities only after Pershing obtains physical possession or control
thereof. Pershing also prepares and transmits to customers confirmations of
trades and periodic account statements summarizing transactions processed for
accounts.

The services provided by Pershing are governed by a clearing agreement
dated as of September 24, 1997, as amended. DLJdirect has general
responsibility for servicing and supervising securities accounts through its
own personnel in accordance with its own policies and applicable laws and
regulations. DLJdirect is also responsible for approving the opening of
customer accounts and obtaining necessary account documentation. DLJdirect is
in general responsible for the ongoing relationship that it has with customers.
The clearing agreement also provides for the payment of a license fee. The
trademark license fee included in the clearing fee does not include the use of
certain trademarks in certain foreign jurisdictions, the use of which will be
negotiated on a case by case basis.

Margin Lending

At the request of DLJdirect, Pershing makes loans to customers
collateralized by customer securities. Pershing extends credit for the margin
accounts of DLJdirect, and notifies DLJdirect of initial and maintenance margin
calls. If DLJdirect opens a margin account for a customer, Pershing will loan
money for the purpose of purchasing or holding securities subject to the terms
of Pershing's Margin Agreement and Pershing's margin policies and applicable
margin regulations. DLJdirect is responsible for obtaining the initial margin
as required by Regulation T. Thereafter, Pershing will calculate the amount of
maintenance margin required. Pershing advises the customer of those
requirements, usually through DLJdirect, and calculates the interest charged on
the debit balance, if any. Pershing charges customer accounts the margin
interest and repays DLJdirect a portion of the interest collected. DLJdirect
receives from Pershing a portion of the financial benefits arising from free
credit balances in customer accounts.

In permitting customers to purchase securities on margin, DLJdirect takes
the risk of a market decline that could reduce the value of the collateral held
to below the customers' indebtedness before the

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<PAGE>

collateral can be sold, which could result in losses to DLJdirect. In the event
of a decline in the market value of the securities in a margin account, the
customer is required to deposit additional securities or cash in the account so
that at all times the customer's equity in the account is at least 25% of the
value of the securities in the account. DLJdirect may impose initial and
maintenance margin requirements for specific securities.

SECURITIES LENDING AND BORROWING

In connection with the margin and short account activities of customers of
DLJdirect, Pershing borrows securities both to cover short sales and to
complete customer transactions in the event a customer fails to deliver
securities by the required settlement date. Pershing collateralizes these
borrowings by depositing cash or securities with the lender and receives a
rebate calculated to yield a negotiated rate of return. When lending
securities, Pershing receives cash or securities and generally pays a rebate to
the other party in the transaction at a rate calculated to yield a negotiated
return. Securities lending and borrowing transactions are executed pursuant to
written agreements with counterparties that require that the securities
borrowed be "marked-to-market" on a daily basis and that excess collateral be
refunded or that additional collateral be furnished in the event of changes in
the market value of the securities. The securities usually are
"marked-to-market" on a daily basis through the facilities of the various
national clearing organizations. Pershing pays DLJdirect a portion of the
rebate interest or fees earned in these activities relating to customers of
DLJdirect.

RELATIONSHIP WITH DLJ

DLJdirect will be operated as a separate company from DLJ. However, as a
result of DLJdirect's extensive business relationships with DLJ, conflicts of
interest are likely to develop between DLJdirect and DLJ or its affiliates.
Although DLJdirect has its own management team, the senior officers of
DLJdirect ultimately report to the management of DLJ. In addition, the board of
directors of Donaldson, Lufkin & Jenrette, Inc. will in general make
operational and financial decisions and implement policies that affect the
business of both DLJ and DLJdirect. In some cases these decisions may favor DLJ
to the detriment of DLJdirect. The board of directors of Donaldson, Lufkin &
Jenrette, Inc. is primarily composed of directors and/or executive officers of
DLJ and its affiliates and does not include any members of the management of
DLJdirect.

The board of directors of DLJ has adopted certain cash management and
allocations policies with respect to intercompany transfers and other
allocations between DLJ and DLJdirect. DLJdirect will in general remit its cash
receipts to DLJ, and DLJ will in general fund DLJdirect's cash disbursements on
a daily basis. See "Certain Cash Management and Allocation Policies".

Prior to the consummation of this offering, DLJ intends to reconstitute
the board of directors of DLJdirect Holdings Inc. ("Holdings"), the corporate
entity that currently owns a substantial majority of the assets of DLJdirect.
Shortly after the consummation of the offering, DLJ intends to add two outside
directors the board of directors of DLJdirect Holdings, Inc. DLJ's current
intent is to submit all significant transactions, including significant
"intercompany" transactions between DLJ and DLJdirect, for approval by the
board of directors of Holdings. The decisions of the board of both DLJ and
Holdings would be subject to the board of directors general fiduciary duty.
However, there can be no assurance that transactions between DLJdirect and DLJ
could not be effected on more favorable terms with unaffiliated, third parties.

COMPETITION

The market for online investing services, particularly over the Internet,
is new, rapidly evolving and intensely competitive, and DLJdirect expects
competition to continue to intensify in the future. DLJdirect encounters direct
competition from discount brokerage firms providing either touch-tone telephone
or online investing services, or both. These competitors include Ameritrade,
Inc.; Charles Schwab & Co., Inc.; Datek Online; Discover Brokerage Direct,
Inc.; E*TRADE Securities, Inc.; Fidelity Brokerage Services, Inc.; Quick &
Reilly, Inc.; and Waterhouse Securities, Inc. It also encounters competition
from

III-24
<PAGE>

established full-commission brokerage firms, such as Merrill Lynch, Pierce,
Fenner & Smith Incorporated and PaineWebber Incorporated, among others. In
addition, DLJdirect competes with financial institutions, mutual fund sponsors
and other organizations, some of which provide online investing services.

DLJdirect believes that the principal competitive factors affecting the
market for its transaction-enabling services are service, quality, cost,
execution, delivery platform capabilities, ease of use, graphical user
interface look and feel, depth and breadth of services and content, financial
strength and innovation. Based on research conducted with both customer and
non-customer focus groups and the level of activity DLJdirect continues to
experience, DLJdirect believes that it presently competes favorably with
respect to each of these factors.

Some of DLJdirect's competitors have significantly greater financial,
technical, marketing and other resources than DLJdirect thereby gaining market
share to DLJdirect's detriment. Some current and potential competitors also
have greater name recognition and more extensive customer bases. Additionally,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share.

The general financial success of companies within the online securities
industry over the past several years has strengthened existing competitors.
Management believes that this success will continue to attract new competitors
to the online securities industry such as banks, software development
companies, insurance companies, providers of online financial and information
services and others, as such companies expand their product lines. The current
trend toward consolidation in the commercial banking industry could further
increase competition in all aspects of DLJdirect's business. While it is not
possible to predict the type and extent of competitive services that commercial
banks and other financial institutions ultimately may offer or whether
administrative or legislative barriers will be repealed or modified, firms such
as DLJdirect may be adversely affected by competition or legislation. In
addition, competition among financial services firms exists for experienced
technical and other personnel.

There can be no assurance that DLJdirect will be able to compete
effectively with current or future competitors or that the competitive
pressures faced by it will not have a material adverse effect on its business,
financial condition and operating results.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

DLJdirect holds significant value in its proprietary products and services
and its right to use certain marks. DLJdirect's proprietary products and
services and the marks it has contracted to use include: DLJdirect (Trade
Mark) , FundCenter (Registered Trademark) , FundScan (Trade Mark) , MarketSpeed
(Trade Mark) , StockScan (Trade Mark) , TradeTalkSM, TradeUpSM, and
www.DLJdirect.com (Trade Mark) .

DLJdirect's success and ability to compete are dependent to a significant
degree on its proprietary technology. DLJdirect relies primarily on copyright,
trade secret and trademark law to protect its technology. Effective trademark
protection may not be available for its trademarks. DLJdirect does not own but
licenses certain material marks from DLJ Long Term Investment Corporation which
has obtained, or is seeking to obtain, registration protection for those marks
in the United States. In addition, DLJ Long Term Investment Corporation is in
the process of registering the DLJdirect mark in 35 countries worldwide. Its
inability to protect DLJdirect's name adequately would have a material adverse
effect on DLJdirect's business, financial condition and operating results.

DLJdirect's proprietary software is protected both as a trade secret and
as a copyrighted work. DLJdirect's policy is to enter into confidentiality and
assignment agreements with its associates, consultants and vendors and
generally to control access to, and distribution of, its software,
documentation and other proprietary information. Notwithstanding the
precautions taken by DLJdirect it may be possible for a third party to copy or
otherwise obtain and use its software or other proprietary information without
authorization or to develop similar software independently. The laws of other
countries may afford DLJdirect little or no effective protection of its
intellectual property. The inability of DLJdirect to protect its intellectual
property rights could have a material adverse effect on its business, financial
condition and operating results.

III-25
<PAGE>

DLJdirect may in the future receive notices of claims of infringement of
other parties' proprietary rights. Any claims, with or without merit, could be
time-consuming to defend, result in costly litigation, divert management's
attention and resources or require DLJdirect to enter into additional royalty
or licensing agreements. There can be no assurance that other licenses would be
available on reasonable terms, if at all, and the assertion or prosecution of
any claims could have a material adverse effect on DLJdirect's business,
financial condition and operating results.

GOVERNMENT REGULATION; NET CAPITAL REQUIREMENTS

Securities Industry

The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The SEC is the federal agency
responsible for the administration of the federal securities laws. DLJdirect
Inc. is registered as a broker-dealer with the SEC. Much of the regulation of
broker-dealers has been delegated to self-regulatory organizations ("SROs"),
principally the NASD, which has been designated by the SEC as DLJdirect Inc.'s
primary SRO. These self-regulatory organizations adopt rules, subject to
approval by the SEC, that govern the industry and conduct periodic examinations
of DLJdirect's operations. Securities firms are also subject to regulation by
state securities administrators in those states in which they conduct business.
DLJdirect Inc. is registered as a broker-dealer in all 50 states, and the
District of Columbia.

Broker-dealers are subject to regulations covering all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital
structure, record keeping and the conduct of directors, officers and employees.
DLJdirect is required, directly or indirectly, to comply with many complex laws
and rules, including rules relating to possession and control of customer funds
and securities, margin lending and execution and settlement of transactions.
Additional legislation, changes in rules promulgated by the SEC, the NASD, the
Board of Governors of the Federal Reserve System, the various stock exchanges,
and other self-regulatory organizations, or change in the interpretation or
enforcement of existing laws and rules, may directly affect the mode of
operation and profitability of broker-dealers. The SEC, the NASD or other
self-regulatory organizations and state securities commissions may conduct
administrative proceedings, which can result in censure, fine, the issuance of
cease-and-desist orders or the suspension or expulsion of a broker-dealer or
any of its officers or employees. DLJdirect's ability to comply with all
applicable laws and rules is dependent in large part upon the maintenance of a
compliance system reasonably designed to ensure compliance. The principal
purpose of regulation and discipline of broker-dealers is the protection of
customers and the securities markets, rather than protection of creditors and
shareholders of broker-dealers. In addition, because the use of the Internet to
provide online investing services is relatively new, regulatory standards are
evolving. As a result, DLJdirect may, in the future, become subject to
additional regulation in the United States and in international jurisdictions.

DLJdirect and DLJ are members of Securities Investor Protection
Corporation ("SIPC"), which provides, in the event of the liquidation of a
member, protection for customers' assets held by the member of up to $500,000
for each customer account, subject to a limitation of $100,000 for claims for
cash balances. In addition, Pershing has purchased and provides to customers of
DLJdirect unlimited excess SIPC coverage for securities only so that the entire
value of securities in each customer account is protected. This excess SIPC
insurance is provided by Asset Guaranty Insurance Company of New York, New
York.

DLJdirect has initiated an aggressive marketing campaign designed to bring
brand name recognition to DLJdirect. Its marketing activities are principally
subject to regulation by the NASD. DLJdirect does not currently solicit orders
from its customers or make investment recommendations, although it does make
available DLJ and other third-party research and information services. However,
if it were to engage in these activities, it would become subject to additional
rules and regulations governing, among other things, the suitability of
recommendations to customers and sales practices. Further, the NASD or state
securities authorities may seek to expand the situations in which suitability
requirements are applicable to electronic brokers, even in the absence of any
recommendations.

III-26
<PAGE>

It is DLJdirect's intent to expand its business in United States
securities to other countries through the Internet and other gateways. In order
to expand its services globally, it must comply with the regulatory controls of
each specific country in which it conducts business. The varying compliance
requirements of other national regulatory jurisdictions may impose a limit to
its rate of international expansion.

Net Capital Requirements

As a registered broker-dealer and member of the NASD, DLJdirect Inc. is
subject to the SEC's Net Capital Rule. The Net Capital Rule, which specifies
minimum net capital requirements for registered broker-dealers, is designed to
measure the general financial integrity and liquidity of a broker-dealer and
requires that at least a minimum part of its assets be kept in relatively
liquid form.

DLJdirect has elected to compute net capital under the alternative method
of calculation permitted by the Net Capital Rule. Under the alternative method,
DLJdirect is required to maintain minimum net capital, as defined in the Net
Capital Rule, equal to the greater of $250,000 or 2% of the amount of its
"aggregate debit items" computed in accordance with the Formula for
Determination of Reserve Requirements for Brokers and Dealers. Failure to
maintain the required net capital may subject a firm to suspension or
revocation of registration by the SEC and suspension or expulsion by the NASD
and other regulatory bodies and ultimately could require a firm's liquidation.
The Net Capital Rule prohibits payments of dividends, redemption of stock, the
prepayment of subordinated indebtedness, and the making of any unsecured
advance or loan to a shareholder, employee of affiliate, if aggregate debit
items rise beyond 5% of net capital. The Net Capital Rule also provides that
the SEC may restrict, for up to 20 business days, any withdrawal of equity
capital, or unsecured loans or advances to shareholders, employees or
affiliates ("capital withdrawal") if such capital withdrawal, together with all
other net capital withdrawals during a 30-day period, exceeds 30% of excess net
capital and the SEC concludes that the capital withdrawal may be detrimental to
the financial integrity of the broker-dealer.

Net capital is essentially defined as net worth (assets minus
liabilities), plus qualifying subordinated borrowings and certain discretionary
liabilities, less certain mandatory deductions that result from excluding
assets that are not readily convertible into cash and from valuing
conservatively certain other assets. Among these deductions are adjustments
(called "haircuts") which reflect the possibility of a decline in the market
value of an asset prior to its disposition.

A change in the Net Capital Rule, the imposition of new rules or any
unusually large charge against net capital could limit those operations of
DLJdirect that require the intensive use of capital, and could restrict its
ability to withdraw capital from its brokerage subsidiaries, which could limit
its ability to pay dividends, repay debt and redeem or purchase shares of its
outstanding stock.

As of March 31, 1999, DLJdirect was required to maintain minimum net
capital of $250,000 and had total net capital of approximately $26.6 million.

Electronic Commerce

DLJdirect anticipates that it may be subject to additional record keeping,
data processing and other regulatory requirements as a result of proposed
federal legislation or otherwise, and it may be subject to additional
regulation as the market for online commerce evolves. Because of the growth in
the electronic commerce market, Congress has held hearings on whether to
regulate providers of services and transactions in the electronic commerce
market, and federal or state authorities could enact laws, rules or regulations
affecting DLJdirect's business or operations. DLJdirect also may be subject to
federal, state and foreign money transmitter laws and state, local and foreign
income, sales or other taxes. If enacted or deemed applicable to DLJdirect,
such laws, rules or regulations could be imposed on its activities or its
business.

Due to the increasing popularity of the Internet, it is possible that laws
and regulations may be enacted with respect to the Internet, covering issues
such as user privacy and the pricing, content and quality of products and
services. The Telecommunications Act of 1996, which was enacted in Janu-

III-27
<PAGE>

ary 1996, prohibits the transmission over the Internet of certain types of
information and content. Although several of these prohibitions have been held
unconstitutional, the increased attention focused upon these liability issues
as a result of the Telecommunications Act could adversely affect the growth of
Internet and private network use.

EMPLOYEES

At March 31, 1999, DLJdirect had 466 employees. DLJdirect's success has
been, and will continue to be, dependent to a large degree on its ability to
retain the services of its existing executive officers and to attract and
retain qualified additional senior and middle managers and key personnel in the
future. There can be no assurance that DLJdirect will be able to attract,
assimilate or retain qualified technical and managerial personnel in the
future, and the failure of it to do so would have a material adverse effect on
its business, financial condition and operating results. None of its employees
is subject to collective bargaining agreements or is represented by a union.
DLJdirect considers its relations with its employees to be good.

PROPERTIES

DLJdirect currently occupies space in three sites: corporate offices and
an investor service call center in Jersey City, New Jersey and investor service
call centers in Parsippany, New Jersey and in Charlotte, North Carolina. The
sites comprise approximately 82,000 square feet, in the aggregate. Each site is
leased by an affiliate and provided to DLJdirect pursuant to an intercompany
agreement. The underlying leases expire beginning in 2002. DLJdirect entered
into a lease in April 1999 for approximately 100,000 square feet in Jersey
City, New Jersey. DLJdirect intends to move its current Jersey City, New Jersey
operations to that space in the beginning of the third quarter of 1999 upon its
scheduled completion. This will increase overall capacity by more than 70%.
DLJdirect is also in the process of developing plans to acquire additional
space to increase its call center capacity significantly by the end of 1999.

LEGAL AND ADMINISTRATIVE PROCEEDINGS

DLJdirect is not currently a party to any litigation that it believes
could have a material adverse effect on its business, financial condition or
operating results. However, from time to time DLJdirect has been threatened
with, or named as a defendant in, lawsuits. Compliance and trading problems
that are reported to the NASD or the SEC by dissatisfied customers are
investigated by the NASD or the SEC, and, if pursued, may rise to the level of
disciplinary action. One or more lawsuits, claims or disciplinary actions
decided adversely to DLJdirect could have a material adverse effect on its
business, financial condition and results of operations. DLJdirect is also
subject to periodic regulatory audits and inspections.

Along with several other online brokers, DLJdirect received a letter from
the State of New York Office of the Attorney General dated February 2, 1999,
requesting that DLJdirect provide certain documents and make DLJdirect
employees available to discuss complaints regarding online brokerage services.
No complaint specific to DLJdirect was identified. DLJdirect responded to this
request in February 1999. On March 29, 1999, a further request for information
was received by each of the online brokers, including DLJdirect. Subsequently,
a meeting was held with representatives from the Office of the Attorney General
at which time it was agreed that each online broker would identify and produce
the requested documents that were readily available. DLJdirect expects to
respond to the modified request in the normal course of business.

The SEC's Office of Compliance Investigations and Examinations (OCIE)
conducts routine investigations of registered broker-dealers. DLJdirect has
received correspondence from OCIE requesting that DLJdirect make available
certain documents and materials relating to the business of DLJdirect,
including DLJdirect's execution policies and practices regarding the handling
of customer orders. DLJdirect produced the requested documents in the normal
course of business. DLJdirect believes that this informational request was
conducted on an industry-wide basis.

III-28
<PAGE>

DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)

INDEX TO COMBINED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report ........................ F-2
Combined Financial Statements:
Combined Statements of Financial Condition ...... F-3
Combined Statements of Operations ............... F-4
Combined Statements of Changes in Equity ........ F-5
Combined Statements of Cash Flows ............... F-6
Notes to Combined Financial Statements .......... F-7
</TABLE>

III-F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Donaldson, Lufkin & Jenrette, Inc.

We have audited the accompanying combined statements of financial
condition of DLJdirect (a combination of certain assets and liabilities of
Donaldson, Lufkin & Jenrette, Inc., as described in note 1) as of December 31,
1997 and 1998, and the related combined statements of operations, changes in
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998. These combined financial statements are the responsibility
of Donaldson, Lufkin & Jenrette, Inc.'s management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.

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

We have audited the consolidated financial statements of Donaldson, Lufkin
& Jenrette, Inc. and subsidiaries as of December 31, 1997 and 1998, and for
each of the years in the three-year period ended December 31, 1998 and have
issued our report dated February 2, 1999. The combined financial statements of
DLJdirect should be read in conjunction with the consolidated financial
statements of Donaldson, Lufkin & Jenrette, Inc. and subsidiaries.

In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of DLJdirect
as of December 31, 1997 and 1998, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.

/s/ KPMG LLP
New York, New York
March 16, 1999

III-F-2
<PAGE>

DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)

COMBINED STATEMENTS OF FINANCIAL CONDITION

(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ------------
1997 1998 1999
----------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ..................................... $ 8,881 $ 26,654 $47,825
Deposit with affiliated clearing broker ....................... 250 250 250
Receivables from brokers, dealers and others, net ............. 725 1,887 2,733
Office facilities, at cost (net of accumulated depreciation and
amortization of $260, $284 and $281, respectively) ........... 1,808 278 281
Other assets .................................................. 207 682 1,340
-------- -------- -------
Total Assets ............................................... $ 11,871 $ 29,751 $52,429
======== ======== =======
LIABILITIES AND EQUITY
Liabilities:
Payables to parent/affiliates, net ........................... $ 3,266 $ 5,211 $17,950
Accounts payable and accrued expenses ........................ 2,641 2,616 4,382
-------- -------- -------
Total liabilities .......................................... 5,907 7,827 22,332
-------- -------- -------
Commitments and contingencies ................................. -- -- --
Equity:
Capital contributions ........................................ 10,502 25,002 26,002
Retained earnings (deficit) .................................. (4,538) (3,078) 4,095
-------- -------- -------
Total equity ............................................... 5,964 21,924 30,097
-------- -------- -------
Total Liabilities and Equity ............................... $ 11,871 $ 29,751 $52,429
======== ======== =======
</TABLE>

See accompanying notes to combined financial statements.

III-F-3
<PAGE>

DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)

COMBINED STATEMENTS OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ------------ ---------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions ................................ $54,166 $ 50,948 $ 78,717 $ 16,130 $32,054
Fees ....................................... 6,426 12,109 25,484 5,140 9,596
Interest ................................... 2,569 4,160 13,723 2,787 5,552
------- -------- -------- -------- -------
Total revenues ........................... 63,161 67,217 117,924 24,057 47,202
------- -------- -------- -------- -------
Costs and expenses:
Compensation and benefits .................. 11,202 17,174 28,260 5,759 10,683
Brokerage, clearing, exchange and other fees 15,422 20,909 28,423 6,071 8,854
Advertising ................................ 9,093 13,137 25,146 9,010 6,101
Occupancy and equipment .................... 1,923 3,352 5,045 1,081 1,503
Communications ............................. 1,468 2,844 5,564 1,189 2,705
Technology costs ........................... 5,205 5,082 4,084 1,103 1,280
Other operating expenses ................... 5,567 10,844 18,934 3,660 4,815
------- -------- -------- -------- -------
Total costs and expenses ................. 49,880 73,342 115,456 27,873 35,941
------- -------- -------- -------- -------
Income (loss) before income tax provision
(benefit) .................................. 13,281 (6,125) 2,468 (3,816) 11,261
Income tax provision (benefit) .............. 5,425 (2,502) 1,008 (1,559) 4,088
------- -------- -------- -------- -------
Net income (loss) ........................ $ 7,856 $ (3,623) $ 1,460 $ (2,257) $ 7,173
======= ======== ======== ======== =======
</TABLE>

See accompanying notes to combined financial statements.

III-F-4
<PAGE>

DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)

COMBINED STATEMENTS OF CHANGES IN EQUITY

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
----------------------------------------------------------------------
CAPITAL RETAINED
DIVISIONAL EQUITY CONTRIBUTIONS EARNINGS/(DEFICIT) TOTAL EQUITY
------------------- --------------- -------------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balances at December 31, 1995 .................. $ -- $ -- $ -- $ --
Divisional net income .......................... 7,856 -- -- 7,856
Return of divisional equity to DLJ ............. (7,856) -- -- (7,856)
-------- ------- -------- --------
Balances at December 31, 1996 .................. -- -- -- --
Divisional net income from January 1, 1997
to May 31, 1997 ............................... 915 -- -- 915
Net (loss) from June 1, 1997 to December 31,
1997 .......................................... -- -- (4,538) (4,538)
Capital contributions from DLJ ................. -- 10,502 -- 10,502
Return of divisional equity to DLJ ............. (915) -- -- (915)
-------- ------- -------- --------
Balances at December 31, 1997 .................. -- 10,502 (4,538) 5,964
Net income ..................................... -- -- 1,460 1,460
Capital contributions from DLJ ................. -- 14,500 -- 14,500
-------- ------- -------- --------
Balances at December 31, 1998 .................. -- 25,002 (3,078) 21,924
Net income ..................................... -- -- 7,173 7,173
Capital contribution from DLJ .................. -- 1,000 -- 1,000
-------- ------- -------- --------
Balances at March 31, 1999 ..................... $ -- $26,002 $ 4,095 $ 30,097
======== ======= ======== ========
</TABLE>

See accompanying notes to combined financial statements.

III-F-5
<PAGE>

DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)

COMBINED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ------------ ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................... $ 7,856 $ (3,623) $ 1,460 $ (2,257) $7,173
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization ................... 949 652 299 86 (3)
Deferred taxes .................................. (344) 160 (275) (170) (6)
-------- -------- -------- -------- ---------
8,461 (2,811) 1,484 (2,341) 7,164
(Increase) decrease in operating assets:
Deposit with affiliated clearing broker ....... -- (250) -- -- --
Receivables from brokers, dealers and
other, net ................................... 283 (1,923) (1,162) (917) (846)
Other assets .................................. -- (207) (475) (175) (658)
Increase (decrease) in operating liabilities:
Payables to parent/affiliates, net ............ 357 1,951 2,220 6,858 12,745
Accounts payable and accrued expenses ......... -- 2,641 (25) 2,850 1,766
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities ...................................... 9,101 (599) 2,042 6,275 20,171
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of office facilities ................... (1,245) (107) -- -- --
Net proceeds from sale of office facilities ..... -- -- 1,231 1,231 --
-------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities ...................................... (1,245) (107) 1,231 1,231 --
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net proceeds from capital contributions
from DLJ ...................................... -- 10,502 14,500 5,000 1,000
Payments to DLJ ................................. (7,856) (915) -- -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities ...................................... (7,856) 9,587 14,500 5,000 1,000
-------- -------- -------- -------- --------
Increase in cash and cash equivalents ............ -- 8,881 17,773 12,506 21,171
Cash and cash equivalents at beginning of
period .......................................... -- -- 8,881 8,881 26,654
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period ....... $ -- $ 8,881 $ 26,654 $ 21,387 $47,825
======== ======== ======== ======== ========
</TABLE>

See accompanying notes to combined financial statements.

III-F-6
<PAGE>

DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)

NOTES TO COMBINED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

On March 16, 1999, the Board of Directors of Donaldson, Lufkin & Jenrette,
Inc. ("DLJ Inc.") authorized, subject to shareholder approval, the issuance of
a new series of stock, DLJdirect Common Stock.

The DLJdirect Common Stock is intended to reflect the separate performance
of the existing online discount brokerage services of DLJ Inc. DLJdirect would
initially consist principally of the assets, liabilities, revenues and expenses
of DLJ Inc.'s ultimate 100% equity interest in DLJdirect Holdings Inc.
(subsequent to June 1, 1997) and DLJ Inc.'s online discount brokerage division
(prior to June 2, 1997). DLJdirect would also include such other related assets
and liabilities of DLJ Inc. as the Board of Directors of DLJ Inc. may deem
appropriate in the future. It is currently the intention of DLJ Inc. that any
businesses, assets and liabilities related to its online discount brokerage and
related investment service businesses will be attributed to DLJdirect. However,
the Board of Directors of DLJ Inc., in its sole discretion, may in the future
decide to pursue business opportunities or operational strategies, even in the
online brokerage area, through other affiliates of DLJ Inc. instead of
DLJdirect.

Even though DLJ Inc. has allocated certain assets, liabilities, revenues,
expenses and cash flows to DLJdirect, that allocation will not change the legal
title to any assets or responsibility for any liabilities and will not affect
the rights of creditors. Holders of DLJdirect Common Stock will be common
stockholders of DLJ Inc. and will be subject to all the risks associated with
an investment in DLJ Inc. and all of its businesses, assets and liabilities.
Material financial events which may occur at DLJ Inc. may affect DLJdirect's
results of operations or financial position. Accordingly, financial information
for DLJdirect should be read in conjunction with financial information of DLJ
Inc.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

To prepare financial statements in conformity with generally accepted
accounting principles ("GAAP"), management must estimate certain amounts that
affect the reported assets and liabilities, disclosure of contingent assets and
liabilities, and reported revenues and expenses. Actual results could differ
from those estimates.

Substantially all of DLJdirect's financial assets and liabilities are
carried at market or fair value or are carried at amounts which approximate
fair value because of their short-term nature. Fair value is estimated at a
specific point in time, based on relevant market information.

Cash equivalents include all demand deposits held in banks and certain
highly liquid investments with maturities of 90 days or less, other than those
held for sale in the ordinary course of business.

Commissions revenue and brokerage, clearing, exchange and other fees are
reported on a trade date basis.

Office facilities are carried at cost and are depreciated on a
straight-line basis over the estimated useful life of the related assets,
ranging from three to eight years. Leasehold improvements are amortized over
the lesser of the useful life of the improvement or the term of the lease.

Advertising costs are expensed as incurred.

DLJ Inc. allocates certain general administrative and facilities expenses
to DLJdirect using a proportional cost methodology based on the relative number
of employees and square foot usage of DLJdirect or on actual costs incurred.

Effective January 1, 1997, DLJdirect is included in the consolidated
Federal income tax returns of DLJ Inc. In addition, for the period prior to its
incorporation, the division was included in the consolidated Federal income tax
returns of DLJ Inc. Prior to 1997, DLJ Inc. and its subsidiaries were

III-F-7
<PAGE>

DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)

NOTES TO COMBINED FINANCIAL STATEMENTS

included in the consolidated Federal income tax return of The Equitable
Companies Incorporated. Related current and deferred tax assets or liabilities
are included in payables to parent/affiliates, net in the combined statements
of financial condition. Deferred tax expenses and benefits are recognized in
the combined statements of operations for the changes in deferred tax
liabilities and assets.

Pursuant to SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", DLJdirect operates in one reportable segment as a
provider of online discount brokerage services. DLJdirect's involvement in
foreign operations is not significant.

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
that certain costs related to the development or purchase of internal-use
software be capitalized and amortized over the estimated useful life of the
software. The SOP also requires that costs related to the preliminary project
stage and the post-implementation/operations stage of an internal-use computer
software development project be expensed as incurred. The adoption of this SOP
did not have a material impact on DLJdirect's combined financial position or
results of operations.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards for derivative instruments and
hedging activities and is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. DLJdirect does not expect the adoption of SFAS
133 to have a material impact on its combined financial statements.

3. DLJDIRECT COMMON STOCK (UNAUDITED)

The majority stockholder of DLJ Inc. has agreed to approve, by written
consent, the authorization of the issuance of a new series of common stock, to
be designated as DLJdirect Common Stock ("DLJdirect Common Stock"). Before the
DLJdirect Common Stock is first issued, DLJ Inc.'s existing common stock will
be reclassified as DLJ Common Stock ("DLJ Common Stock"), and that stock will
be intended to reflect the performance of DLJ Inc.'s other businesses and a
"Retained Interest" in DLJdirect. DLJ Inc. currently plans to offer to the
public, for cash, shares of DLJdirect Common Stock intended to represent a
portion of the equity value attributed to DLJdirect.

In connection with the offering of DLJdirect Common Stock, DLJdirect
Holdings Inc. intends to pay as a dividend immediately prior to the offering a
note to Donaldson, Lufkin & Jenrette Securities Corporation in an aggregate
amount equal to the total equity of DLJdirect Holdings Inc. at December 31,
1998 plus the accumulated retained earnings of DLJdirect Holdings Inc. from
January 1, 1999 until the end of the month preceding the offering.

4. RELATED PARTY TRANSACTIONS

DLJdirect transacts business with a group of companies affiliated through
common majority ownership with DLJ Inc., and has various transactions and
relationships with members of the group. Due to these relationships, it is
possible that the terms of these transactions are not the same as those that
would result from transactions among unrelated parties.

Pursuant to a clearing agreement between DLJdirect and an affiliate of DLJ
Inc. all securities transactions of DLJdirect are cleared on a fully disclosed
basis through an affiliate of DLJ Inc. In connection with such transactions,
DLJdirect had $250,000 on deposit with DLJ Inc. at December 31, 1997 and 1998.

An affiliate of DLJ Inc. also charged DLJdirect $15.4 million, $20.9
million and $28.4 million for transaction, execution and clearance services
which amount is included in brokerage, clearing, exchange

III-F-8
<PAGE>

DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)

NOTES TO COMBINED FINANCIAL STATEMENTS

and other fees in the accompanying combined statements of operations for the
years ended December 31, 1996, 1997 and 1998, respectively. DLJ Inc. pays
DLJdirect a percentage of the interest earned on DLJdirect's customers'
balances. For the years ended December 31, 1996, 1997 and 1998, respectively,
DLJdirect received $2.6 million, $3.8 million and $12.6 million from an
affiliate of DLJ Inc. which is included in interest revenues in the
accompanying combined statements of operations. In addition, for the years
ended December 31, 1996, 1997 and 1998, DLJdirect received $5.4 million, $5.5
million and $8.9 million, respectively, from an affiliate of DLJ Inc. for order
flow, which amount is included in fees in the accompanying combined statements
of operations. DLJdirect received $4.8 million and $13.4 million in fees for
technology development from DLJ Inc. affiliates for the years ending December
31, 1997 and 1998, respectively.

In 1997 DLJdirect entered into a three-year License Agreement with an
affiliate. Under this agreement, the affiliate has licensed certain trademarks,
services marks, trade names and other proprietary rights to various words,
slogans, symbols and logos to DLJdirect for use in its provision of financial
services and sale or other distribution of related financial goods. For the
years ended December 31, 1997 and 1998, other operating expenses included $1.2
million and $5.2 million, respectively, for this agreement. Pursuant to a new
License Agreement executed in March 1999 and an amended clearing agreement
executed in March 1999, the amounts paid by DLJdirect under the clearing
agreement include payments in respect of the license fee for the use of DLJ
Inc.'s trademarks. Such trademarks are licensed to DLJdirect for use in the
United States and certain other jurisdictions under the License Agreement, and
as a result the licensor will receive payment of that fee from the clearing
provider. If such agreements were entered into in prior years under these
conditions, management believes that there would have been no material effect
upon the total costs and expenses of DLJdirect.

Employees of DLJdirect participate in DLJ Inc.'s defined contribution
employee benefit plans. Certain key employees of DLJdirect participate in stock
options, long-term incentive compensation and restricted stock unit employee
benefit plans and various deferred compensation arrangements, as well as other
non-qualified plans which are funded by insurance contracts. Expenses
associated with these compensation arrangements are reflected in DLJdirect's
combined statements of operations.

DLJ Inc. accounts for stock-based compensation related to stock options in
accordance with APB Opinion No. 25 "Accounting for Stock Issued to Employees",
and accordingly, does not recognize any compensation cost associated with such
plans. The pro forma effect on DLJdirect's combined statements of operations,
as determined in accordance with SFAS No. 123 "Accounting for Stock Based
Compensation", is not material.

5. NET CAPITAL

DLJdirect Holdings Inc.'s principal subsidiary, DLJdirect Inc., is a
registered broker-dealer and a member of the National Association of Securities
Dealers Inc. ("NASD") and, accordingly is subject to the minimum net capital
requirements of the Securities and Exchange Commission and the NASD. As such,
it is subject to the NASD'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, as
defined, or $250,000, whichever is greater. At December 31, 1998, DLJdirect
Inc.'s net capital of $16.6 million was in excess of the minimum requirement by
$16.4 million.

6. INCOME TAXES

DLJdirect is part of a group that files consolidated Federal income tax
returns. DLJdirect settles all taxes, current and deferred, on a current basis
with DLJ Inc. under a tax sharing arrangement. Taxes are provided as if
DLJdirect filed a separate return. Income tax provision (benefit) included in
the combined statements of operations is as follows:

III-F-9
<PAGE>

DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)

NOTES TO COMBINED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
-------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
U.S. Federal ................................ $4,497 $ (2,088) $1,022
State and local ............................. 1,272 (574) 261
------ -------- ------
Total current ................................ 5,769 (2,662) 1,283
------ -------- ------
Deferred:
U.S. Federal ................................ (267) 137 (236)
State and local ............................. (77) 23 (39)
------ -------- ------
Total deferred ............................... (344) 160 (275)
------ -------- ------
Total income tax provision (benefit) ......... $5,425 $ (2,502) $1,008
====== ======== ======
</TABLE>

<TABLE>
<CAPTION>
1996 1997 1998
------------------------------ ------------------------------ -----------------------------
PERCENT OF PERCENT OF PERCENT OF
PRE-TAX IN- PRE-TAX IN- PRE-TAX IN-
AMOUNT COME AMOUNT COME AMOUNT COME
---------------- ------------- ---------------- ------------- ---------------- ------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax
provision (benefit) ......... $4,648 35.0% $ (2,144) 35.0% $ 864 35.0%
State and local taxes, net of
related Federal income tax
benefit ..................... 777 5.9 (358) 5.9 144 5.9
------ ---- -------- ---- ------ ----
Income tax provision
(benefit) ................... $5,425 40.9% $ (2,502) 40.9% $1,008 40.9%
====== ==== ======== ==== ====== ====
</TABLE>

Deferred tax assets and deferred tax liabilities are generated by the
following temporary differences settled with DLJ Inc.:

<TABLE>
<CAPTION>
1997 1998
------ -------
(IN THOUSANDS)
<S> <C> <C>
Net deferred tax assets:
Deferred compensation and other ......... $504 $779
==== ====
</TABLE>

Management has determined that taxable income carryback years and
anticipated future taxable income are sufficient to offset the tax benefit of
deductible temporary differences. As a result, at year-end 1997 and 1998,
valuation allowances have not been recorded against the net deferred tax
assets. Although realization is not assured, management believes it is more
likely than not that all of the net deferred tax assets will be realized.
However, if estimates of future taxable income during the carryforward period
are reduced, the amount of the net deferred tax assets considered realizable
could also be reduced.

7. LEASE COMMITMENTS

DLJdirect primarily obtains its office space and equipment under
cancelable and non-cancelable operating lease agreements through an affiliate.
Such operating leases expire on various dates through 2009. Rent expense for
the years ended December 31, 1996, 1997 and 1998 amounted to $0.5 million, $1.7
million and $3.0 million, respectively, and is included in occupancy and
equipment in the accompanying combined statements of operations.

III-F-10
<PAGE>

DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)

NOTES TO COMBINED FINANCIAL STATEMENTS

At December 31, 1998, non-cancelable operating leases in excess of one
year, excluding escalation and renewal options, had the following minimum lease
commitments:

<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
1999 .............. $ 3,540
2000 .............. 3,091
2001 .............. 2,778
2002 .............. 1,684
2003 .............. 574
2004-2009 ......... 290
-------
Total ............ $11,957
=======
</TABLE>

8. CONCENTRATIONS OF CREDIT RISK

In the normal course of business, DLJdirect executes securities
transactions on behalf of customers through its affiliated clearing broker. In
connection with these activities, a customer's unsettled trades may expose
DLJdirect to off-balance-sheet credit risk in the event the customer is unable
to fulfill its contractual obligations. DLJdirect seeks to control the risk
associated with its customer activities by making credit inquiries when
establishing customer relationships and by monitoring customer trading
activity.

Credit risk is the amount of accounting loss DLJdirect would incur if a
customer failed to perform its obligations under contractual terms.
Substantially all of the clearing and depository operations for DLJdirect are
performed by its affiliated clearing broker pursuant to a clearance agreement.
The affiliated clearing broker reviews as considered necessary, the
creditworthiness of the customers with which DLJdirect conducts business.
DLJdirect's exposure to credit risk associated with the nonperformance by
customers in fulfilling their contractual obligations pursuant to securities
transactions can be directly affected by volatile securities markets, credit
markets and regulatory changes.

9. SUBSEQUENT EVENT (UNAUDITED)

In March 1999, DLJdirect entered into a joint venture agreement with a
Japanese bank. DLJdirect has a 50% interest in this joint venture which amount
is included in other assets in the accompanying combined statements of
financial condition.

On April 1, 1999, DLJdirect entered into a 10-year lease agreement with an
annual commitment of approximately $3.0 million.

III-F-11
<PAGE>

ANNEX IV

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
- ----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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
VAddress of principal executive office) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>

Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
<S> <C>
Common Stock, par value $0.10 per share New York Stock Exchange

Series A Fixed/Adjustable Rate Cumulative
Preferred Stock, $50 liquidation
preference per share New York Stock Exchange

Series B Fixed/Adjustable Rate Cumulative
Preferred Stock, $50 liquidation
preference per share New York Stock Exchange
</TABLE>

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 ( ).

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

Cover Page 1 of 2

<PAGE>

As of March 18, 1999, the latest practicable date, there were 124,425,447 shares
of Common Stock, $0.10 par value, outstanding.

At March 18, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $2,175.4 million. For
purposes of this information, the outstanding shares of Common Stock owned by
directors and executive officers of the registrant were deemed to be shares of
Common Stock held by affiliates.

DOCUMENTS INCORPORATED BY REFERENCE:

The information required to be furnished pursuant to Part III of this Form 10-K
is set forth in, and incorporated by reference from, the registrant's definitive
proxy statement for the annual meeting of stockholders to be held April 21,
1999, which definitive proxy statement (the "Proxy Statement") was filed by the
registrant with the Securities and Exchange Commission on March 18, 1999 not
later than 120 days after the year ended December 31, 1998.

Cover Page 2 of 2

<PAGE>

PART I

ITEM 1. BUSINESS
--------

Donaldson, Lufkin & Jenrette, Inc. (the "Company") is a leading
integrated investment and merchant bank serving institutional, corporate,
governmental and individual clients both domestically and internationally. The
Company is a holding company, which conducts its business through various
subsidiaries including its principal broker-dealer subsidiary, Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJSC"). The business of the Company
includes:

o Securities underwriting, sales and trading
o Merchant banking
o Financial advisory services
o Investment research Venture capital
o Correspondent brokerage services
o Securities lending
o Online interactive brokerage services
o Asset management and other advisory services

Founded in 1959, the Company initially focused on providing in-depth
investment research to institutional investors. In 1970, the Company became the
first member firm of the New York Stock Exchange ("NYSE") to be owned publicly.
Fifteen years later, the Company was purchased by The Equitable Life Assurance
Society of the United States ("Equitable Life"). Prior to the Company's initial
public offering in October 1995, the Company was an independently operated
indirect wholly owned subsidiary of The Equitable Companies Incorporated
("Equitable"). At December 31, 1998 the Equitable owned 72.2% of DLJ's issued
and outstanding common stock. Equitable is a diversified financial services
organization and one of the world's largest investment management
organizations. AXA, a French holding company for an international group of
insurance and related financial services companies, is Equitable's largest
stockholder, beneficially owning, at December 31, 1998, approximately 59.7% of
Equitable's outstanding common stock.

In 1998 and prior years, the Company operated in three principal
segments in the financial service industry:

o Banking Group
o Capital Markets Group
o Financial Services Group

In 1998, the Company continued to make strides toward achieving the goal of
establishing a strong international presence. The Company launched an
international equities business headquartered in London and opened investment
banking offices in Buenos Aires, Hong Kong, Moscow, Paris and Seoul. The
Merchant Banking Group has expanded its international efforts, with investments
in the UK, Italy, France, Argentina and Brazil. At December 31, 1998 and 1997,
total net revenues related to the Company's foreign operations were
approximately $327.3 million and $371.1 million, respectively. At December 31,
1998 and 1997, total foreign assets were approximately $10.9 billion and $8.6
billion, respectively.

BANKING GROUP.
- -------------

The Company's Banking Group is a major participant in the raising of
capital and the providing of financial advice to companies throughout the U.S.
and in Europe, Asia and Latin America. Through Investment Banking, the Company
manages and underwrites public offerings of securities, arranges private
placements, originates investment-grade debt, underwrites and syndicates senior
bank debt and provides advisory and other services in connection with mergers,
acquisitions, restructurings and other financial transactions. The Company's
Merchant Banking/Principal Investing Group pursues direct investments in a
variety of areas through a number of investment vehicles funded with capital
provided primarily by institutional investors, the Company and its employees.
The Sprout Group is Wall Street's oldest venture capital organization. In 1998,
the Banking Group expanded its capabilities in the technology,
telecommunications and financial services industries. In addition, significant
progress was made in establishing a strong presence in Europe, Asia and Latin
America. New offices were opened in Paris, Moscow, Buenos Aires and Seoul, and
the London office added 80 employees.

IV-1
<PAGE>

CAPITAL MARKETS GROUP
---------------------

EQUITIES DIVISION. The Equities Division provides domestic and
international institutional clients with global research, trading and sales
services in U.S. listed and over-the-counter equities, and foreign equities
trading. In 1998, the division initiated an aggressive worldwide expansion plan,
successfully launching the International Equities Group, a research, sales and
trading operation dedicated to non-U.S. securities. The group is headquartered
in London, with additional locations in Hong Kong and New York City. A joint
venture has also been established in Johannesburg. The group began officially
trading European, Asian and emerging markets equities in January 1999. In
addition, the Company's Equity Derivatives Division provides a broad range of
equity and index option products. Autranet is one of the oldest distributors of
research and investment material.

FIXED INCOME DIVISION. The Fixed Income Division provides
institutional clients with research, trading and sales services for a broad
range of fixed-income products, and distributes fixed-income securities in
connection with offerings underwritten by the Company. The Division is focused
on two major objectives. The first is enhancing its core businesses, which are
high-yield bonds and senior bank debt, U.S. government and investment-grade
corporate bonds and real estate finance. The second objective is the
development of new products and services that will meet specific client needs.
In 1998, the Company took two such initiatives, forming a global foreign
exchange sales and trading unit and a fixed-income derivatives business. The
Fixed Income Division's research professionals include credit analysis teams
knowledgeable in high-yield corporate, investment-grade corporate and
mortgage-backed securities as well as quantitative and economic research.

FINANCIAL SERVICES GROUP.
- ------------------------

The Financial Services Group provides a broad array of services to
individual investors and the financial intermediaries that represent them.
Pershing is a leading provider of correspondent brokerage services, clearing
transactions for financial institutions which collectively maintain over 2.5
million active customer accounts. Through its Asset Management Group, the
Company provides cash management, investment advisory and trust services
primarily to high-net-worth individuals and families. The Company's Investment
Services Group provides access to the Company's equity and fixed-income
research, trading services and underwriting to a broad mix of private clients.
DLJdirect is a leading provider of online discount brokerage and related
investment services, offering customers automated securities order placement
through the Internet and online service providers. DLJdirect's broad range of
investment services is targeted at self-directed, sophisticated online
investors.

NET REVENUES BY OPERATING GROUP
- -------------------------------

The following table illustrates the Company's revenue breakdown by its
principal operating groups, net of all interest. Net revenues, however, are not
necessarily indicative of the profitability of each group. Certain
reclassifications of prior year amounts have been made to conform to the 1998
presentation.

Years ended December 31,

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C>
Banking Group.......................... $ 405.2 $ 667.6 $ 853.4 $ 1,220.2 $ 1,486.8
Capital Markets Group.................. 641.2 814.7 1,068.4 1,262.2 1,273.3
Financial Services Group............... 458.0 619.4 827.6 1,008.9 1,248.4
Offsets and eliminations............... 0.5 (23.7) 8.1 (4.0) (57.3)
------------ ------------ ------------- ------------ ------------

Net revenues........................... $ 1,504.9 $ 2,078.0 $ 2,757.5 $ 3,487.3 $ 3,951.2
========= ========= ========= ========= =========
</TABLE>

The Company currently conducts its operations in 17 cities in the
U.S., including Atlanta, Austin, Boston, Charlotte, Chicago, Dallas, Deerfield,
Houston, Jersey City, Los Angeles, Menlo Park, Miami, New York, Oak Brook,
Parsippany, Philadelphia and San Francisco. The Company also has international
offices located in 12 cities, including Bangalore, Buenos Aires, Geneva, Hong
Kong, London, Lugano, Mexico City, Moscow, Paris, Sao Paulo, Seoul and Tokyo.

IV-2
<PAGE>

BANKING GROUP
- -------------

MERGERS AND ACQUISITIONS
- ------------------------

The Company's global merger and acquisition ("M&A") practice is the
fastest-growing segment of the Banking Group, participating in a broad range of
domestic and international assignments. The M&A professionals use an
industry-intensive approach and work closely with the Company's industry
specialty groups in a broad range of sectors. The M&A specialists operate from
the firm's offices in the U.S., Europe, Asia and Latin America. As a result of
the firm's focus on international expansion, almost one-third of the M&A
assignments in 1998 involved a party outside the U.S.

CAPITAL RAISING
- ---------------

EQUITY AND EQUITY-LINKED OFFERINGS. The equity capital markets group
focuses on providing financing for issuers of equity and equity-linked
securities in the public markets. The group assists in the origination, and is
responsible for the structuring and execution of transactions for a broad range
of clients.

HIGH-YIELD DEBT UNDERWRITING. The high-yield securities group focuses
on providing financing in the public and private capital markets. The group is
responsible for originating, structuring and executing high-yield transactions
across a wide range of companies and industries, as well as managing client
relationships with both high-yield corporate issuers and financial sponsors of
leveraged transactions.

INVESTMENT-GRADE CORPORATE BONDS. The investment-grade debt
origination business provides strategic advice and execution services to
clients. In 1998, the group lead-managed 69 investment grade debt offerings,
totaling approximately $15 billion.

SENIOR BANK DEBT AND BRIDGE FINANCING. The Senior Bank Debt Group
underwrites and syndicates senior bank debt, offering clients the convenience
of "one-stop shopping". During 1998, the group arranged and syndicated $23
billion of senior bank debt. The Company also offers bridge financing to cover
gaps that may occur in the timing and financing of transactions.

STRUCTURED PRODUCTS. The Structured Products Group was launched in
1998. Structured products offer clients financing alternatives to traditional
capital markets instruments. The products are customized to meet each client's
strategic objectives.

PRIVATE FUND GROUP. The Company's Private Fund Group raises private
capital, primarily from institutional investors, for direct investment by
venture capital, management buyout and other investment firms, and for certain
of the Company's merchant banking activities. The group raised over $15 billion
in private capital in 1998.

OTHER ADVISORY SERVICES. The Company also offers clients a variety of
other advisory services. The private capital placements group raises capital
within the private debt and equity markets. Additionally, the Company's
restructuring group advises both corporations and creditors in the complex
process of corporate restructuring. The Company also participates in the
structured finance industry through its asset-backed transactions group, and
specializes in securitizing cash flow generating assets through public or
private offerings of debt or pass-through certificates.

MERCHANT BANKING/PRINCIPAL INVESTING
- ------------------------------------

The Company entered the merchant banking investment business in 1985.
Through the Merchant Banking Group, the Company makes investments across the
entire capital structure, from venture capital equity to investments in the
largest leveraged buyouts. The funds invest in companies and real estate in the
U.S., Europe, Asia, Latin America, Australia and Canada. At December 31, 1998,
the Group had managed funds with committed capital of approximately $8 billion.
These funds include DLJ Merchant Banking Partners I and II, L.P. which focus
primarily on equity investments in leveraged transactions; the DLJ Bridge Fund,
a leader in domestic bridge financing; DLJ Investment Partners, L.P., which
focuses on opportunities in lower risk mezzanine securities;

IV-3
<PAGE>

DLJ Real Estate Capital Partners, L.P., which makes investments in a broad range
of real estate-related assets in the U.S. and abroad; Global Retail Partners,
L.P., which pursues investment opportunities in the retail and electronic
commerce industries, and Phoenix Equity Partners II, which provides private
equity capital to established European businesses with leading market shares.

LEVERAGED EQUITY INVESTING. The Company's flagship fund, DLJ Merchant
Banking Partners II, L.P. has committed capital of $3 billion, with 25% of the
capital committed by DLJ and its employees. The fund makes investments in
equity and mezzanine securities arising from leveraged acquisitions and
recapitalizations, restructurings of over-leveraged companies and other similar
types of transactions, which generally involve significant financial leverage.
Since its inception in 1996, the fund has invested approximately $1.5 billion
in 26 companies with an aggregate transaction value of more than $12 billion.

DLJ INVESTMENT PARTNERS. DLJ Investment Partners, L.P. commenced
operation in 1995 to pursue investments primarily in lower-risk mezzanine
securities. The fund has committed capital of $500 million, including $100
million from the Company and its employees.

DLJ REAL ESTATE CAPITAL PARTNERS. DLJ Real Estate Capital Partners,
L.P., focuses on investments in a broad range of real estate and real
estate-related assets in the U.S. and abroad. The fund has committed capital of
approximately $680 million from its general and limited partners, including
$100 million from the Company and its employees.

GLOBAL RETAIL PARTNERS. Global Retail Partners, L.P., commenced
operation in 1996 and focuses on growth retailing and electronic commerce
opportunities. The fund has committed capital of approximately $150 million.

PHOENIX EQUITY PARTNERS II. Phoenix Equity Partners II is a $220 million
fund dedicated to investing in mid-market companies in Europe. The Fund focuses
primarily on U.K. companies, invests in management buyouts and buy-ins and
provides development or expansion capital for midmarket private companies.
During 1998, the fund made four investments and is now two-thirds invested.

DLJ BRIDGE FUND. The Company is the sponsor of the $750 million DLJ
Bridge Fund ("the Bridge Fund") which is funded by a commitment from Equitable.
The Bridge Fund 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 for the total amount of the loans. Any loans
made by the DLJ Bridge Fund are expected to be refinanced, and the outstanding
amounts repaid, within a short-term period. The Company has also agreed to pay
Equitable the amount, if any, by which any principal loss on an individual loan
exceeds $150 million. At December 31, 1998, the Bridge Fund does not have any
individual bridge loan outstanding in excess of $150 million. At December 31,
1998, the DLJ Bridge Fund had extended $295 million of short-term bridge loans,
which are expected to be refinanced in the first quarter of 1999.

SPROUT. Founded in 1969, Sprout is one of the oldest and largest
groups in the private equity investment and venture capital industry. Since the
capitalization of Sprout's first fund at $11.5 million, ten major investment
partnerships have been formed primarily for large institutional investors.
Sprout has approximately $2 billion of committed capital and invests in
early-stage, high-growth companies; management buyouts; and mezzanine financing
of companies that are not yet ready to access the public capital markets.
During 1998, Sprout raised $860 million to launch a new fund, Sprout Capital
VIII that invests in growth companies at all stages of development. Sprout's
investors are major public and corporate pension funds, endowments, insurance
companies and wealthy individuals.

CAPITAL MARKETS GROUP
- ---------------------

EQUITIES DIVISION
- -----------------

RESEARCH. The Company's institutional equities research department
consists of approximately 90 research analysts and associates, based in New
York City, London and Hong Kong, who are engaged in the analysis of economic
trends and a broad range of industries and companies. The department produces
publications, studies and forecasts on economic conditions, financial markets,
portfolio strategy, quantitative analysis, industry developments and individual
companies. Consistent with DLJ's expansion in international markets, global
research efforts were expanded in 1998. Coverage of the following industries
was established: global oil and gas, airlines, airports, beverages, Latin
American banks, Asian technology and global media and communications. Coverage
of additional industries is planned for the first half of 1999.

IV-4
<PAGE>

SALES AND TRADING. The Company's equity sales and trading operation
covers nearly 2,000 of the world's largest institutional investors, in 50
countries around the world. The Company's trading strategy is client-driven.
The Company does not accumulate large positions for its own account, but
provides clients with liquidity by taking a position as a principal to
facilitate their transactions. In U.S. equities trading, the Company's traders
actively trade 95 percent of the S&P 500 companies. The over-the-counter desk
makes markets in approximately 400 stocks. The Company has also expanded its
convertible securities business, particularly in new issues.

AUTRANET. Autranet Inc., a registered broker-dealer and member firm of
the NYSE is active in the distribution of investment research products
purchased from "independent originators." Independent originators are research
specialists, not linked to a broker-dealer organization and range in size and
scope from large economic consulting firms to individual freelance analysts.

EQUITY DERIVATIVES. The Equity Derivatives Division, located in New
York and London, provides institutional clients with research, trading and
sales services in a broad range of products. The Company's activities in equity
derivative products have focused primarily on product innovations in the design
and origination of custom-tailored OTC options to meet the specific needs of
customers rather than on hedging the firm's own position. The Company offers
derivatives based on all traded products including equities, commodities, debt
instruments, currencies and indices.

FIXED INCOME DIVISION
- ---------------------

HIGH-YIELD BONDS. The High-Yield department is the number one ranked
firm in the origination of high-yield bonds in the U.S. and Western Europe. The
department provides institutional clients with research, trading and sales
services and distributes non-investment-grade securities in connection with
offerings underwritten by the Company.

SENIOR BANK DEBT GROUP. The Senior Bank Debt Group syndicates
leveraged loans and enters into commitments to extend credit primarily to
non-investment grade borrowers. This group provides the Company's clients with
the convenience of a single financing source. The group's base of institutional
investors has expanded to include pension funds, mutual funds and insurance
companies. In 1998, the Group acted as lead agent on 55 loans aggregating
approximately $23 billion.

INVESTMENT-GRADE CORPORATE BONDS. The Company is a major participant
in the secondary trading and distribution of investment-grade corporate debt
instruments and has consistently ranked as one of the top providers of credit
research on those securities. In 1998, the Group introduced the Financial
Engineering Desktop ("FED") to its clients. FED is a proprietary technology
which provides live market data, state-of-the art analytics and historical
information on investment-grade corporate debt.

GOVERNMENT BONDS. The Company is a primary dealer in the $3 trillion
market for U.S. Treasuries The Government Bond department acts as underwriter
and market maker in U.S. Treasury bills, notes, bonds, and securities of
Federal agencies. The Company also engages in the "stripping" of government and
government-guaranteed bonds to create zero-coupon securities. It also trades
treasury futures and options and develops hedging programs for its clients.
Institutional clients include insurance companies, money managers, commercial
banks, hedge funds and pension funds. The Government Bond department also
maintains a money desk which provides financing for its daily trading inventory
positions, and to a lesser extent, those of other fixed-income departments
through the use of repurchase agreements. In addition it acts as an intermediary
between borrowers and lenders of short-term funds utilizing repurchase and
reverse repurchase agreements.

REAL ESTATE FINANCE GROUP. The group provides capital and financial
advisory services for major participants in the commercial and residential real
estate markets. In 1998, approximately $6 billion was raised for clients. The
Real Estate Finance Group also originates loans secured by multifamily and
commercial properties and, acting as agent, places mortgage-backed debt for
clients. The Company's commercial mortgage lending subsidiary, Column
Financial, originates, acquires and enhances mortgage loans for securitization
and sale to investors in the form of CMOs. During 1998, Column Financial
originated over $2.5 billion in loans.

FOREIGN EXCHANGE. The Company's Foreign Exchange Group began 24 hour
trading in 1998. The Group serves broad ranges of clients worldwide, including
multinational corporations, money managers, hedge funds, banks and
high-net-worth individuals. The group is based in New York and London, and an
operation in Asia is planned for 1999.

IV-5
<PAGE>

DERIVATIVES. In 1998, a full-service unit was formed to provide
hedging alternatives, linked to high-yield and investment-grade securities, to
institutional investors and corporate issuers. Three types of derivative
products are offered: interest rate derivatives, emerging markets derivatives
and credit-structured products. This unit has offices in New York, London, Hong
Kong and Tokyo.

RESEARCH. The Fixed Income Research Group provides investment analysis
and recommendations on more than 500 issuers. In addition, the Group provides
proprietary research on a variety of structured products and global economic
analyses.

FINANCIAL SERVICES GROUP
- ------------------------

PERSHING DIVISION. Pershing is one of the leading providers of
correspondent brokerage services to the world's financial institutions. Founded
in 1939 and acquired by the Company in 1977, Pershing operates out of seven of
the Company's domestic offices and London. Pershing provides execution and
clearance services to over 600 correspondents, which collectively maintain over
2.5 million active customer accounts holding more than $279 billion of assets
at December 31, 1998. Pershing maintains broad execution coverage of all U.S.
securities exchanges, supported by extensive in-house trading desks for
institutional block and retail orders, as well as OTC securities, all
fixed-income products, mutual funds and money market funds. As a wholesaler of
trading, execution, clearing and information management activities, Pershing
offers its services on a fee-for-service basis.

Through their affiliation with Pershing, correspondent firms also have
access to a broad selection of investment products for their customers,
including investment related insurance products, retirement plans, a precious
metals storage program, central asset accounts, and managed wrap accounts. In
addition, Pershing makes information and recommendations provided through its
own research analysts' action-oriented opinions and advice available to its
correspondents.

Sophisticated communications and information management is a
cornerstone of Pershing's service. Pershing's computer-directed communications
system provides Pershing's correspondents with a link to major financial
markets around the world. Pershing's proprietary software systems allow online
order entry and reporting. Pershing also maintains extensive operational and
informational systems for its correspondents.

LONDON GLOBAL SECURITIES. London Global Securities, with operations in
London and Australia, provides securities lending and financing services to
institutional investors in 25 countries.

DLJDIRECT. DLJdirect is a leading provider of online discount
brokerage and related investment services, offering customers automated
securities order placement and information and research capabilities through
the Internet and online service providers. DLJdirect's broad range of
investment services is targeted at self-directed, sophisticated online
investors, who on average have higher account balances than other online
investors. DLJdirect was one of the pioneers of online investing. DLJdirect
started in the online brokerage business in September 1988 under the name PC
Financial Network. In September 1997, PC Financial Network changed its name to
DLJdirect and relaunched its Internet site as DLJdirect (www.dljdirect.com). In
its ten year history, DLJdirect has been recognized as a high-quality provider
of online brokerage services.

DLJdirect's investment services and products include:
o online order entry for stocks, options mutual funds and U.S. Treasury
securities
o access to selected DLJ-managed initial public offerings and other
equity offerings
o company and industry research from DLJ
o DLJdirect's MarketSpeed(TM), its proprietary software with enhanced
graphics and greater ease of use permitting DLJdirect's customers to
access DLJdirect's online services an average of five times faster
than other major Internet brokers
o stock and mutual fund evaluation tools, including its proprietary
StockScan(TM) for screening over 9,500 public companies and its
proprietary FundScan(TM) for analyzing over 7,000 mutual funds
o research and analysis from independent research organizations,
including Standard & Poor's, Zacks Investment Research Incorporated
and Thomson Investors Network
o daily market commentary from TheStreet.com and Briefing.com

DLJdirect's in-house technology group develops Internet-based products
for DLJ businesses as well as independent clients.

On March 17, 1999 the Company filed a Registration Statement with the
Securities and Exchange Commission relating to a proposed initial public
offering of a new class of common stock that will track the performance of
DLLJdirect, its on line brokerage business.

IV-6
<PAGE>

INVESTMENT SERVICES GROUP. The Investment Services Group offers a full
range of investment and portfolio services to high-net-worth individual
investors and medium to smaller size financial institutions and corporations.
At the end of 1998, the Group had ten offices in the U.S. and one in London.
The London office has global trading capabilities in a broad range of equity,
fixed income and derivative products and also offers a Swiss banking facility.
In 1998, the Group introduced DLJ Preferred Advisors, which enables clients to
choose from ten professionally managed portfolios in five equity investment
classes. In 1999, clients qualifying for DLJ Private Client Service will be
able to trade online, in addition to reviewing account balances, accessing DLJ
research and obtaining information on DLJ lead-managed securities offerings.

ASSET MANAGEMENT GROUP. The Asset Management Group consists of two
divisions: Wood, Struthers & Winthrop and DLJ Investment Management
Corporation. The group specializes in individual and institutional investment
management and has a total of $17.6 billion of assets under management.

Wood, Struthers & Winthrop Management Corp., founded in 1871, is a
registered investment advisor, managing over $9 billion in assets at December
31, 1998. Wood, Struthers & Winthrop specializes in investment management, tax,
trust and estate planning and has a client base of high-net-worth individuals
and families. Wood, Struthers & Winthrop manages portfolios of both stocks and
bonds, balancing risk and return to meet a client's objectives for growth and
capital preservation. The professional staff of Wood, Struthers & Winthrop is
experienced in portfolio management, investment research, tax advice, financial
planning and in providing personalized service to all of its clients. Through
its WSW Capital Inc. subsidiary, the firm manages a $5.7 billion portfolio of
private placements which it originated.

Wood, Struthers & Winthrop is the investment advisor to a domestic
family of five diversified open-end mutual funds. These funds consist of three
U.S. equity funds and two fixed-income funds which aggregate approximately $709
million. In addition, Wood, Struthers & Winthrop and DLJ Investment Management
Corp., are the advisors to the DLJ Winthrop Opportunity Funds, a family of
diversified open-end mutual funds. These funds aggregate $178.6 million at
December 31, 1998.

Wood, Struthers & Winthrop has a limited purpose trust company
subsidiary, Winthrop Trust Company, which provides tax, financial planning,
custody and personal fiduciary services to its high-net-worth individual and
family clients.

DLJ Investment Management Corp. provides cash management services to
institutional clients. During 1998, assets under management increased from $5
billion to $8 billion, a gain of 60 percent. In 1998, DLJ Investment Management
Corp. launched the DLJ High-Yield Bond Fund, a $500 million closed-end
investment company.

COMPETITION
- -----------

The Company encounters significant competition in all aspects of the
securities business and competes worldwide directly with other domestic and
foreign securities firms, a number of which have greater capital, financial and
other resources than the Company. In addition to competition from firms
currently in the securities business, there has been increasing competition
from other sources, such as commercial banks and investment boutiques. As a
result of pending legislative and regulatory initiatives in the U.S. to remove
or relieve certain restrictions on commercial banks, it is anticipated that
competition in some markets currently dominated by investment banks may
increase in the future. Such competition could also affect the Company's ability
to attract and retain highly skilled individuals to conduct its various
businesses. The principal competitive factors influencing the Company's
business are its professional staff, the firm's reputation in the marketplace,
its existing client relationships, the ability to commit capital to client
transactions and its mix of market capabilities. The Company's ability to
compete effectively in securities brokerage and investment banking activities
will also be influenced by the adequacy of its capital levels.

EMPLOYEES
- ---------

At December 31, 1998, the Company had approximately 8,500 employees.
Professional personnel receive salary as well as incentive compensation in the
form of bonus and, in certain instances, through long-term incentive and/or
other compensation plans. Most of the Company's securities sales force
personnel receive a percentage of their gross revenues or a percentage of a
specified revenue pool as compensation. Other employees receive a salary and,
in certain cases, overtime compensation and compensation in the form of profit
sharing. None of the Company's employees is represented by a labor union.

IV-7
<PAGE>

REGULATION
- ----------

The Company's business, and the securities industry in general is
subject to extensive regulation in the U.S. at both the Federal and state
level, as well as by industry Self Regulatory Organizations ("SROs"). A number
of Federal regulatory agencies are charged with safeguarding the integrity of
the securities and other financial markets and with protecting the interests of
customers participating in those markets. The Securities and Exchange
Commission (the "Commission") is the Federal agency that is primarily
responsible for the regulation of broker-dealers and investment advisors doing
business in the U.S., and the Commodity Futures Trading Commission ("CFTC") is
primarily responsible for the regulation of futures commission merchants. In
addition, the Department of the Treasury and the Municipal Securities
Rulemaking Board have the authority to promulgate regulations relating to U.S.
government and agency securities and to municipal securities, respectively, and
the Board of Governors of the Federal Reserve System promulgates regulations
applicable to certain securities credit transactions. Broker-dealers and
investment advisers are subject to registration and regulation by state
securities regulators in those states in which they conduct business. Industry
SROs, each of which has authority over the firms that are its members, include
the NASD, the NYSE, and other securities exchanges, the National Futures
Association ("NFA") and the commodities exchanges. Certain of the Company's
international broker-dealer subsidiaries are subject to the regulatory
requirements of non-U.S. securities financial regulatory authorities.

Each of DLJSC, Pershing Trading Company, L.P. ("Pershing Trading"),
DLJdirect and Autranet (collectively, the "U.S. Broker-Dealers") is registered
as a broker-dealer with the Commission and is a member of, and subject to
regulation by, a number of securities industry SROs, including the NYSE and/or
the NASD. Both DLJSC and Pershing Trading are, in addition to being NYSE
members, members of most other major U.S. securities exchanges. DLJSC is also
registered as a broker-dealer in all 50 states and the District of Columbia, as
a futures commission merchant with the CFTC, as an investment adviser with the
Commission and in certain states, is also designated a primary dealer in U.S.
government securities by the Federal Reserve Bank of New York. In connection
with its business as a futures commission merchant, DLJSC is also a member of,
and subject to regulation by, the NFA and the Chicago Board of Trade ("CBOT").
Pershing Trading, Autranet and DLJdirect are registered as broker-dealers in a
number of states. Wood, Struthers & Winthrop Management Corp. and DLJ Investment
Partners, Inc. are registered with the Commission and, in certain states as an
investment adviser. The Company also has certain other direct and indirect
subsidiaries that are registered with the Commission and certain states or with
other regulatory authorities as broker-dealers or investment advisers. Winthrop
Trust Company is regulated by the New York State Banking Department.

As a result of registration and SRO memberships, the U.S.
Broker-Dealers are subject to overlapping schemes of regulation, which cover all
aspects of their securities business. Such regulations cover matters including
capital requirements, the use and safekeeping of customers' funds and
securities, recordkeeping and reporting requirements, supervisory and
organizational procedures intended to assure compliance with securities laws and
rules of the SRO's and to prevent the improper trading on "material nonpublic"
information, employee-related matters, limitations on extensions of credit in
securities transactions, required procedures for trading on securities exchanges
and in the over-the-counter market, and procedures for the clearance and
settlement of trades. A particular focus of the applicable regulations concerns
the relationship between broker-dealers and their customers. As a result, the
U.S. Broker-Dealers in some instances may be required to make "suitability"
determinations as to certain customer transactions, are limited in the amounts
that they may charge customers, cannot trade ahead of their customers and must
make certain required disclosures to their customers.

As investment advisers registered with the Commission, Wood, Struthers
& Winthrop Management Corp. and DLJSC are subject to the requirements of the
Investment Advisers Act of 1940 and the Commission's regulations thereunder.
Such requirements relate to, among other things, limitations on the ability of
investment advisers to charge performance-based or non-refundable fees to
clients, recordkeeping and reporting requirements, disclosure requirements,
limitations on principal transactions between an adviser or its affiliates and
advisory clients, as well as general anti-fraud prohibitions. The state
securities law requirements applicable to registered investment advisers are in
certain cases more comprehensive than those imposed under the Federal
securities laws.

DLJSC, as a registered futures commission merchant, is subject to the
capital and other requirements of the CFTC under the Commodity Exchange Act.
These requirements include the provision of certain disclosure documents,
prohibitions against trading ahead of customers and other fraudulent trading
practices, provisions as to the handling of customer funds and reporting and
recordkeeping requirements.

IV-8
<PAGE>

In addition to being regulated in the U.S., the Company's business is
subject to regulation by various foreign governments and regulatory bodies. The
Company does business in the international equity and fixed income markets and
undertakes investment banking activities through several of its London
subsidiaries. These broker-dealer subsidiaries are subject to regulation by the
Securities and Futures Authority ("SFA"), which governs all aspects of a United
Kingdom investment business, including regulatory capital, sales and trading
practices, use and safekeeping of customer funds and securities, recordkeeping,
margin practices and procedures, registration standards for individuals,
periodic reporting and settlement procedures. In addition, the Company has
broker-dealer subsidiaries which are subject to regulation, including capital
requirements, imposed by the Securities and Futures Commission ("SFC") of Hong
Kong and the Ontario Securities Commission.

Additional legislation and regulations, including those relating to
the activities of affiliates of broker-dealers, changes in rules promulgated by
the Commission, the CFTC or other U.S. or foreign governmental regulatory
authorities and SRO's or changes in the interpretation or enforcement of
existing laws and rules may adversely affect the manner of operation and
profitability of the Company.

The Company's businesses may be materially affected not only by
regulations applicable to them as a financial market intermediary, but also by
regulations of general application. For example, the volume of the Company's
underwriting, merger and acquisition and merchant banking businesses in any
year could be affected by, among other things, existing and proposed tax
legislation, antitrust policy and other governmental regulations and policies
(including the interest rate policies of the Federal Reserve Board) and changes
in interpretation or enforcement of existing laws and rules that affect the
business and financial communities. From time to time, various forms of
anti-takeover legislation and legislation that could affect the benefits
associated with financing leveraged transactions with high-yield securities
have been proposed that, if enacted, could adversely affect the volume of
merger and acquisition and merchant banking business, which in turn could
adversely affect the Company's underwriting, advisory and trading revenues
related thereto.

The Company believes that it is in material compliance with the
regulations described herein.

In addition, several states, including New York, which is Equitable
Life's state of domicile, regulate transactions between an insurer and its
affiliates under insurance holding company acts. Under such laws and an
undertaking submitted by Equitable Life to the New York State Insurance
Department, certain transactions between the Company, on the one hand, and
Equitable Life and its subsidiaries on the other, may be subject to prior
notice or approval of the New York State Insurance Department depending on the
size of such transactions.

CAPITAL REQUIREMENTS
- --------------------

DLJSC, Pershing Trading, DLJdirect and Autranet are broker-dealers
registered with the Commission and subject to the capital requirements of the
Commission. In addition, as member firms of the NYSE and/or NASD, they are
subject to the capital requirements of their respective SRO. These capital
requirements specify minimum levels of capital, computed in accordance with
regulatory requirements ("net capital"), that the U.S. Broker-Dealers are
required to maintain and also limit the amount of leverage that the U.S.
Broker-Dealers are able to obtain in their businesses. As a futures commission
merchant, DLJSC is also subject to the capital requirements of the CFTC and the
CBOT. Compliance with regulatory capital requirements could limit those
operations of the U.S. Broker-Dealers that require the intensive use of capital,
such as DLJSC's underwriting and trading activities, and the financing of
customer account balances, and also restrict the Company's ability to pay
dividends, pay interest, repay debt, and redeem or purchase shares of its
outstanding capital stock. A change in such rules, or the imposition of new
rules, affecting the scope, coverage, calculation or amount of capital
requirements, or a significant operating loss or any unusually large charge
against capital, would adversely affect the ability of the Company to pay
dividends or to expand or even maintain present levels of business. The Company
believes that at all times the U.S. Broker-Dealers have been in compliance in
all material respects with the applicable minimum capital rules of the
Commission, the NYSE, the CFTC and the CBOT.

The Company's non-U.S. broker-dealer subsidiaries may be subject to
the net capital requirements imposed by foreign financial regulatory
authorities. At December 31, 1998 and 1997, the Company's foreign broker-dealer
subsidiaries were in compliance with all applicable regulatory capital adequacy
requirements.

IV-9
<PAGE>

ITEM 2. PROPERTIES
----------

The Company's principal executive offices are presently located at 277
Park Avenue, New York, New York and occupy approximately 1.2 million square
feet under a lease expiring in 2021. The Company has leased space at 280 Park
Avenue, New York, New York, aggregating approximately 190,000 square feet under
a lease expiring at various dates through 2014. The Company also leases space at
120 Broadway, New York, New York, aggregating approximately 94,000 square feet.
This lease expires in 2006.

The Company's principal London-based broker-dealer subsidiary is
located at 99 Bishopsgate and occupies approximately 98,000 square feet under a
lease expiring in 2011. In 1998, the Company entered into a lease at 111 Old
Broad Street aggregating approximately 130,000 square feet. This lease expires
in 2018.

Pershing also leases approximately 460,000 square feet in Jersey City,
New Jersey, under leases that expire at various dates through 2009. The Company
also owns land and a building with approximately 142,000 square feet in Florham
Park, New Jersey.

The Company leases an aggregate of approximately 730,000 square feet
for its domestic and international regional offices, the leases for which
expire at various dates through 2014. Other domestic offices are located in
Atlanta, Austin, Boston, Chicago, Dallas, Houston, Jersey City, Los Angeles,
Menlo Park, Miami, Oak Brook, Philadelphia and San Francisco. Its foreign
office locations are Bangalore, Buenos Aires, Geneva, Hong Kong, London,
Lugano, Mexico City, Moscow, Paris, Sao Paulo, Seoul and Tokyo.

The Company believes that its present facilities are adequate for its
current needs.

ITEM 3. LEGAL PROCEEDINGS
-----------------

Beginning on March 25, 1991, Dayton Monetary Associates and Charles
Davison, along with more than 200 other plaintiffs, filed several complaints
against DLJSC and a number of other financial institutions and several
individuals in the U.S. District Court for the Southern District of New York.
The plaintiffs allege that DLJSC and other defendants violated civil provisions
of RICO by inducing plaintiffs to invest over $40 million during the years 1978
through 1982 in The Securities Groups, a number of tax shelter limited
partnerships. The plaintiffs seek recovery of the loss of their entire
investment and an approximately equivalent amount of tax-related damages.
Judgments for damages under RICO are subject to trebling. Discovery is
complete. DLJSC's motions for summary judgments were denied in April 1998.
Trial has been scheduled for May 17, 1999. DLJSC believes that it has
meritorious defenses to the complaints and is contesting the suits vigorously.

In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0 million
principal amount of subordinated redeemable discount debentures of National
Gypsum Corporation ("NGC") canceled in connection with a Chapter 11 plan of
reorganization for NGC consummated in July 1993. The State Court named
plaintiff also filed an adversary proceeding in the U.S. Bankruptcy Court for
the Northern District of Texas seeking a declaratory judgment that the
confirmed NGC plan of reorganization does not bar the class action claims.
Subsequent to the consummation of NGC's plan of reorganization, NGC's shares
traded for values substantially in excess of, and in 1995 NGC was acquired for
a value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's activities as
financial advisor to NGC in the course of NGC's Chapter 11 reorganization
proceedings. The class action complaint alleges that the plan of reorganization
submitted by NGC was based upon projections by NGC and DLJSC which
intentionally understated forecasts, and provided misleading and incorrect
information to hide NGC's true value and that defendants breached their
fiduciary duties by, among other things, providing false, misleading or
incomplete information to deliberately understate the value of NGC. The class
action complaint seeks compensatory and punitive damages purportedly sustained
by the class. On October 10, 1997, DLJSC and others were named as defendants in
a new adversary proceeding in the Bankruptcy Court brought by the NGC
Settlement Trust, an entity created by the NGC plan of reorganization to deal
with asbestos-related claims. The Trust's allegations are substantially similar
to the claims in the State Court action. On January 21, 1998, the Bankruptcy
Court ruled 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 announced by NGC in October 1993. DLJSC has appealed the Bankruptcy
Court's ruling. On May 7, 1998, DLJSC and others were named as defendants in a
second action in a Texas State Court brought by the NGC Settlement Trust. The
allegations of this second Texas State Court

IV-10
<PAGE>

action are substantially similar to those of the earlier class action pending
in State Court. In an amended order dated January 5, 1999, the State Court
granted the class action plaintiff's motion for class certification. In an
order dated March 1, 1999, the State Court granted motions for summary judgment
filed by DLJSC and the other defendants. The plaintiffs have indicated that
they intend to appeal. DLJSC intends to defend itself vigorously against all of
the allegations contained in the complaints.

On January 26, 1996, a purported purchaser of certain notes and
warrants to purchase shares of common stock of Rickel Home Centers, Inc.
("Rickel") filed a class action complaint against DLJSC and certain other
defendants for unspecified compensatory and punitive damages in the U. S.
District Court for the Southern District of New York. The suit was brought on
behalf of the purchasers of 126,457 units consisting of $126,457,000 aggregate
principal amount of 13 1/2% senior notes due 2001 and 126,457 warrants to
purchase shares of common stock of Rickel (the "Units") issued by Rickel in
October 1994. The complaint alleges violations of federal securities laws and
common law fraud against DLJSC, as the underwriter of the Units and as an owner
of 7.3% of the common stock of Rickel, Eos Partners, L.P. and General Electric
Capital Corporation, each as owners of 44.2% of the common stock of Rickel, and
members of the board of directors of Rickel, including a DLJSC managing
director. The complaint seeks to hold DLJSC liable for alleged misstatements
and omissions contained in the prospectus and registration statement filed in
connection with the offering of the Units, alleging that the defendants knew of
financial losses and a decline in value of Rickel in the months prior to the
offering and did not disclose such information. The complaint also alleges that
Rickel failed to pay its semi-annual interest payment due on the Units on
December 15, 1995 and that Rickel filed a voluntary petition for reorganization
pursuant to Chapter 11 of the Bankruptcy Code on January 10, 1996. In April
1998, DLJSC's motion to dismiss the complaint against it was denied, and
plaintiff's motion for class certification was denied. In December 1998, the
motion of two other potential class representatives to intervene in the action
was denied. DLJSC intends to defend itself vigorously against all of the
allegations contained in the complaint.

On January 24, 1997, various money management firms and others who
allegedly purchased and/or beneficially owned $116 million aggregate principal
amount of Senior Subordinated Notes (the "Notes") issued in May 1994 by
Mid-American Waste Systems, Inc. ("Mid-American") filed a complaint against
DLJSC and a number of other financial institutions and several former officers
and directors of Mid-American in the Court of Common Pleas, Franklin County,
Ohio. The action seeks rescission, compensatory and punitive damages. The suit
alleges violations of federal securities laws and the Ohio Securities Act, and
common law fraud, aiding and abetting common law fraud, negligent
misrepresentation, breach of contract, breach of fiduciary duty/acting in
concert and negligence. DLJSC was an underwriter for the initial offering of
the Notes. The Notes went into default in February 1996 and Mid-American filed
a voluntary petition for reorganization pursuant to Chapter 11 of the United
States Bankruptcy Code in January 1997. The complaint seeks to hold DLJSC
liable for various alleged misrepresentations and omissions contained in the
prospectus for the Notes and other filings and for various oral representations
concerning the Notes, which plaintiffs claim were false and misleading. Fact
discovery is complete and expert discovery is ongoing. Both DLJSC and
plaintiffs filed motions for summary judgment, all of which are pending. Trial
is currently scheduled to commence on May 4, 1999. Other alleged purchasers
and/or beneficial owners of an additional $15 million aggregate principal
amount of the Notes issued by Mid-American described above filed two additional
lawsuits against DLJSC both in the U.S. District Court for the Southern
District of Ohio, on April 14, 1997 and December 30, 1997. The allegations are
substantially similar to those described above. Discovery in these actions,
consolidated with fact discovery in the Ohio state court action described
above, is still ongoing. No trial date has been set in either case. On July 31,
1998, DLJSC filed a motion to dismiss the later filed action for lack of timely
service of valid process, which is pending. DLJSC believes that it has
meritorious defenses to all of the allegations contained in all of the
complaints described above and is contesting the suits vigorously.

IV-11
<PAGE>

Notes, and that, as Mid-American's financial advisor after the initial
offering, DLJSC allegedly knew or should have known about and should have
disclosed to Mid-American that Mid-American's financial condition was
precarious and that publicly disclosed documents were false and misleading
regarding Mid-American's finances and operations. There has been no discovery
or other proceedings in this action. DLJSC believes that it has meritorious
defenses to all of the allegations contained in the complaint and will contest
the suit vigorously.

In addition to the matters described above, the Company has been named
as a defendant in 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. The Company is also
involved, from time to time, in proceedings with, and investigations by,
governmental agencies and SRO's. See "Regulation." The Company does not believe
that any such matters, claims or investigations will have a material adverse
effect on its results of operations or its consolidated financial condition.

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

During the fourth quarter of 1998, no matters were submitted to a vote of
security holders.

PART II

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

Market and Dividend Information *
- ---------------------------------

The principal market for trading DLJ Common Stock is the New York Stock
Exchange. Its stock symbol is "DLJ."

Quarters

1998 1st 2nd 3rd 4th
---- --- --- --- ---
High.................... 44 3/4 52 63 3/4 44 1/16
Low..................... 31 3/8 42 5/16 24 1/8 20 3/8
Common dividends........ $ .0625 $ .0625 $ .0625 $ .0625

Quarters

1997 1st 2nd 3rd 4th
---- --- --- --- ---
High.................... 23 11/16 32 1/8 35 25/32 43 13/16
Low..................... 18 18 1/4 28 1/2 34
Common dividends........ $ .0625 $ .0625 $ .0625 $ .0625

The approximate number of holders of DLJ Common Stock at March 5, 1999,
was 15,000.

* All figures are adjusted for the two-for-one split of DLJ Common Stock
that occurred on May 12, 1998.

IV-12
<PAGE>

<TABLE>

SELECTED CONSOLIDATED FINANCIAL DATA

Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In millions, except share and per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:

Revenues
- --------
Commissions....................... $ 854.7 $ 690.2 $ 573.3 $ 460.2 $ 376.1
Underwritings..................... 1,077.7 905.6 755.6 473.3 290.7
Fees.............................. 1,191.7 767.3 470.0 369.1 281.3
Interest, net (1)................. 2,189.1 1,652.1 1,074.2 904.1 791.9
Principal transactions-net:
Trading......................... (92.8) 363.2 394.0 333.1 136.1
Investment...................... 126.0 194.5 163.0 163.7 97.6
Other............................. 60.6 67.6 60.7 55.1 35.0
---------- ---------- ---------- ---------- ----------
Total revenues................ 5,407.0 4,640.5 3,490.8 2,758.6 2,008.7
---------- ---------- ---------- ---------- ----------

Costs and Expenses
Compensation and benefits........ 2,231.7 1,908.2 1,538.8 1,261.4 897.8
Compensation expense-
Restricted stock units......... - - - 6.2 -
Interest......................... 1,455.9 1,153.2 733.2 680.6 503.8
Brokerage, clearing, exchange
fees and other................. 258.6 231.4 201.3 168.1 135.6
Occupancy and equipment........... 269.9 189.9 159.3 127.1 90.1
Communications.................... 89.8 64.0 53.7 42.8 36.6
Other operating expenses.......... 500.6 432.7 330.7 173.9 139.8
---------- ---------- ---------- ---------- ----------
Total costs and expenses...... 4,806.5 3,979.4 3,017.0 2,460.1 1,803.7
---------- ---------- ---------- ---------- ----------

Income before provision for
Income taxes..................... 600.5 661.1 473.8 298.5 205.0
Provision for income taxes.......... 229.7 252.8 182.5 119.4 82.0
---------- ---------- ---------- ---------- ----------

Net income.......................... $ 370.8 $ 408.3 $ 291.3 $ 179.1 $ 123.0
=========== =========== ========== ========== =========

Dividends on preferred stock........ $ 21.3 $ 12.2 $ 18.7 $ 19.9 $ 21.0
=========== =========== ========== ========== =========

Earnings applicable to
Common shares..................... $ 349.5 $ 396.1 $ 272.6 $ 159.2 $ 102.0
=========== =========== ========== ========== =========

Weighted average common
Shares outstanding (2):
Basic.......................... 119,260 110,318 106,600 101,140 100,000
=========== =========== ========== ========== ==========
Diluted........................ 131,980 125,498 118,712 103,160 102,950
=========== =========== ========== ========== ==========

Earnings per common share (2):
Basic.......................... $ 2.93 $ 3.59 $ 2.56 $ 1.58 $ 1.02
=========== =========== ========== ========== ===========
Diluted........................ $ 2.65 $ 3.16 $ 2.30 $ 1.55 $ .99
=========== =========== ========== ========== ===========
</TABLE>

IV-13
<PAGE>

Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In millions, except share and per share data and financial ratios)

<S> <C> <C> <C> <C> <C>
Balance Sheet Data (at end of period):
Securities purchased under
agreements to resell and
securities borrowed.............. $ 44,031.0 $ 43,227.4 $ 29,954.2 $ 27,793.1 $ 19,166.9
Total assets....................... 72,282.2 70,505.8 55,503.7 44,576.5 33,261.6
Securities sold under agreements
to repurchase and securities 43,097.8 43,694.1 32,103.1 29,369.0 20,385.4
loaned..........................
Long-term borrowings............... 3,482.0 2,128.2 1,325.4 958.9 539.9
Redeemable preferred stock ........ 200.0 200.0 200.0 225.0 225.0
Stockholders' equity .............. 2,927.7 2,061.5 1,647.2 1,198.7 820.3

Other Financial Data (at end of period):
Book value per common share
outstanding...................... $ 20.44 $ 15.72 $ 12.40 $ 10.25 $ 8.21
Ratio of net assets to
stockholders' equity (3)........ 9.6x 13.2x 15.51x 14.00x 17.18x
Ratio of long-term borrowings
to total capitalization (4)...... 0.52 0.48 0.40 0.37 0.30
Return on average equity (5)....... 16.5% 24.1% 20.6% 17.1% 13.1%
Ratio of earnings to fixed charges. 1.13x 1.16x 1.16x 1.11x 1.10x
Ratio of earnings to combined
fixed charges and preferred
stock 1.13x 1.16x 1.16x 1.10x 1.09x
dividends (6)...................

</TABLE>

(1) Interest is net of interest expense to finance U.S. government, agency and
mortgage-backed securities of $3.0 billion, $2.9 billion, $2.1 billion,
$2.0 billion and $1.6 billion, respectively.

(2) Basic 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 i.e., excluding the
effect of potentially dilutive securities. Diluted earnings per common
share also include the dilutive effects of common stock issuable under the
Restricted Stock Unit Plan and the dilutive effect of options and
convertible debt under the treasury stock method and "if-converted"
method, respectively.

The weighted average common shares outstanding and earnings per common
share amounts are pro forma for the year ended December 31, 1994. Pro
forma diluted earnings per common share are calculated by dividing
earnings applicable to common shares (net income less preferred
dividends), by the pro forma weighted average number of diluted common
shares outstanding. Pro forma common shares outstanding represent actual
historical shares outstanding adjusted for the dilutive effect of the
Restricted Stock Units (RSUs) using the treasury stock method.

(3) Net assets are total assets excluding securities purchased under agreements
to resell and securities borrowed.

(4) Long-term borrowings and total capitalization (the sum of long-term
borrowings, preferred stock and stockholders' equity) exclude current
maturities (one year or less) of long-term borrowings.

(5) After payment of dividends on the Company's preferred stock.

(6) For the purpose of calculating the ratio of earnings to combined fixed
charges and the ratio of earnings to combined fixed charges and preferred
stock dividends (i) earnings consist of income before the provision for
income taxes and fixed charges and (ii) fixed charges consist of interest
expense and one-third of rental expense which is deemed representative of
an interest factor.

IV-14
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------

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

The unprecedented volatility in the global capital markets in 1998 had
a significant negative impact on revenue and net earnings in the financial
services industry. The collapse of the Russian economy in mid-year and the
economic conditions in Japan, Asia and in worldwide emerging markets led to the
widespread sell-off of fixed income and equity securities throughout the world.
After the Russian crisis, there was a flight to quality resulting in increased
purchases of U.S. government securities and larger spreads between these and
almost all other fixed income securities. In the U.S. these conditions
diminished liquidity and greatly reduced fixed income and equity underwriting.
The effect was particularly damaging in the high yield sector and emerging
markets. These same conditions negatively impacted fixed income and equity
markets worldwide which resulted in efforts by the Federal Reserve Bank to
restore liquidity to the capital markets by cutting interest rates three times
in the latter stages of 1998. The investment climate improved so that most
market indices rebounded into positive returns.

Although the merger market was also impacted by the global market
turmoil in the third quarter, worldwide merger and acquisition activity
increased 54% over 1997. Equity and high yield underwriting declined
significantly during the third and fourth quarters due to extreme market
volatility and illiquidity. Initial public offering ("IPO") activity declined
for the second consecutive year.

RESULTS OF OPERATIONS
- ---------------------

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
- ---------------------------------------------------------------------

For 1998, total revenues of $5.4 billion increased $766.6 million or
16.5%. During 1998, revenues increased primarily as a result of increases in
commissions, fees, underwriting revenues and net interest income offset in part
by decreases in trading and investment gains. Changes in net revenues from
external sources for each of the Company's industry segments were: Banking
Group revenues increased by $271.3 million primarily as a result of increased
underwriting and fees; Capital Markets Group revenues decreased by $17.6
million principally as a result of decreased trading revenues in fixed income
offsetting increases in commissions and underwriting revenues in institutional
equities and fixed income; Financial Services Group revenues increased $185.4
million primarily as a result of increased brokerage and correspondent
clearance commissions and fees from asset management activities. Net revenues
in 1998 include $5.0 million related to the Emerging Markets Group. This
represents a decrease of $112.8 million from net revenues in 1997 as a result
of losses incurred primarily from the collapse of the Russian economy. The
Company ceased its proprietary trading in emerging markets in September 1998
and eliminated the bulk of its trading positions during the fourth quarter of
1998.

Commission revenues increased $164.5 million or 23.8% to $854.7
million due to increased levels of activity in virtually all business groups.
This increase is consistent with the increased volume on major exchanges during
the year.

Underwriting revenues increased $172.1 million or 19.0% to $1,077.7
million. During 1998, the Company experienced market share increases in equity,
convertibles and high yield underwriting.

Fee revenues increased $424.4 million or 55.3% to $1,191.7 million.
These results primarily reflect the Company's continuing market share growth in
merger and acquisition advisory services. During 1998, asset management and
other advisory service activities also increased.

IV-15
<PAGE>

Interest, net of interest expense to finance U.S. government, agency
and mortgage-backed securities, increased $537.0 million or 32.5% to $2,189.1
million. The bulk of the increase occurred in the stock loan/borrowed business.
In addition, increases in domestic and foreign margin balances and higher
levels of foreign fixed income securities, primarily in the Emerging Markets
area prior to the Company's withdrawal from that activity, resulted in
increases in interest income.

Principal transactions-net, trading revenues decreased by $456.0
million or 125.5% to $(92.8) million primarily in the Emerging Markets and High
Yield areas.

Principal transactions-net, investment revenues decreased $68.5
million or 35.2% to $126.0 million. The decrease is primarily due to a lower
amount of realized gains from securities sold coupled with a reduced increase
in fair value of investments remaining in the portfolio, as a result of
volatile market conditions throughout the year, but in particular during the
second half of the year. In 1998, realized gains on sales of investments were
$117.1 million, net unrealized carrying values increased $8.9 million,
including $5.6 million to eliminate net unrealized depreciation on investments
sold, and a $3.3 million increase in net unrealized appreciation on retained
investments.

Other revenues decreased $7.0 million or 10.3% to $60.6 million. Other
revenues consist primarily of dividends and miscellaneous transaction revenues.

Total costs and expenses for 1998 increased $827.2 million or 20.8% to
$4,806.5 million. During 1998, the Company started a non-dollar international
equities group, expanded its Banking Group in the U.S. and internationally,
established a high-yield business in London and generally increased capacity in
its processing oriented businesses to handle significantly increased levels of
activity.

Compensation and benefits increased $323.5 million or 17.0% to
$2,231.7 million. Incentive and production-related compensation increased 9.0%.
Base compensation, including benefits and all payroll taxes, increased by 40.0%
due to the hiring of more senior level executives by various business groups.
Full-time personnel increased 1,412 or 20.0% to 8,465 at year-end 1998.

Interest expense increased $302.7 million or 26.2% to $1,455.9
million. Most of this increase was related to the financing of Pershing's
domestic and foreign stock loan/borrowed business.

As noted below, all other expenses increased $201.0 million or 21.9%
to $1,119.0 million.

Brokerage, clearing, exchange fees and other expenses increased $27.2
million due to increased share volume and transaction fee payments. Occupancy
and equipment costs increased $80.1 million as a result of the Company's
domestic and international expansion. Communications costs increased $25.8
million due to expanded facilities and the overall growth in professional
staff. All other operating expenses increased $67.9 million. These expenses
include professional fees, travel and entertainment, and printing and
stationery, which increased $61.7 million reflecting an overall increase in
business activity and including the costs for the Year 2000 project (see "Year
2000").

The changes in income before income taxes for each industry segment
were: Banking Group pre-tax income increased by $33.9 million, as a result of
increased profitability in the Company's investment and merchant banking
activities; Capital Markets Group pre-tax income decreased by $128.6 million
due to decreased trading revenues in the fixed income area and the investment
spending related to the development of a non-dollar international equities
business; Financial Services Group pre-tax income increased by $28.0 million as
a result of increased commissions and fees from the Company's correspondent
clearing and asset management businesses.

The Company's income tax provision for 1998 and 1997 was $229.7
million and $252.8 million, respectively, which represented a 38.3% and 38.2%
effective tax rate for each period.

Net income for 1998 decreased $37.5 million or 9.2% to $370.8 million.
Using the treasury stock method diluted earnings per common share were $2.65
for 1998 and $3.16 for 1997.

IV-16
<PAGE>

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
- ---------------------------------------------------------------------

For 1997, total revenues of $4,640.5 million increased $1,149.7
million or 32.9%. During 1997, revenues increased in all of the Company's major
areas of activity. Changes in net revenues from external sources for each of
the Company's industry segments were: Banking Group revenues increased by
$375.3 million primarily as a result of increased underwriting activity and
fees; Capital Markets Group revenues increased by $192.3 million principally as
a result of increased commission revenues in domestic equities and increased
fixed income underwriting revenues particularly in the high yield group;
Financial Service Group revenues increased $113.2 million primarily as a result
of an increase in commissions and fees from asset management activities.

Commission revenues increased $116.8 million or 20.4% to $690.2
million due to increased business in all areas. This increase is generally
consistent with the overall growth in listed share volume on major equity
exchanges.

Underwriting revenues increased $150.0 million or 19.8% to $905.6
million. During 1997, the Company experienced increases in all areas of
underwriting.

Fee revenues increased $297.3 million or 63.3% to $767.3 million.
Overall, revenue from merger and acquisition, private placements and other
advisory services activities increased during 1997. In 1997, private equity
capital raised for other investment organizations increased. In addition, fees
from the Company's asset management group increased due to an increase in
assets under management from $5.6 billion at year-end 1996 to $12.0 billion at
year-end 1997.

Interest, net of interest expense to finance U.S. government, agency
and mortgage-backed securities, increased $577.9 million or 53.8% to $1,652.1
million. This increase was driven by higher levels of foreign fixed-income
financing instruments in the Company's newly-acquired London Global Securities
division and higher interest rates earned in the emerging markets business. The
remaining increase was due to higher levels of inventory in the Fixed Income
Division and increased customer margin balances at Pershing.

Principal transactions-net, trading revenues decreased $30.8 million
or 7.8% to $363.2 million.

Principal transactions-net, investment revenues increased $31.6
million or 19.4% to $194.5 million. During 1997, realized gains on sales of
investments were $160.0 million. Net unrealized carrying values increased $34.5
million, including $45.6 million to eliminate net unrealized depreciation on
investments sold and a $11.1 million increase in net unrealized depreciation on
retained investments.

Other revenues increased $6.9 million or 11.4% to $67.6 million due to
increased revenue sharing arrangements at Pershing. Other revenues consist
primarily of dividends and miscellaneous transaction revenues.

Total costs and expenses for 1997 increased $962.4 million or 31.9% to
$3,979.4 million.

Compensation and benefits increased $369.4 million or 24.0% to
$1,908.2 million. Most of the increase was due to increased variable incentive
and production-related compensation, which resulted from higher revenues and
operating results. Base compensation, including benefits and payroll taxes,
increased by 28.2% due to expansion in various business groups, consistent with
the growth of the Company's international businesses. Incentive and
production-related compensation increased 22.6%. Full-time personnel increased
1,168 or 19.8% to 7,053 at year-end 1997.

Interest expense increased $420.0 million or 57.3% to $1,153.2
million. Most of this increase was related to expanded levels of inventory of
fixed-income related products in the Real Estate Finance department and as a
result of the London Global Securities acquisition.

As noted below, all other expenses increased $173.0 million or 23.2%
to $918.0 million.

IV-17
<PAGE>

Brokerage, clearing, exchange fees and other expenses increased $30.1
million due to increased share volume, underwriting expenses and transaction
fee payments. Occupancy and equipment costs increased $30.6 million as a result
of the full-year impact of the firm's relocation and expansion of the Company's
principal office in the U.S. and other domestic and international offices.
During the fourth quarter of 1997, the Company moved its principal London
operations to a new and expanded location. Communications costs increased $10.3
million due to expanded facilities and growth in professional staff. All other
operating expenses increased $102.0 million. These expenses include data
processing, professional fees, travel and entertainment, and printing and
stationery, which increased $110.5 million reflecting an overall increase in
business activity and costs for the Year 2000 project (see "Year 2000").
Increased advertising expenses relate primarily to a major national print,
television and online advertising campaign on behalf of DLJdirect, the
Company's online investing broker. This increase was offset by lower expenses
on previously underwritten mortgage-related securities, the assets of which
were sold in the fourth quarter of 1997.

The changes in income before income taxes for each industry segment
were: the Banking Group pre-tax income increased $116.0 million primarily as a
result of increased profits in the investment banking area; Capital Markets
Group pre-tax income increased $48.4 million as a result of increased
underwritings in the high yield area offset by losses in institutional
equities; and Financial Services Group pre-tax income increased $15.4 million
due to increased commissions and fees from the Company's asset management
activities.

The Company's income tax provision for 1997 and 1996 was $252.8
million and $182.5 million, respectively, which represented a 38.2% and 38.5%
effective tax rate for each period.

Net income for 1997 rose $117.0 million or 40.1% to $408.3 million.
Using the treasury stock method diluted earnings per common share were $3.16
for 1997 and $2.30 for 1996.

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. The
collateralized receivables consist primarily of resale agreements and
securities borrowed, both of which are secured by U.S. government and agency
securities, marketable corporate debt and equity securities. In addition, the
Company has significant receivables that turn over frequently from customers,
brokers and dealers. To meet client needs, as a securities dealer, the Company
may carry significant levels of trading inventories. As such, because of
changes in customer needs, economic and market conditions and proprietary
trading strategies, the Company's total assets or the components of total
assets vary significantly from period to period. A relatively small percentage
of total assets is fixed or held for a period of longer than one year. At
December 31, 1998 and 1997, the Company's total assets were $72.3 billion and
$70.5 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 payables to brokers and dealers. Short-term
funding is generally obtained at rates related to Federal funds, LIBOR and
money market rates. Depending upon prevailing market conditions, other
borrowing costs are negotiated. The Company monitors overall liquidity by
tracking the extent to which unencumbered marketable assets exceed short-term
unsecured borrowings.

During 1998, the Company amended its $2.0 billion revolving credit
facility to increase the aggregate commitment of banks thereunder to $2.8
billion, of which $1.7 billion may be unsecured. There were no borrowings
outstanding under this agreement at December 31, 1998.

Certain of the Company's businesses are capital intensive. In addition
to normal operating requirements, capital is required to cover financing and
regulatory requirements 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.

IV-18
<PAGE>

During 1998, the Company has been active in raising additional long-term
financing, including the issuance of $650.0 million 6 1/2% Senior Notes, $250.0
million 6% Senior Notes and $350.0 million medium-term notes. In the third
quarter of 1998, a subsidiary of the Company issued non-recourse Senior Secured
and Senior Subordinated Secured Floating Rate Notes in the principal amounts of
$200.0 million and $250.0 million due March 15, 2005 and September 15, 2005,
respectively. At December 31, 1998, a portfolio of investments, primarily
senior bank debt valued at $441.0 million, collateralizes the non-recourse
notes. In addition, in May 1998, the Company repaid its $325.0 million senior
subordinated revolving credit agreement and terminated the related credit
facility.

In January 1998, the Company issued 3.5 million shares of
Fixed/Adjustable Rate Cumulative Preferred Stock, Series B, with a liquidation
preference of $50.00 per share ($175.0 million aggregate liquidation value).

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 under Section 4(2)
("the Securities Act."). The Notes rank pari passu with the Company's other
unsecured and unsubordinated indebtedness. At December 31, 1998, $30.9 million
of Notes were outstanding under this program.

In March 1999, the Company filed a shelf registration statement,
which enables it to issue, from time to time, up to $2 billion of senior or
subordinated debt securities or preferred stock. In March 1999, the Company
issued $650 million of 5 7/8% Senior Notes due 2002 pursuant to such
registration statement.

The Company's current credit ratings of its long-term debt and
commercial paper are as follows:

Long-Term Debt Commercial Paper
-------------- ----------------
Duff & Phelps A D-1
Fitch IBCA A F-1
Moody's A3 P-2
Standard & Poors A- A-2
Thomson Bank Watch A+ TBW-1

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 which regulate 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 December 31, 1998, DLJSC had aggregate
regulatory "net capital," after adjustments required by Rule 15c3-1 under the
Exchange Act, of approximately $1.2 billion, which exceeded minimum net capital
requirements by approximately $1.1 billion and which exceeded the net capital
required by DLJSC's most restrictive debt covenants by $777.0 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
December 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.

IV-19
<PAGE>

CASH FLOWS
- ----------

Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------

At December 31, 1998, 1997 and 1996 cash and cash equivalents totaled
$1,049.3 million, $273.2 million and $158.8 million, respectively, an increase
of $776.1 million, $114.3 million and $51.1 million, respectively.

Cash used in operating activities totaled $2.4 billion, $5.3 billion
and $1.5 billion in 1998, 1997 and 1996, respectively. In 1998, there were
increases in assets including securities borrowed of $3.4 billion, receivables
from customers of $2.1 billion, and a decrease in financial instruments sold
not yet purchased of $1.5 billion. These changes were offset by an increase in
payables to customers of $1.8 billion and a decrease in financial instruments
owned of $3.3 billion. In 1997, securities borrowed increased $11.2 billion and
receivables from customers increased $1.2 billion. These increases in assets
were offset by increases in operating liabilities including securities loaned
of $5.0 billion, payables to customers of $1.2 billion and financial
instruments sold not yet purchased of $1.0 billion. In 1996, financial
instruments owned increased by $4.9 billion, receivables from brokers, dealers
and other increased by $2.3 billion, and receivables from customers increased
by $0.8 billion. These changes were offset by increases in financial
instruments sold not yet purchased of $2.7 billion, increases in payables to
brokers, dealers and other of $2.5 billion and payables to customers of $1.3
billion.

In 1998, net cash used in investing activities of $334.0 million
consisted primarily of purchases to expand the Company's domestic and
international offices and net purchases of long-term corporate development
investments. In 1997 and 1996, net cash used in investing activities of $216.0
million and $107.0 million, respectively, consisted primarily of purchases to
move the Company's principal offices. Additionally, in 1997, cash was used for
the purchases of long-term corporate development investments. While in 1996
cash was provided from the sales of long-term corporate development
investments.

In 1998, 1997 and 1996, net cash provided by financing activities
totaled $3.5 billion, $5.6 billion, and $1.7 billion, respectively, of which
$1.7 billion, $4.9 billion and $1.2 billion, respectively, was provided by
short-term financings. In 1998, cash of $325.0 million was used to repay the
subordinated revolving credit agreement, while $893.6 million was provided by
issuing senior notes, $349.3 million was provided by issuing medium-term notes,
$450.0 million was provided by issuing senior secured floating rate notes,
$300.0 million was provided from the sale of Common Stock to Equitable/AXA, and
$175.0 million was provided by issuing Series B Preferred Stock. In 1997,
$347.8 million was provided by issuing global floating-rate notes, $359.6
million was provided by issuing medium-term notes and $118.5 million was
provided by a drawdown of the subordinated revolving credit agreement. In 1996,
cash of $105.5 million was used to repay Swiss Franc Bonds, $249.5 million was
provided by issuing medium-term notes, $200.0 million was provided by issuing
mandatorily redeemable preferred securities by the Company's wholly owned
Trust, and $200.0 million was provided by issuing Series A Fixed/Adjustable
Rate Cumulative Preferred Stock.

DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------

Derivatives are financial instruments, the payments on which are
linked to the prices, or relationships between prices, of securities or
commodities, interest rates, currency exchange rates or other financial
measures (collectively, "cash market instruments"). Derivatives enable the
Company and its clients to manage their exposure to interest rates and currency
exchange rates, and security and other price risks. Derivatives may include
options, forward and futures contracts and swaps. Certain types of derivatives,
including forwards and certain options, are traded in the over-the-counter
("OTC") markets. Other types of derivatives, including futures contracts and
listed options, are traded on regulated exchanges. The Company uses derivatives
primarily to provide products to its clients, rather than to cover its own
positions.

The Company has focused its derivative activities on writing 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 financial instruments and indices.

IV-20
<PAGE>

Options:
--------

The Company writes option contracts specifically designed to meet
customers' needs. Since the Company, not its counterparty, is obligated to
perform, the options do not expose the Company to credit risk. At the beginning
of the contract period, the Company receives a cash premium. During the
contract period, the Company bears the risk of unfavorable changes in the value
of the financial instruments underlying the options ("market risk"). To cover
this market risk, the Company purchases or sells cash or derivative financial
instruments on a proprietary basis. Such purchases and sales may include debt
and equity securities, forward and futures contracts and options. The
counterparties to these purchases and sales are reviewed to determine whether
they are creditworthy. Future cash requirements for options written equal the
fair value of the options. Option contracts are typically written for a
duration of less than 13 months and are included in the consolidated statements
of financial condition at fair value.

December 31,
1998 1997
---- ----
(In millions)
<S> <C> <C>
U.S. government, mortgage-backed
securities and options thereon............................... $ 3,396 $ 3,773
Foreign sovereign debt securities................................. 89 73
Forward rate agreements........................................... 38 -
Futures contracts................................................. 76 219
Equities and other................................................ 1,545 1,340
-------- --------

Total.................................................. $ 5,144 $ 5,405
======= =======
</TABLE>

Forwards and Futures Trading:
-----------------------------

The Company enters into forward purchases and sales contracts for
mortgage-backed securities and foreign currencies. In addition, the Company
enters into futures contracts on equity-based indices, foreign currencies and
other financial instruments as well as options on futures contracts. Forward
and futures contracts are treated as off-balance sheet items. Market risk is
the price movement on the notional value of the contracts.

For forward contracts, cash is generally not required at inception;
cash equal to the notional value on the contract is required at settlement. For
futures contracts, the original margin is required in cash at inception; cash
equal to the change in market value is required at settlement. Futures contracts
are settled daily.

For the years ended December 31, 1998 and 1997, respectively the
average monthly fair values were approximately $(2.0) million and $(2.0)
million for forward contracts and $(23.0) million and $1.0 million for futures
contracts. At December 31, 1998 and 1997, respectively the receivables from or
payables to brokers, dealers and other captions in the Company's consolidated
statements of financial condition included net unrealized gains (losses) of
approximately $(6.0) million and $6.0 million related to forward contracts and
approximately $3.0 million and $(2.0) million related to futures contracts. For
the years ended December 31, 1998, 1997 and 1996 unrealized gains and losses on
forward and futures contracts are recorded in earnings. Net trading gains
(losses) on forward contracts were $7.0 million, $(5.1) million and $39.0
million and net trading gains (losses) on futures contracts were $(86.0)
million, $(24.0) million and $8.0 million, for the years ended
December 31, 1998, 1997, and 1996 respectively.

IV-21
<PAGE>

Off balance sheet values:
December 31,
1998 1997
---- ----
(in millions)
<S> <C> <C>
Forward Contracts:
Purchased at notional (contract) value....................... $ 41,254 $ 18,366
Sold at notional (contract) value............................ $ 39,767 $ 27,028

Futures Contracts and Options on Future Contracts:
Purchased at market value.................................... $ 1,184 $ 988
Sold at market value......................................... $ 1,607 $ 2,767

</TABLE>

Swaps
-----

The notional (contract) value of swap agreements, consisting primarily
of interest rate and equity swaps, was approximately $8.0 billion and $686.9
million at December 31, 1998 and December 31, 1997, respectively. The notional
or contract amounts indicate the extent of the Company's involvement in the
derivative instruments noted above. They do not measure the Company's exposure
to market or credit risk and do not represent the future cash requirements of
such contracts.

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. At December 31, 1998, in connection with these merchant banking
activities, the Company had investments of $380.7 million and had potential
commitments to invest up to an additional $718.0 million.

Equitable has committed, subject to approval by Equitable on a
transaction-by-transaction basis, to provide $750.0 million of subordinated
debt financing to the DLJ Bridge Fund. The Company has agreed to pay Equitable
the first $25.0 million of aggregate principal losses incurred by Equitable
with respect to all bridge loans. 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 $150.0 million. At December 31,
1998, the DLJ Bridge Fund does not have any individual bridge loan outstanding
in excess of $150.0 million. At December 31, 1998, the DLJ Bridge Fund had
extended $295.0 million of short-term bridge loans, which are expected to be
refinanced in the first quarter of 1999.

HIGH-YIELD AND NON-INVESTMENT GRADE SECURITIES
- ----------------------------------------------

The Company underwrites, trades, sells and holds high-yield and
non-investment-grade securities. Non-investment-grade securities are securities
or loans to companies rated BB+ or lower as well as non-rated securities or
loans. Due to credit considerations, liquidity of secondary trading markets and
vulnerability to general economic conditions, these securities generally
involve greater risk than investment-grade holdings. During the third quarter,
the Company's high-yield and non-investment grade holdings were reduced in
response to the volatile market conditions. The Company ceased trading in its
emerging markets proprietary debt trading group in September 1998 and has made
other adjustments to lower its risk profile.

IV-22
<PAGE>

The Company records high-yield securities at market value and records
non-investment grade holdings at market or fair value. Unrealized gains and
losses are recognized currently in earnings. Long and short holdings (excluding
derivatives and structured notes) are as follows:

1998 1997
------------------ ------------
Long Short Long Short
---- ----- ---- -----
(in millions)
<S> <C> <C> <C> <C>
High-Yield................................. $ 429.3 $ 345.3 $ 645.6 $ 389.6
Senior Bank Debt........................... 1,261.6 - 864.1 -
Foreign Sovereign Debt..................... 423.6 13.8 1,615.4 543.3
Mortgage Whole Loans ...................... 722.3 - 1,555.7 -
Convertible Securities..................... 460.6 8.0 534.8 3.1
Other Non-Investment Grade................. 243.2 21.5 44.4 4.9
---------- --------- ----------- ----------

Totals............................. $ 3,540.6 $ 388.6 $ 5,260.0 $ 940.9
========= ======= ========= =======
</TABLE>

RISK MANAGEMENT
- ---------------

Exposure to risk and the ways in which the Company manages the various
types of risks on a day-to-day basis is critical to its survival and financial
success. Each day, the Company monitors its market and counterparty risk
through a number of control procedures designed to identify and evaluate the
various risks to which the Company is exposed. The Company has established an
Independent Risk Oversight function to oversee risk policies and risk
monitoring and management capabilities throughout the firm and coordinate the
risk management practices of the various business groups. This department is
assisted by a Risk Committee comprised of senior professionals from each of the
operating and key administrative groups.

To help senior management manage risk associated with investment
banking and merchant banking transactions the Company has established various
committees. These committees review potential clients and engagements, use
experience with similar clients and situations, analyze credit for certain
commitments and analyze the Company's potential role as a principal investor.
To control the risks associated with its banking activities, various committees
review the details of all transactions before accepting an engagement.

The Company has formed the following committees: the Fairness and
Valuation Opinion Committee, the Private Placement Committee, the Restructuring
Coordinating Committee, the Equity Commitment Committee, the High-Yield
Underwriting Committee, the Bridge Commitment Committee, the Banking Review
Committee, the Finance Committee and the Executive Committee.

From time to time, the Company invests in certain merchant banking
transactions or other long-term corporate development investments. DLJ's
Merchant Banking Group has established several investment entities, each of
which has formed its own investment committee. These committees decide on all
investments and dispositions with respect to potential and existing portfolio
companies. In addition, each quarter, senior officers of the Company meet to
review merchant banking and corporate development investments. After discussing
the financial and operational aspects of the companies involved, the senior
officers recommend carrying values for each investment to the Finance
Committee. The Finance Committee then reviews such recommendations and
determines fair value.

The Company often acts as principal in customer-related transactions
in financial instruments that expose the Company to market risks. The Company
also engages in proprietary trading and arbitrage activities and makes dealer
markets in equity securities, investment-grade corporate debt, high-yield
securities, U.S. government and agency securities, mortgages and
mortgage-backed securities and selected derivatives. As such, to facilitate
customer order flow the Company may be required to maintain certain amounts of
inventories. The Company covers its exposure to market risk by limiting its net
long or short position by selling or buying similar instruments and by using
various derivative financial instruments in the exchange-traded and OTC
markets.

IV-23
<PAGE>

Position limits in trading and inventory accounts are established and
monitored continuously. Current and proposed underwriting, corporate
development, merchant banking and other commitments are subject to due diligence
reviews by senior management and by professionals in the appropriate business
and support units involved.

Trading activities generally result in inventory positions. Each day,
position and exposure reports are prepared by operations staff in each of the
business groups engaged in trading activities for traders, trading managers,
department managers, division management and group management. These reports
are independently reviewed by the Company's corporate accounting group. The
corporate accounting group prepares a consolidated summarized position report
listing long and short exposure, and approved limits. The position report is
distributed to various levels of management throughout the Company, including
the Chief Executive Officer, and it enables senior management to control
inventory levels and monitor results of the trading groups. The Company also
reviews and monitors inventory aging, pricing, concentration and securities
ratings.

In addition to position and exposure reports the Company produces a
daily revenue report that summarizes the trading, interest, commissions, fees,
underwriting and other revenue items for each of the business groups. Daily
revenue is reviewed for various risk factors and is independently verified by
the corporate accounting group. The daily revenue report is distributed to
various levels of management throughout the Company, including the Chief
Executive Officer, and together with the position and exposure report, enables
senior management to monitor and control overall activity of the trading
groups.

Market risk
- -----------

Market risk represents the potential loss as a result of absolute and
relative price movements in financial instruments due to changes in interest
rates, foreign exchange rates, equity prices, and other factors. The Company's
exposure to market risk is directly related to its role as financial
intermediary in customer-related transactions and to its proprietary trading
activities. As of December 31, 1998, the Company's primary market risk
exposures include interest rate risk, credit spread risk and equity price risk.
Interest rate risk results from maintaining inventory positions and trading in
interest rate sensititive financial instruments and arises from various sources
including changes in the absolute and relative level of interest rates,
interest rate volatility, mortgage prepayment rates and the shape of the yield
curves in various markets. To cover its exposure to interest rate risk, the
Company enters into transactions in U.S. government securities, options and
futures and forward contracts designed to reduce the Company's risk profile.
The Company's investment grade and high-yield corporate bonds, mortgages,
equities, derivatives and convertible debt activities, also expose it to the
risk of loss related to changes in credit spreads. Credit spread risk arises
from the potential changes in an issuer's credit rating that affect the value
of financial instruments. Equity price risk results from maintaining inventory
positions and making markets in equity securities and arises from changes in
the level or volatility of equity prices, equity index exposure and equity
index spreads, which affect the value of equity securities. To cover its
exposure to equity price risk, the Company enters into transactions in options
and futures designed to reduce the Company's risk profile.

Value at risk
- -------------

In 1997 the Company developed a Company-wide Value-at-Risk (VAR)
model. This model used a variance-covariance approach with a confidence
interval of 95% and a one-day holding period, based on historical data for one
year. The Company has made changes to the model in the course of 1998. In
response to the volatile and illiquid markets of the third quarter of 1998,
which departed markedly from the normal statistical distributions that underlie
the variance-covariance approach, the Company has estimated VAR by using an
historical simulation model based on two years of weekly historical data, a 95%
confidence interval, and a one-day holding period. The effect of this change in
approach was not material.

IV-24
<PAGE>

The VAR number is the statistically expected maximum loss on the fair
value of the Company's market sensitive instruments for 19 of 20 trading days.
In other words, on one of 20 trading days, the loss is expected to be
statistically greater than the VAR number. However, the model does not indicate
how much greater.

VAR models are designed to assist in risk management and to provide
senior management with one probabilistic indicator of risk at the firm level.
VAR numbers should not be interpreted as a predictor of actual results. The VAR
model has been specifically tailored for the Company's risk management needs
and risk profile.

The VAR model includes the following limitations: (1) a daily VAR does not
capture the risk inherent in trading positions that cannot be liquidated or
hedged in one day, (2) VAR is based on historical market data and assumes that
past trading patterns will predict the future, (3) all inherent market risks
cannot be perfectly modeled, and (4) correlations between market movements can
vary, particularly in times of market stress.

The Company believes that a Company-wide VAR analysis is an important
advance in risk management, but it is aware of the limitations inherent in any
statistical analysis. Because a VAR model alone is not a sufficient tool to
measure and monitor market risk, the Company will continue to use other risk
management measures, such as stress testing, independent review of position and
trading limits and daily revenue reports.

At December 31, 1998 and December 31, 1997 the Company-wide VAR for
trading was approximately $22.0 million and $11.0 million, respectively. The
Company-wide VAR for non-trading market risk sensitive instruments is not
separately disclosed because the amount is not significant. Due to the benefit
of diversification the Company-wide VAR is less than the sum of the individual
components. At December 31, 1998 and December 31, 1997 the three main
components of market risk, expressed in terms of theoretical fair values, had
the following VAR:

December 31,
1998 1997
------------- ---------
(In millions)
Trading:
Interest rate risk...................... $ 16 $ 8
Equity risk............................. $ 11 $ 8
Foreign currency exchange risk.......... $ - $ 1
..................

The increase in value at risk in 1998 over 1997 is due largely to the
dramatic increase in volatility across a broad range of financial instruments.

Credit risk
- -----------

Credit risk related to various financing activities is reduced by the
industry practice of obtaining and maintaining collateral. Each day the Company
monitors its exposure to counterparty risk through the use of credit exposure
information and monitoring collateral values.

To establish appropriate exposure limits for a variety of
transactions, all counterparties are reviewed on a periodic basis. Specific
transactions are analyzed to assess the potential exposure and the
counterparty's credit is reviewed to determine whether it supports such
exposure. The Company also analyzes market movements that could affect exposure
levels. To determine trading limits the Company considers four main factors:
the settlement method; the time it will take for a trade to settle (i.e., the
maturity of the trade); the volatility that could affect the value of the
instruments involved in the trade; and the size of the trade. In addition to
determining trading limits, the Company actively manages its credit exposure by
performing the following activities: enters into master netting agreements when
feasible; monitors the creditworthiness of counterparties and the related
trading limits on an ongoing basis and requests additional collateral when
deemed necessary; diversifies and limits exposure to individual counterparties
and geographic locations; and limits the duration of exposure. To mitigate
credit risks, in certain cases, the Company may also close out transactions or
assign them to other counterparties when deemed necessary or appropriate.

IV-25
<PAGE>

YEAR 2000
- ---------

The Company has been actively engaged in addressing Year 2000 issues.
Such issues relate to potential problems resulting from non-Year 2000 compliant
systems processing transactions using two-digit date fields rather than four
digit date fields for the year of a transaction. 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.

As a result of the Company's recent expansion, entry into new product
markets and move to its new corporate headquarters, many of the Company's
communications and data processing systems are Year 2000 compliant. However,
the Company, has undertaken a Year 2000 Project to identify and modify any
non-Year 2000 compliant systems. The Year 2000 Project is the Company's highest
priority. The Year 2000 Project is decentralized by functional area and is
focused on both information technology and non-information technology systems.
A written Year 2000 Plan has been developed for each unit (Business Units and
Administrative Units) and the units are responsible for all steps necessary to
ensure that their respective assets and systems are Year 2000 compliant. The
Year 2000 Project is overseen by two Project Management Offices: one for the
Company's correspondent clearance business and the other responsible for the
Company's remaining functional units. The Project Managers report to a Steering
Committee, comprised of Senior Business Managers, which in turn reports to the
Company's Chief Financial Officer and Chief Executive Officer. The Company has
also retained the services of several consulting firms having considerable
expertise in advising corporations on Year 2000 issues.

As of December 31, 1998, the Company has inventoried all systems,
identified mission critical systems (those systems where loss of their function
would result in an immediate stoppage or significant impairment to core
business areas) and determined which of these systems are not Year 2000
compliant. By the end of the first quarter of 1999 the Company's correspondent
clearance business expects to renovate, test and return all of its non-Year
2000 compliant applications to production after remediation has been completed.
With respect to the rest of the Company's systems, by the first quarter of
1999, all mission critical systems are expected to be renovated, implemented
and tested. The same process will be performed for non-critical systems and is
expected to be completed by the second quarter of 1999. None of the Company's
other major information technology projects have been affected significantly
due to the implementation of the Year 2000 Project.

The Company has identified all significant third parties, such as
fiduciary agents, vendors, custodial banks, correspondents and facility
operators, and has contacted them regarding their Year 2000 readiness. All such
parties have assured the Company that they are taking the necessary steps to
prepare for the Year 2000.

The Company has initiated and is actively involved in various types of
testing including the Securities Industry Association's industry-wide beta
testing, electronic file testing with correspondents and vendor-supplied
business applications testing. For each of the tests in which it has
participated, the Company has achieved successful results. Throughout 1999,
internal and external systems will continue to be tested to ensure that all
remediated systems remain compliant.

Costs
- -----

The total cost to ensure that the Company's systems are Year 2000
compliant is not expected to be material to the Company's financial position.
Based upon current information, the total cost of the Year 2000 project is
currently estimated to be between $85 and $90 million, which has been approved
by the Board of Directors of the Company. Based on progress to date, the
current funding level has been found to be adequate. More than half of the Year
2000 budget is allocated to renovate and test applications. The budget includes
Year 2000 compliance testing, full system testing, peer to peer testing with
industry agencies, correspondents and third party vendors and other
industry-wide testing. The budget also includes developing a contingency plan.
Costs related to the Year 2000 project are expensed as incurred. At December
31, 1998, costs since inception totaled $77.0 million. The cost of the project
is being funded by operations.

IV-26
<PAGE>

Risks
- -----

The Year 2000 issue includes many risks including the possibility that
the Company's computer and non-information technology systems will fail. The
Company cannot ensure that the schedule for compliance outlined above will be
met or that the systems of other companies on which the Company depends will be
timely converted. Due to this uncertainty, the Company is unable to determine
whether the Year 2000 will have a material impact on the Company's business,
results of operations or financial condition. If the Year 2000 risks are not
remedied, the Company may experience business interruption or shutdown,
financial loss, regulatory actions, damage to the Company's global franchise
and legal liability. However, the Year 2000 Project is expected to reduce
significantly the Company's level of uncertainty regarding the Year 2000
readiness of internal and third-party systems. The Company believes that with
the completion of the Project as scheduled, the possibility of significant
interruptions of normal operations as a result of the Year 2000, should be
reduced.

Contingencies
- -------------

The Company's action plan is designed to safeguard the interests of
the Company and its customers; however, except as discussed below, a formal
contingency plan does not exist. The Company is assessing contingency
requirements and by the end of the second quarter of 1999 will develop a
contingency plan. DLJ' s correspondent clearance business has a written general
contingency plan, which covers a variety of independent events that may require
recovery/contingency plans, including Year 2000 system failures. To enhance
this plan, Year 2000-specific scenarios are being developed.

To the fullest extent permitted by law, the foregoing discussion is a
"Year 2000 Readiness Disclosure" within the meaning of the Year 2000
Information and Readiness Disclosure Act 105 P.L. 271.

Forward looking statements contained under "YEAR 2000" above should be
read in conjunction with the Company's disclosure under the heading "FORWARD
LOOKING STATEMENTS" below.

RECENT ACCOUNTING DEVELOPMENTS
- ------------------------------

In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which requires all derivatives to be recognized in the statement of financial
condition at fair value. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999 and should be applied prospectively. Earlier application is
permitted. Since most of the Company's derivatives are carried at fair value,
the adoption of this statement is not expected to have a material impact on the
Company's results of operations or its consolidated statement of financial
condition.

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, as well as its
strategic objectives, including, without limitation, global expansion. 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, which is affected by, among other things, the availability
of capital, the level and volatility of interest rates and the uncertainties of
the global and U.S. economies, (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

IV-27
<PAGE>

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, (x) the
effect of any future acquisitions, (xi) the risks associated with Year 2000
issues, including failure to meet the schedule for Year 2000 compliance, the
uncertainty surrounding Year 2000 readiness of third parties, and increased
costs associated with the implementation of the Year 2000 project and (xii)
factors that may affect the timeliness of Year 2000 compliance include the
ability to locate, correct and successfully test all relevant computer code
according to schedule, the continued availability of certain resources
including personnel, timely responses and corrections by third-parties and
suppliers and the compatibility of new systems with those systems not being
replaced.

IV-28
<PAGE>

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------

See "Management's Discussion and Analysis of Financial Condition and
Results of Operations"- "Risk Management," on pages 23-28 of this
document.

IV-29
<PAGE>

[KPMG LOGO]

345 Park Avenue
New York, NY 10154

Independent Auditors' Report
----------------------------

The Board of Directors and Stockholders
Donaldson, Lufkin & Jenrette, Inc.

We have audited the accompanying consolidated statements of financial condition
of Donaldson, Lufkin & Jenrette, Inc. and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998, and the related financial statement schedule.
These consolidated financial statements and related financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Donaldson, Lufkin &
Jenrette, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

/s/ KPMG LLP

February 2, 1999
except as to footnote 19, which is as of March 17, 1999

IV-30
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition
(In thousands, except share and per share data)

December 31, December 31,
1998 1997
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents.................................................... $ 1,049,253 $ 273,164
Cash and securities segregated for regulatory purposes or deposited with
clearing organizations.................................................... 1,043,225 832,093
Collateralized short-term agreements:
Securities purchased under agreements to resell........................... 20,063,348 22,628,782
Securities borrowed....................................................... 23,967,639 20,598,639
Receivables:
Customers................................................................. 6,523,568 4,397,668
Brokers, dealers and other................................................ 3,773,251 3,162,970
Financial instruments owned, at value:
U.S. government and agency................................................ 5,973,394 6,834,996
Corporate debt............................................................ 4,441,492 5,577,023
Foreign sovereign debt.................................................... 423,736 1,624,235
Mortgage whole loans...................................................... 722,284 1,555,685
Equities and other........................................................ 1,634,201 943,782
Long-term corporate development investments............................... 473,756 315,774
Office facilities, at cost, (net of accumulated depreciation and amortization
of $297,959 and $216,230, respectively)................................... 450,706 388,677
Other assets and deferred amounts ........................................... 1,742,383 1,372,357
-------------- --------------

Total Assets................................................................. $ 72,282,236 $ 70,505,845
============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

IV-31
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition
(In thousands, except share and per share data)

December 31, December 31,
1998 1997
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Commercial paper and short-term borrowings...................................... $ 515,646 $ 1,121,352
Collateralized short-term financings:
Securities sold under agreements to repurchase.............................. 35,775,580 36,006,656
Securities loaned........................................................... 7,322,186 7,687,416
Payables:
Customers................................................................... 6,847,046 5,071,653
Brokers, dealers and other.................................................. 3,053,337 2,912,218
Financial instruments sold not yet purchased, at value:
U.S. government and agencies................................................ 5,935,629 7,671,498
Corporate debt.............................................................. 523,909 854,155
Foreign sovereign debt...................................................... 40,744 553,852
Equities and other.......................................................... 2,438,667 1,376,395
Accounts payable and accrued expenses........................................... 2,282,413 2,119,131
Other liabilities............................................................... 937,377 741,870
--------------- ---------------

65,672,534 66,116,196

Long-term borrowings............................................................ 3,482,003 2,128,159
-------------- --------------

Total liabilities...................................................... 69,154,537 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; 122,812,558 and 111,852,762 shares issued
and outstanding, respectively)........................................... 12,281 11,185
Restricted stock units (10,358,294 units authorized; 2,082,236
and 6,562,414 units issued and outstanding, respectively)................ 21,333 67,255
Paid-in capital............................................................. 858,066 440,926
Retained earnings........................................................... 1,657,710 1,338,220
Accumulated other comprehensive income...................................... 3,309 3,904
Employee deferred compensation stock trust.................................. 12,329 12,061
Common stock issued to employee deferred compensation trust................. (12,329) (12,061)
--------------- ---------------

Total stockholders' equity............................................. 2,927,699 2,061,490
-------------- --------------

Total Liabilities and Stockholders' Equity...................................... $ 72,282,236 $ 70,505,845
============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

IV-32
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Consolidated Statements of Income
(in thousands, except per share data)

Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Commissions........................................................ $ 854,679 $ 690,156 $ 573,335
Underwritings...................................................... 1,077,712 905,607 755,627
Fees............................................................... 1,191,655 767,259 469,986
Interest, net of interest to finance U.S. government,
agency and mortgage-backed securities of $3,045,391,
$2,859,042 and $2,132,593, respectively.......................... 2,189,108 1,652,135 1,074,223
Principal transactions-net:
Trading.......................................................... (92,782) 363,190 393,938
Investment....................................................... 126,031 194,527 162,975
Other.............................................................. 60,639 67,595 60,672
---------- ---------- ----------

Total revenues.................................................. 5,407,042 4,640,469 3,490,756
---------- ---------- ----------

Costs and Expenses:
Compensation and benefits.......................................... 2,231,655 1,908,201 1,538,754
Interest........................................................... 1,455,851 1,153,167 733,207
Brokerage, clearing,
exchange fees and other.......................................... 258,625 231,402 201,292
Occupancy and equipment............................................ 269,975 189,915 159,330
Communications..................................................... 89,793 63,965 53,657
Other operating expenses........................................... 500,643 432,719 330,716
---------- ---------- ----------

Total costs and expenses........................................ 4,806,542 3,979,369 3,016,956
---------- ---------- ----------

Income before provision for income taxes............................... 600,500 661,100 473,800
---------- ---------- ----------

Provision for income taxes............................................. 229,700 252,850 182,500
---------- ---------- ----------

Net income............................................................. $ 370,800 $ 408,250 $ 291,300
========== ========== ==========

Dividends on preferred stock........................................... $ 21,310 $ 12,144 $ 18,653
========== ========== ==========

Earnings applicable to common shares................................... $ 349,490 $ 396,106 $ 272,647
========== ========== ==========

Earnings per common share:
Basic............................................................. $ 2.93 $ 3.59 $ 2.56
========== ========== ==========
Diluted........................................................... $ 2.65 $ 3.16 $ 2.30
========== ========== ==========

Weighted average common shares outstanding:
Basic............................................................. 119,260 110,318 106,600
========== ========== ===========
Diluted........................................................... 131,980 125,498 118,712
========== ========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

IV-33
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity

For the Years Ended December 31, 1996, 1997n and 1998
(In thousands, except per share data)

<TABLE>
<CAPTION>
Restricted
Preferred Common Stock Paid-in Retained
Stock Stock Units Capital Earnings
------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995.......... $ 0 $ 10,659 $ 106,163 $ 358,664 $ 723,859

Net income............................. - - - - 291,300
Translation adjustment................. - - - - -
Total comprehensive income.......... - - - - -

Dividends:
Common stock ($0.25 per share)....... - - - - (26,650)
Preferred stock ($8.29 per share).... - - - - (18,653)
Forfeiture of restricted stock units... - - (1,996) 1,996 -
Issuance of Series A Preferred stock... 200,000 - - - -
--------- ------------ -------------- -------------- --------------

Balances at December 31, 1996.......... 200,000 10,659 104,167 360,660 969,856

Net income............................. - - - - 408,250
Translation adjustment................. - - - - -
-
Total comprehensive income..........

Dividends:
Common stock ($0.25 per share)....... - - - - (27,742)
Preferred stock ($3.036 per share)... - - - - (12,144)
Forfeiture of restricted stock units... - - (156) 156 -
Conversion of restricted stock
units to common stock............... - 358 (36,756) 45,041 -
Conversion of debentures............... - 138 - 28,641 -
Exercise of stock options.............. - 30 - 6,428 -
--------- ------------ -------------- -------------- --------------

Balances at December 31, 1997.......... 200,000 11,185 67,255 440,926 1,338,220

Net income............................. - - - - 370,800
Translation adjustment................. - - - - -
Total comprehensive income..........

Dividends:
Common stock ($0.25 per share)....... - - - - (30,000)
Preferred stock ($2.84 per share).... - - - - (21,310)
Issuance of Series B Preferred Stock... 175,000 - - - -
Sale of common stock to Equitable/AXA..
- 500 - 299,500 -
Exercise of stock options.............. - 148 - 37,840 -
Conversion of restricted stock
units to common stock............... - 448 (45,890) 70,870 -
Forfeiture of restricted stock units... - - (32) 32 -
Tax benefit on distribution of
employee stock trust................ - - - 8,898 -
--------- ------------ -------------- -------------- --------------
Balances at December 31, 1998..........$ 375,000 $ 12,281 $ 21,333 $ 858,066 $ 1,657,710
========= ======== ======== ========= ===========

<PAGE>

Accumulated
Other
Comprehensive
Income Total
------ -------

<S> <C> <C>
Balances at December 31, 1995.......... $ (625) $ 1,198,720

Net income............................. - 291,300
Translation adjustment................. 2,522 2,522
Total comprehensive income.......... - 293,822

Dividends:
Common stock ($0.25 per share)....... - (26,650)
Preferred stock ($8.29 per share).... - (18,653)
Forfeiture of restricted stock units... - -
Issuance of Series A Preferred stock... - 200,000
--------- ------------

Balances at December 31, 1996.......... 1,897 1,647,239

Net income............................. - 408,250
Translation adjustment................. 2,007 2,007

Total comprehensive income.......... 410,257

Dividends:
Common stock ($0.25 per share)....... - (27,742)
Preferred stock ($3.036 per share)... - (12,144)
Forfeiture of restricted stock units... - -
Conversion of restricted stock
units to common stock............... - 8,643
Conversion of debentures............... - 28,779
Exercise of stock options.............. - 6,458
--------- ------------

Balances at December 31, 1997.......... 3,904 2,061,490

Net income............................. - 370,800
Translation adjustment................. (595) (595)
Total comprehensive income.......... 370,205

Dividends:
Common stock ($0.25 per share)....... - (30,000)
Preferred stock ($2.84 per share).... - (21,310)
Issuance of Series B Preferred Stock... - 175,000
Sale of common stock to Equitable/AXA..
- 300,000
Exercise of stock options.............. - 37,988
Conversion of restricted stock
units to common stock............... - 25,428
Forfeiture of restricted stock units... - -
Tax benefit on distribution of
employee stock trust................ - 8,898
-------- ------------
Balances at December 31, 1998.......... $ 3,309 $ 2,927,699
======= ===========
</TABLE>

IV-34
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(In thousands)

Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 370,800 $ 408,250 $ 291,300
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization................................... 84,802 61,428 53,831
Deferred taxes.................................................. 27,943 (134,233) (120,022)
Decrease in net unrealized (depreciation) appreciation of
long-term corporate development investments................... (8,939) (34,524) 50,283
------------- ------------- ------------

474,606 300,921 275,392
(Increase) decrease in operating assets:
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations............. (211,132) 4,313 (381,936)
Securities purchased under agreements to resell.. 5,463,657 (4,622,196) 9,191
Securities borrowed............................................. (3,369,000) (11,243,155) (310,574)
Receivables from customers...................................... (2,125,900) (1,228,375) (813,320)
Receivables from brokers, dealers and other..................... (610,281) 921,011 (2,342,428)
Financial instruments owned, at value........................... 3,340,614 (807,663) (4,906,785)
Other assets and deferred amounts............................... (359,115) (179,958) (147,335)
Increase (decrease) in operating liabilities:
Securities sold under agreements to repurchase... (5,463,657) 4,622,196 (9,191)
Securities loaned............................................... (365,230) 4,962,643 100,560
Payables to customers........................................... 1,775,393 1,173,836 1,336,559
Payables to brokers, dealers and other............................ 141,119 (946,845) 2,511,614
Financial instruments sold not yet purchased, at value.......... (1,516,951) 1,014,230 2,737,243
Accounts payable and accrued expenses........................... 163,282 397,876 323,790
Other liabilities............................................... 245,320 310,230 89,551
Translation adjustment............................................ (595) 2,007 2,522
---------------- -------------- ----------------

Net cash used in operating activities................................ $(2,417,870) $ (5,318,929) $ (1,525,147)
----------- ------------ ------------
</TABLE>

See accompanying notes to consolidated financial statements.

IV-35
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(In thousands)

Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from investing activities: Net (payments for) proceeds from:
Purchases of long-term corporate development investments........... $ (347,033) $ (194,777) $ (87,600)
Sales of long-term corporate development investments............... 197,990 117,930 117,412
Office facilities.................................................. (145,742) (162,568) (142,597)
Other assets....................................................... (39,217) 23,375 5,818
-------------- ----------- --------------

Net cash used in investing activities.................................. (334,002) (216,040) (106,967)
------------- ---------- ------------

Cash flows from financing activities: Net proceeds from (payments for):
Short-term financings.............................................. 1,728,652 4,854,182 1,187,338
Senior notes....................................................... 893,552 - -
Medium-term notes.................................................. 349,337 359,646 249,515
Subordinated revolving credit agreement............................ (325,000) 118,500 (43,500)
Senior secured floating rate notes................................. 450,000 - -
Global floating rate notes......................................... 448 347,760 -
Other long-term debt............................................... (14,493) (13,753) (2,858)
Convertible debentures............................................. - 18,779 43,500
Swiss Franc Bonds.................................................. - - (105,513)
Dividends.......................................................... (51,310) (39,886) (45,303)
Issuance of Company obligated mandatorily redeemable preferred
securities...................................................... - - 200,000
Sale of common stock to Equitable/AXA.............................. 300,000 - -
Issuance of Series A Preferred Stock............................... - - 200,000
Issuance of Series B Preferred Stock............................... 175,000 - -
Exercise of stock options.......................................... 21,775 4,074 -
--------------- -------------- -----------------

Net cash provided by financing activities.............................. 3,527,961 5,649,302 1,683,179
------------ ----------- ---- -----------

Increase in cash and cash equivalents.................................. 776,089 114,333 51,065

Cash and cash equivalents at beginning of year........................ 273,164 158,831 107,766
------------- ----------- ------------

Cash and cash equivalents at end of year.............................. $ 1,049,253 $ 273,164 $ 158,831
=========== ========== ===========

</TABLE>

See accompanying notes to consolidated financial statements.

IV-36
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 1998

1. Summary of Significant Accounting Policies
------------------------------------------

The consolidated financial statements include Donaldson, Lufkin & Jenrette,
Inc. and its subsidiaries (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 in 1985 when Equitable acquired the
Company.

The Company is a leading, integrated investment and merchant bank serving
institutional, corporate, government and individual clients. The Company's
businesses include securities underwriting; sales and trading; investment and
merchant banking; financial advisory services; investment research; venture
capital; correspondent brokerage services; online, interactive brokerage
services; and asset management.

To prepare consolidated financial statements in conformity with generally
accepted accounting principles ("GAAP"), management must estimate certain
amounts that affect the reported assets and liabilities, disclosure of
contingent assets and liabilities, and reported revenues and expenses. Actual
results could differ from those estimates.

Substantially all of the Company's financial assets and liabilities, as well as
financial instruments with off-balance sheet risk, are carried at market or
fair values or are carried at amounts that approximate fair value because of
their short-term nature. Fair value is estimated at a specific point in time,
based on relevant market information or the value of the underlying financial
instrument. These estimates do not generally reflect any premium or discount
that could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument.

Cash equivalents include all demand deposits held in banks and certain
highly-liquid investments with maturities of 90 days or less, other than those
held for sale in the ordinary course of business.

Securities sold under agreements to repurchase (repurchase agreements) and
securities purchased under agreements to resell (resale agreements) are treated
as financing arrangements and are carried at contract amounts that reflect the
amounts at which the securities will be subsequently repurchased or resold.
Interest on such contract amounts is accrued and is included in the
accompanying consolidated statements of financial condition in receivables from
and payables to brokers, dealers and other. The Company takes possession of the
assets purchased under agreements to resell and obtains additional collateral
when the market value falls below the contract value. In the consolidated
financial statements, repurchase and resale agreements are presented net if
they are with the same counterparty, have the same maturity date, settle
through the Federal Reserve system, and are subject to master netting
agreements.

Securities borrowed and securities loaned are financing arrangements that are
recorded at the amount of cash collateral advanced or received. For securities
borrowed, the Company deposits cash, letters of credit or other collateral with
the lender. For securities loaned, the Company receives collateral in cash or
other collateral that exceeds the market value of securities loaned. Each day,
the Company monitors the market value of securities borrowed and loaned and
obtains or refunds additional collateral, as necessary.

Receivables from and payables to customers include amounts due on cash and
margin transactions. For receivables, securities owned by customers are held as
collateral. Such collateral is not reflected in the consolidated financial
statements.

U.S. government and agency securities, mortgage-backed securities, options,
forward and futures transactions and certain other debt obligations are
recorded in the consolidated financial statements on a trade date basis. All
other securities are recorded on a settlement date basis and, if significant,
adjustments are made to a trade date basis.

IV-37
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

Other than long-term corporate development investments and senior bank debt,
financial instruments owned are carried at market value. Changes in unrealized
appreciation (depreciation) arising from fluctuations in market value or upon
realization of security positions are reflected in principal transactions-net,
trading revenues, in the consolidated statements of income.

To the extent that the Company has surrendered control, transfers of financial
assets are accounted for as sales.

Long-term corporate development investments represent the Company's involvement
in private debt and equity investments. These investments generally have no
readily available market or may be otherwise restricted as to resale under the
Securities Act of 1933; therefore, 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 $472.3 million at year-end 1998 and $323.2
million at year-end 1997. In 1998 net unrealized appreciation of long-term
corporate development investments increased $8.9 million. In 1997 and 1996, the
decrease in net unrealized appreciation (depreciation) amounted to $(34.5)
million and $50.3 million, respectively. Changes in net unrealized appreciation
(depreciation) arising from changes in fair value or upon realization are
reflected in principal transactions-net, investment revenues in the
consolidated statements of income.

Office facilities are carried at cost and are depreciated on a straight-line
basis over the estimated useful life of the related assets, ranging from three
to eight years. Leasehold improvements are amortized over the lesser of the
useful life of the improvement or term of the lease. Exchange memberships owned
by the Company are included in other assets and are carried at cost.

Changes in unrealized gains and losses, as well as realized gains and losses at
settlement on all derivative instruments (options, forward and futures
contracts and swaps), are included in principal transactions-net, trading
revenues, in the consolidated statements of income. Related offsetting amounts
are included in receivables from or payables to brokers, dealers and other in
the consolidated statements of financial condition. Fair value of options
includes any deferred unamortized premiums. 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 in the consolidated statements of income.
Swap transactions entered into for non-trading purposes to modify the interest
rate and foreign currency exposure associated with certain assets and
liabilities are accounted for on an accrual basis. Under the accrual basis, the
net amount to be received or paid is accrued as part of interest expense in the
consolidated statements of income. Cash flows from derivative instruments are
included as operating activities in the consolidated statements of cash flows.

Assets and liabilities of foreign subsidiaries denominated in foreign
currencies are translated at exchange rates prevailing at the date of the
consolidated statements of financial condition. Revenues and expenses are
translated at average exchange rates during the period. Gains and losses from
translating foreign currency financial statements into U.S. dollars are
included as a separate component of stockholders' equity. Gains and losses from
foreign currency transactions are included in the consolidated statements of
income.

Effective January 1, 1997, Equitable's ownership for tax purposes declined to
less than 80%; therefore, the Company files its own U.S. consolidated Federal
income tax return.

All liabilities related to postretirement and postemployment benefits have been
provided for and the related costs are not significant.

IV-38
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

The Company accounts for stock-based compensation related to stock options in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees",
and accordingly, does not recognize any compensation cost associated with such
plans in the consolidated financial statements. In accordance with SFAS No.
123, "Accounting for Stock-Based Compensation", the Company provides pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants as if the fair-value-based method had been applied.

Basic and diluted earnings per common share amounts are calculated by dividing
earnings applicable to common shares (net income less preferred dividends) by
the weighted average common shares outstanding. Basic earnings per share
excludes the dilutive effects of stock options, non-vested restricted stock
units and convertible debt. Diluted earnings per share reflects all potentially
dilutive securities.

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
requires all derivatives to be recognized in the consolidated statements of
financial condition at fair value. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999 and should be applied prospectively. Since most
of the Company's derivatives are currently carried at fair value, the adoption
of this statement is not expected to have a material effect on the Company's
results of operations or its consolidated statements of financial condition.

To conform to the 1998 presentation, certain reclassifications have been made
to prior year 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,
stockholders approved an amendment to the Company's Certificate of
Incorporation, which increased the number of total authorized shares of common
stock to 300 million and the number of total authorized shares of preferred
stock 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 $0.10 per share. To
preserve the value of the post-split shares, an adjustment was made from
paid-in capital to common stock. In the accompanying consolidated financial
statements all common share, per common share, restricted stock unit and option
data have been restated for the effect of the stock split.

3. Related Party Transactions
--------------------------

In the normal course of business, the Company provides brokerage services
including clearance, investment banking and related activities for Equitable
and certain of its affiliates. The amounts related to such activities are not
significant.

The Company is the sponsor of the $750.0 million DLJ Bridge Fund ("the Bridge
Fund"), which is funded by a commitment from Equitable. The Bridge Fund
provides short-term loans in connection with the Company's merchant banking and
financial advisory businesses. The Bridge Fund has a commitment of subordinated
debt from Equitable for the total amount of the loans. Any loans made by the
Bridge Fund would be expected to be refinanced, and the outstanding amounts
repaid, within a short-term period. At December 31, 1998, the Bridge Fund had
extended $295.0 million of short-term bridge loans.

For the years ended December 31, 1998, 1997 and 1996, dividends on common stock
paid or accrued to Equitable were $21.7 million, $21.3 million and $21.4
million, respectively.

IV-39
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

4. Cash and Securities Segregated Under Federal and Other Regulations
------------------------------------------------------------------

Cash of $13.7 million at December 31, 1997 and securities with a market value
of $883.0 million and $711.0 million at December 31, 1998 and 1997,
respectively were segregated in special reserve bank accounts to benefit
customers in accordance with regulations of the Securities and Exchange
Commission and the Commodities Futures Trading Commission.

5. Borrowings
----------

Short-term borrowings are generally demand obligations with interest
approximating Federal fund rates. Such borrowings are generally used to
facilitate the securities settlement process, to finance securities
inventories, and to finance securities purchased by customers on margin. At
December 31, 1998 there were no borrowings secured by Company-owned securities.
At December 31, 1997, certain of these borrowings were secured by Company-owned
securities aggregating $190.5 million.

Short-term borrowings and repurchase agreements:

Weighted Average
Interest Rates
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Securities sold under repurchase agreements................ $ 35,776 $ 36,007 4.89% 6.04%
Bank loans................................................. $ 391 $ 988 5.79% 6.57%
Borrowings from other financial institutions............... $ 125 $ 133 5.72% 6.21%

</TABLE>

In January 1998, the Company introduced a $1.0 billion commercial paper
program. Obligations issued under this program (the "Notes") are exempt from
registration under the Securities Act of 1933, as amended under Section 4(2)
(the "Securities Act"). At December 31, 1998, $30.9 million of notes were
outstanding under this program.

Long-term borrowings:

December 31,
1998 1997
---------- -------
(In thousands)
<S> <C> <C>
Senior notes 6%-6.875%, due various dates through 2008........................ $ 1,391,036 $ 497,484
Medium-term notes 5.402% - 6.90%, due various dates through 2016.............. 1,046,647 697,310
Senior subordinated revolving credit agreement, due 2000...................... - 325,000
Senior secured floating rate notes, due 2005.................................. 450,000 -
Global floating rate notes, due 2002.......................................... 348,357 347,909
Subordinated exchange notes 9.58%, due 2003................................... 225,000 225,000
Other......................................................................... 20,963 35,456
-------------- --------------

Total long-term borrowings............................................... $ 3,482,003 $ 2,128,159
=========== ===========

Current maturities............................................................ $ 100,973 $ 1,623
============ ==============

</TABLE>

For the years ended December 31, 1998, 1997 and 1996, interest paid on all
borrowings and financing arrangements was $4.6 billion, $3.9 billion and $2.8
billion, respectively.

IV-40
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

Scheduled maturities of long-term borrowings are as follows:

December 31,
1998 1997
---------- -------
(In thousands)

1998................................ $ - $ 1,623
1999................................ 100,973 153
2000................................ 189,987 514,926
2001................................ 369,265 33,610
2002................................ 358,348 357,897
2003................................ 374,397 225,000
2004-2016........................... 2,089,033 994,950
----------- -------------

$ 3,482,003 $ 2,128,159
=========== ===========

In connection with its 1998 and 1997 financings, the Company:

1998
- ----

Issued an initial $175.0 million Fixed/Adjustable Rate Cumulative Preferred
Stock, Series B, from the $300.0 million shelf established in 1997.

Issued $650.0 million of 6.5% Senior Notes that mature in 2008 and $350.0
million Medium-Term Notes with interest ranging from 5.402% - 6.28% that mature
at various dates through 2003.

Issued $250.0 million of 6% Senior Notes that mature in 2001 from the $1.0
billion shelf established in 1997. To convert these fixed rate notes into
floating rate notes based upon the London Interbank Offered Rate ("LIBOR"), the
Company entered into interest rate swap transactions.

Issued Senior Secured and Senior Subordinated Secured Floating Rate Notes for
$200.0 million and $250.0 million, due March 15, 2005 and September 15, 2005,
respectively. These notes are collateralized by a portfolio of investments,
primarily senior bank debt valued at $441.0 million. Senior bank debt consists
of interests in senior corporate debt, including term loans, revolving loans
and other corporate debt.

Amended the $2.0 billion revolving credit facility to increase the aggregate
commitment of banks thereunder to $2.8 billion, of which $1.7 billion may be
unsecured. At year-end 1998, no borrowings were outstanding under this
agreement.

Repaid the $325.0 million senior subordinated revolving credit agreement and
terminated the related credit facility.

1997
- ----

Borrowed an additional $118.5 million under its senior subordinated revolving
credit agreement and extended the maturity date to January 30, 2000. Interest
is based on LIBOR and was 6.69% at year-end 1997 and 6.38% at year-end 1996.

Established a $300.0 million Medium-Term Note program. At year-end 1997, $200.0
million was outstanding with a weighted average interest rate of 6.48%. To
convert $190.0 million of such fixed rate notes into floating rate notes based
upon LIBOR, the Company entered into interest rate swap transactions. At
year-end 1997, the weighted average effective interest rate on these notes was
6.08 %.

IV-41
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

Established a $1.0 billion senior or subordinated debt securities shelf
registration, under which up to $500.0 million can be offered as Medium-Term
Notes due nine months or more from the date of issuance. At year-end 1997,
notes outstanding under this registration included $150.0 million at a fixed
rate of 6.90% and $100.0 million at a floating rate of 6.28% based upon LIBOR.
Using interest rate swaps, these floating rate notes were converted into fixed
rate notes at 6.94%.

Issued $350.0 million of Global Floating Rate Notes with interest at a floating
rate equal to LIBOR plus 0.25%. These notes mature in 2002 and can be redeemed
by the Company in whole or in part on any interest payment date on or after
September 2000.

Completed a shelf registration to offer up to $300.0 million of senior or
subordinated debt securities or preferred stock.

Repaid in full $88.0 million 7.88% Medium-Term Notes plus accrued interest.

Replaced several individual credit facilities aggregating $1.9 billion with a
$2.0 billion revolving credit facility, of which $1.0 billion may be unsecured.
At year-end 1997, no borrowings were outstanding under this agreement.

6. Income Taxes
------------

Income taxes included in the consolidated statements of income include the
following:

December 31, December 31, December 31,
1998 1997 1996
---------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
U.S. Federal.................................... $ 128,980 $ 299,091 $ 222,225
Foreign......................................... 45,701 25,131 16,045
State and local................................. 27,076 62,861 64,252
----------- ----------- -----------
Total current...................................... 201,757 387,083 302,522
---------- ---------- ----------

Deferred:
U.S. Federal.................................... 19,019 (117,622) (88,970)
State and local................................. 8,924 (16,611) (31,052)
----------- ------------ -----------
Total deferred..................................... 27,943 (134,233) (120,022)
---------- ----------- ----------

Total provision for income taxes................... $ 229,700 $ 252,850 $ 182,500
========= ========== =========
</TABLE>

IV-42
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

The following summarizes the difference between the "expected" tax provision,
which is computed by applying the statutory tax rate to income before provision
for income taxes, and the effective provision for income taxes, which is
computed by using the effective tax rate:

1998 1997 1996
------------------ ------------------- ------------------
Percent Percent Percent
of of of
Pre-tax Pre-tax Pre-tax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
(In thousands) (In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Computed "expected"
tax provision........... $ 210,175 35.0% $ 231,385 35.0% $ 165,830 35.0%
Non-taxable income
and expense items....... (3,875) (0.6) (8,598) (1.3) (4,910) (1.1)
State and local taxes,
net of related Federal
income tax benefit...... 23,400 3.9 30,063 4.5 21,580 4.6
----------- -------- ----------- -------- ----------- -----

Provision for income taxes.. $ 229,700 38.3% $ 252,850 38.2% $ 182,500 38.5%
========= ====== ========= ====== ========= =====

</TABLE>

Deferred tax assets and deferred tax liabilities are generated by the following
temporary differences:

1998 1997
---------- ----------
(In thousands)
Deferred tax assets:
Inventory................................ $ 1,633 $ 6,657
Investments.............................. 45,690 35,617
Other liabilities and accrued expenses... 523,476 517,673
Office facilities........................ 8,892 4,552
Deferred tax liabilities:
Investments.............................. (45,858) (31,458)
Office facilities........................ (42,243) (12,584)
Other.................................... (1,947) (2,871)
---------- -----------

Net deferred tax asset........................ $ 489,643 $ 517,586
========= =========

Management has determined that taxable income from carryback years and
anticipated future reversals of existing taxable temporary differences are
sufficient to offset the tax benefit of deductible temporary differences. As a
result, at year-end 1998 and 1997, valuation allowances have not been recorded
against deferred tax assets. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax assets will be
realized. However, if estimates of future taxable income during the
carryforward period are reduced, the amount of the deferred tax assets
considered realizable could also be reduced.

In 1998, 1997 and 1996, respectively, the Company paid $101.3 million, $293.8
million and $267.5 million in federal income taxes including $4.1 million,
$18.6 million and $267.5 million of federal income tax equivalents paid to
Equitable.

IV-43
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

7. Net Capital
-----------

The Company's wholly owned principal 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"). Accordingly, DLJSC 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 also subject to the
NYSE's net capital rule, which conforms to the Uniform Net Capital Rule under
rule 15c3-1 of the Securities Exchange Act of 1934. Under the alternative
method permitted by this rule, the required net capital may not be less than
two percent of aggregate debit balances arising from customer transactions or
four percent of segregated funds, whichever is greater. If a member firm's
capital is less than four percent of aggregate debit balances, the NYSE may
require the firm to reduce its business. If a member firm's net capital is less
than five percent of aggregate debit balances, the NYSE may prevent the firm
from expanding its business and declaring cash dividends. At December 31, 1998,
DLJSC's net capital of approximately $1.2 billion was 20 percent of aggregate
debit balances and exceeded the minimum requirement by approximately $1.1
billion.

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 under 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
December 31, 1998 and 1997, the Company and its broker-dealer subsidiaries
complied with all applicable regulatory capital adequacy requirements.

8. Derivative Financial Instruments
--------------------------------

The Company enters into certain contractual agreements referred to as
derivatives or off-balance sheet financial instruments primarily to provide
products for its clients. Under these agreements, the Company performs the
following activities: writes over-the-counter ("OTC") options to accommodate
customers' needs; trades in forward contracts in U.S. government and agency
issued or guaranteed securities; trades in futures contracts on equity-based
indices, interest rate instruments and currencies; enters into swap
transactions to manage foreign currency, interest rate and equity risks; and
issues structured products based on emerging market financial instruments and
indices. The Company is not significantly involved in commodity derivative
instruments.

Options
- -------

The Company writes option contracts specifically designed to meet customers'
needs. Since the Company, not its counterparty, is obligated to perform, the
options do not expose the Company to credit risk. At the beginning of the
contract period, the Company receives a cash premium. During the contract
period, the Company bears the risk of unfavorable changes in the value of the
financial instruments underlying the options ("market risk"). To cover this
market risk, the Company purchases or sells cash or derivative financial
instruments on a proprietary basis. Such purchases and sales may include debt
and equity securities, forward and futures contracts and options. The
counterparties to these purchases and sales are reviewed to determine whether
they are creditworthy. Future cash requirements for options written equal the
fair value of the options. Option contracts are typically written for a
duration of less than 13 months and are included in the consolidated statements
of financial condition at fair value.

IV-44
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

The notional (contract) value, or the market value for cash instruments, of the
written options was $5.1 billion at year-end 1998 and $5.4 billion at year-end
1997. These options contracts were covered by the following financial
instruments:
December 31,
1998 1997
---- ----
(In millions)
U.S. government, mortgage-backed
Securities and options thereon...... $ 3,396 $ 3,773
Foreign sovereign debt securities........ 89 73
Forward rate agreements.................. 38 -
Futures contracts........................ 76 219
Equities and other....................... 1,545 1,340
-------- --------

Total......................... $ 5,144 $ 5,405
======= =======

The trading revenues from writing options (net of related interest expense)
were approximately $79.2 million, $84.9 million and $71.2 million for the years
ended December 31, 1998, 1997 and 1996, respectively. The fair value of certain
written options is measured by the unamortized premiums and the intrinsic value
determined from various pricing sources. The average fair value of the options
was approximately $304.3 million for 1998 and $223.3 million for 1997. The fair
value of the options was approximately $397.1 million at year-end 1998 and
$196.4 million at year-end 1997.

Forwards and Futures
- --------------------

For forward contracts, cash is generally not required at inception; cash equal
to the notional value on the contract is required at settlement. For futures
contracts, the original margin is required in cash at inception; cash equal to
the daily change in market value is required at settlement.

Since forward contracts are subject to the financial reliability of the
counterparty, the Company is exposed to credit risk. To monitor this credit
risk, the Company limits transactions with specific counterparties, reviews
credit limits and adheres to internally established credit extension policies.
For futures contracts and options on futures contracts, the change in the
market value is settled with the exchanges in cash each day. As a result, the
credit risk with the futures exchange is limited to the net positive change in
the market value for a single day.

The Company generally enters into forward and futures transactions for periods
of 90 days or less. The remaining maturities for all forwards and futures are
less than 13 months.

IV-45
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

December 31,
Off-balance sheet values: 1998 1997
---- ----
(In millions)
<S> <C> <C>
Forward Contracts:
Purchased at notional (contract) value.......................... $ 41,254 $ 18,366
Sold at notional (contract) value............................... $ 39,767 $ 27,028

Futures Contracts and Options on Futures Contracts:
Purchased at market value....................................... $ 1,184 $ 988
Sold at market value............................................ $ 1,607 $ 2,767

December 31,
Values included in the consolidated financial statements: 1998 1997
---- ----
(In millions)
Forward Contracts:
Average fair values included in liabilities during the year........... $ 2 $ 2
Unrealized gains included in total assets at year-end................. $ 263 $ 56
Unrealized losses included in total liabilities at year-end........... $ 269 $ 50

Futures Contracts:
Average fair values included in (liabilities) assets during the year.. $ (23) $ 1
Unrealized gains included in total assets at year-end................. $ 4 $ -
Unrealized losses included in total liabilities at year-end........... $ 1 $ 2

</TABLE>

Average fair values were computed using month-end averages. For forward
contracts, the fair values are estimated based on dealer quotes, pricing models
or quoted prices for financial instruments with similar characteristics. For
futures contracts, the fair values are measured by reference to quoted market
prices.

Net trading gains (losses) on forward contracts were $7.0 million, $(5.1)
million and $39.0 million and net trading gains (losses) on futures contracts
were $(86.0) million, $(24.0) million and $8.0 million for the years ended
December 31, 1998, 1997 and 1996, respectively.

Swaps
- -----

The notional (contract) value of swap agreements, consisting primarily of
interest rate and equity swaps, was approximately $8.0 billion and $686.9
million at December 31, 1998 and December 31, 1997, respectively. The notional
or contract amounts indicate the extent of the Company's involvement in the
derivative instruments noted above. They do not measure the Company's exposure
to market or credit risk and do not represent the future cash requirements of
such contracts.

9. Financial Instruments With Off-Balance Sheet Risk
-------------------------------------------------

In the normal course of business, the Company's customer, trading and
correspondent clearance activities include executing, settling and financing
various securities and financial instrument transactions. To execute these
transactions, the Company purchases and sells (including "short sales")
securities, writes options, and purchases and sells forward contracts for
mortgage-backed securities and foreign currencies and financial futures
contracts. If the customer or counterparty to the transaction is unable to
fulfill its contractual obligations, and margin requirements are not sufficient
to cover losses, the Company may be exposed to off-balance sheet risk. In these
situations, the Company may be required to purchase or sell financial
instruments at prevailing market prices, which may not fully cover the
obligations of its customers or counterparties. This risk is limited by
requiring customers and counterparties to maintain margin collateral that
complies with regulatory and internal guidelines. Additionally, with respect to
the Company's correspondent clearance activities, introducing correspondent
brokers are required to guarantee the performance of their customers to meet
contractual obligations.

IV-46
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

As part of the Company's financing and securities settlement activities, the
Company uses securities as collateral to support various secured financing
sources. If the counterparty does not meet its contracted obligation to return
securities used as collateral, the Company may be exposed to the risk of
reacquiring the securities at prevailing market prices to satisfy its
obligations. The Company controls this risk by monitoring the market value of
securities pledged each day and by requiring collateral levels to be adjusted
in the event of excess market exposure. As of December 31, 1998, pledged
securities with a market value of approximately $2.1 billion are used as
collateral for securities borrowed with a market value of approximately $2.1
billion. In accordance with industry practice, these securities borrowed and
pledged are not reflected in the consolidated statements of financial
condition.

The Company enters into forward contracts under which securities are delivered
or received in the future at a specified price or yield. If counterparties are
unable to perform under the terms of the contracts or if the value of
securities and interest rates changes, the Company is exposed to risk. Such
risk is controlled by monitoring the market value of the securities contracted
for each day and by reviewing the creditworthiness of the counterparties. The
settlement of these transactions is not expected to have a material adverse
effect on the Company's consolidated financial statements.

Risks associated with letters of credit, guarantees and underwriting
commitments are not significant.

10. Concentrations of Credit Risk
-----------------------------

As a securities broker and dealer, the Company is engaged in various securities
trading and brokerage activities servicing a diverse group of domestic and
foreign corporations, governments, and institutional and individual investors.
A substantial portion of the Company's transactions is executed with and on
behalf of institutional investors including other brokers and dealers, mortgage
brokers, commercial banks, U.S. government agencies, mutual funds and other
financial institutions. These transactions are generally collateralized. Credit
risk is the amount of accounting loss the Company would incur if a counterparty
failed to perform its obligations under contractual terms and the collateral
held, if any, was deemed insufficient. This credit risk can be directly
affected by volatile securities markets, credit markets and regulatory changes.
To establish exposure limits for a variety of transactions, all counterparties
are reviewed regularly. In certain cases, specific transactions are analyzed to
determine the amount of potential exposure that could arise, and the
counterparty's credit is reviewed to determine whether it supports such
exposure. The Company also analyzes market movements that could affect exposure
levels. To set trading limits, the Company considers the following four
factors: the settlement method; the time it will take for a trade to settle
(i.e., the maturity of the trade); the volatility that could affect the value
of the securities involved in the trade; and the size of the trade. The Company
actively manages the credit exposure relating to its trading activities by
entering into master netting agreements when feasible; monitoring the
creditworthiness of counterparties and the related trading limits on an ongoing
basis; requesting additional collateral when deemed necessary; diversifying and
limiting exposure to individual counterparties and geographic locations; and
limiting the duration of exposure. In certain cases, the Company may also close
out transactions or assign them to other counterparties.

The Company's customer securities activities are transacted either in cash or
on a margin basis, in which the Company extends credit to the customer. The
Company seeks to control the risks associated with its customer activities by
requiring customers to maintain margin collateral to comply with various
regulatory and internal guidelines. Each day, the Company monitors required
margin levels and requires customers to deposit additional collateral, or
reduce positions, when necessary.

11. Preferred Securities
--------------------

In 1996, the Company and its wholly owned trust, DLJ Capital Trust I (the
"Trust"), completed an offering of $200.0 million of the Trust's 8.42%
mandatorily redeemable preferred securities. The Trust exists for the sole
purpose of issuing preferred securities and common securities and investing the
proceeds in an equivalent amount of junior subordinated debentures of the
Company. At December 31, 1998 and 1997,

IV-47
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

the only assets of the Trust were $200.0 million of 8.42% Junior Subordinated
Debentures of the Company due 2046. The Junior Subordinated Debentures are
redeemable by the Company, in whole or in part, on or after August 31, 2001.
The Trust must redeem its preferred securities having an aggregate liquidation
amount equal to the aggregate principal amount of junior subordinated
debentures redeemed.

To the extent the Company has made principal and interest payments on the
Junior Subordinated Debentures, the Company guarantees payment to the holders
of the preferred securities issued by the Trust. The Company has issued a full
and unconditional guarantee of the Trust's obligations under the preferred
securities of the Trust.

12. Stockholders' Equity
--------------------

In January 1998, under a shelf registration statement filed previously, the
Company issued 3.5 million shares of Fixed/Adjustable Rate Cumulative Preferred
Stock, Series B, with a liquidation preference of $50.00 per share ($175.0
million aggregate liquidation value). Dividends on the preferred stock are
cumulative and payable quarterly at 5.30% per annum through January 2003,
subject to adjustment in later years. The preferred stock is redeemable, in
whole or in part, at the option of the Company, on or after January 15, 2003.

In 1998 and 1997, respectively, approximately 4.4 million and 1.8 million
restricted stock units ("RSU's") vested and were converted into common stock
from the Company's authorized and unissued shares. Approximately 3.0 million of
these shares were deposited in a grantor trust pursuant to the Executive
Deferred Compensation Plan, which was effective January 1, 1997. In October
1998, approximately 1.8 million of such shares were distributed by the trust to
employees.

In July 1998, the Emerging Issues Task Force ("EITF") reached a consensus on
EITF Issue 97-14, "Accounting for Deferred Compensation Arrangements Where
Amounts Earned are Held in a Rabbi Trust and Invested" ("EITF 97-14"). Under
EITF 97-14, assets of the trust should be consolidated with those of the
employer and the value of the employer's stock held in the rabbi trust should
be classified in stockholders' equity in a manner similar to Treasury Stock.
The Company adopted EITF 97-14 as of September 30, 1998. At December 31, 1998,
approximately 1.2 million shares of the Company's stock are included in the
rabbi trust. The shares and the corresponding liability to employees are shown
as components of stockholders' equity in the Company's consolidated statements
of financial condition.

In July 1998, the Company sold an aggregate of five million shares of newly
issued common stock to its parent companies, Equitable and AXA for $300.0
million in a transaction exempt from the registration requirements of the
Securities Act. As a result, Equitable and its affiliates' beneficial ownership
of the Company increased to approximately 73 percent on an undiluted basis.

In 1997, the Company exercised 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 1,370,408 shares of
common stock of the Company.

In 1996, the Company issued 4.0 million shares of Fixed/Adjustable Rate
Cumulative Preferred Stock, Series A, with a liquidation preference of $50.00
per share. Dividends on the preferred stock are cumulative and payable
quarterly at 5.94% per annum through November 30, 2001. Thereafter, the
dividend rate will be adjusted, based on various indices, to be at least 6.44%
but less than 12.44%. The preferred stock is redeemable, in whole or in part,
at the option of the Company, on or after November 30, 2001. At December 31,
1998 and 1997, 4.0 million shares of such preferred stock were authorized,
issued and outstanding.

IV-48
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

13. Earnings per Share
------------------

Basic and diluted earnings per common share amounts are 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 and convertible debt under
the treasury stock method and "if-converted" method, respectively. In February
1998, approximately 4.4 million RSU's vested and were converted into the
Company's common stock; this transaction is included in the calculation of
earnings per common share. All earnings per share amounts have been restated
for the effect of the stock split.

The numerators and denominators of the basic and diluted earnings per common
share computations include the following reconciling items:

December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
Income Shares Income Shares Income Shares
------ ------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Earnings applicable to common
shares...................... $ 349,490 119,260 $ 396,106 110,318 $ 272,647 106,600

Effect of Dilutive Securities
Restricted stock units...... - 2,348 - 7,046 - 10,304
Stock options............... - 10,372 - 7,660 - 1,808
Convertible debt............ 308 474 - -
------------- ------------- -------------- ----------- --------------------------

Diluted EPS..................... $ 349,490 131,980 $ 396,414 125,498 $ 272,647 118,712
========= ======== ========== ========= ========= ========
</TABLE>

14. Employee Compensation and Benefit Plans
---------------------------------------

1996 Incentive Compensation Plan
- --------------------------------
Awards under the 1996 Incentive Compensation Plan (the "Incentive Plan") are
determined by the Compensation and Management Committee of the Board of
Directors (the "Compensation Committee"). The Incentive Plan creates short-term
and long-term award pools for key employees of the Company. Short-term award
pools are for a performance period up to two years and are based on 10% of
pre-tax earnings, as defined. Long-term award pools are for a performance
period of three to ten years and are based on a percentage of pre-tax earnings
that varies with the Company's average return on common equity during the
performance period. Participants may receive awards in cash, options, shares or
restricted stock units; however, stock-based payments are limited to a total of
17.6 million shares. Under certain circumstances participants may defer the
receipt of part or all of any award. 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. During 1997, the
Compensation Committee authorized a long-term award pool for the performance
period from January 1, 1997 to December 31, 1999. For the years ended December
31, 1998, 1997 and 1996, the amount charged to expense was $165.5 million,
$185.5 million and $190.5 million, respectively.

1995 Restricted Stock Unit Plan
- -------------------------------
In 1995, the Company adopted the 1995 Restricted Stock Unit Plan (the "Plan").
Each RSU granted under the Plan represents the right to receive a share of
common stock under certain circumstances. These RSU's may be forfeited in
certain circumstances and vest annually in specified proportions from February
1997 through February 2000. RSU's that are forfeited will become available for
subsequent grants. Under the Plan, 10,358,294 units were granted. As of
December 31, 1998, 212,954 RSU's were forfeited and 8,063,104 RSU's vested and
were converted to common stock from the Company's authorized and unissued
shares.

IV-49
<PAGE>

Stock Option Plans
- ------------------
In 1995, the Company adopted the 1995 and 1996 Stock Option Plans. Under the
1995 Stock Option Plan, options were granted to certain employees to purchase
an aggregate of 18,337,356 shares of Common Stock (the maximum allowable under
the 1995 Stock Option Plan) with an exercise price of $13.50. The options may
be forfeited in certain circumstances, vested in equal installments in February
1997 and February 1998, and are exercisable for up to ten years from the date
of the grant. Options that are forfeited under the 1995 Stock Option Plan will
become available for subsequent grant under the 1996 Stock Option Plan.

Under the 1996 Stock Option Plan (the "1996 Plan") options are available to
purchase a maximum of 17,579,702 shares of Common Stock, exclusive of
forfeitures from the 1995 Stock Option Plan. The options are exercisable for up
to ten years from the date of grant, may be forfeited in certain circumstances,
and vest in four equal annual installments starting one year after the date of
grant. Options that are forfeited under the 1996 Plan become available for
subsequent grant under that plan.

In 1996, the Company adopted the Non-Employee Directors Stock Plan (the "Stock
Plan") to provide equity compensation to the Company's non-employee directors.
Under the Stock Plan, stock options are granted at a price equal to the fair
value of the stock at the date of grant. The options are exercisable for up to
10 years from the date of grant and vest in four equal annual installments
starting one year from the date of grant. Under the Stock Plan, 200,000 shares
are issuable. Any shares issued under the Stock Plan will reduce the number of
shares issuable under the 1996 Plan.

The following summarizes the stock option activity for all plans: Weighted Average
Options Exercise Price
------- --------------
<S> <C> <C>
Outstanding at December 31, 1995....................................... 18,337,356 $ 13.50
----------- -------

Granted................................................................ 4,268,000 $ 16.27
Forfeited.............................................................. (344,692) $ 13.50
------------- -------

Outstanding at December 31, 1996....................................... 22,260,664 $ 14.03
----------- -------

Granted................................................................ 6,431,668 $ 30.54
Forfeited.............................................................. (133,866) $ 16.01
Exercised.............................................................. (296,370) $ 13.76
------------ -------

Outstanding at December 31, 1997....................................... 28,262,096 $ 17.78
----------- -------

Granted................................................................ 1,508,489 $ 38.59
Forfeited.............................................................. (60,000) $ 17.31
Exercised.............................................................. (1,458,366) $ 14.91
------------ -------

Outstanding at December 31, 1998....................................... 28,252,219 $ 19.04
=========== =======
</TABLE>

The following summarizes information related to stock options outstanding at
December 31, 1998:

Weighted Average Weighted Average
Exercise Prices Number Outstanding Exercise Price Remaining Life (Years)
--------------- ------------------ -------------- ----------------------
<S> <C> <C> <C>
$13.50-25.99 22,268,858 $ 14.59 7.1
$26.00-38.99 5,048,672 $ 33.94 8.8
$39.00-52.875 934,689 $ 44.65 9.4
------------- ------- ---

Total 28,252,219 $ 19.04 7.5
========== ======= ===
</TABLE>

IV-50
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

At December 31, 1998, 21,378,671 options were exercisable at prices ranging
from $13.50 to $38.00. The weighted average exercise price of such options was
$15.05. At December 31, 1997, there were 9,885,382 options exercisable at
exercise prices ranging from $13.50 to $17.99. The weighted average exercise
price of these options was $13.79. At December 31, 1996, no options were
exercisable.

The Company accounts for its stock option plans in accordance with APB Opinion
No. 25 and, accordingly, does not recognize any compensation cost associated
with such plans in the consolidated financial statements. If the Company had
calculated compensation cost under SFAS No. 123 (based on the fair value at the
grant date), the Company would have reported the following net income and
earnings per common share:
<TABLE>
<CAPTION>

1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net income (in thousands) As reported $ 370,800 $ 408,250 $ 291,300
Pro forma $ 349,700 $ 388,000 $ 273,700

Basic earnings per common share As reported $ 2.93 $ 3.59 $ 2.56
Pro forma $ 2.75 $ 3.41 $ 2.40

Diluted earnings per common share As reported $ 2.65 $ 3.16 $ 2.30
Pro forma $ 2.49 $ 3.00 $ 2.18

</TABLE>

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model. For options granted during 1998, 1997 and
1996, respectively, the Company used the following weighted average
assumptions: dividend yield of 0.69%, 0.86% and 1.54%; expected volatility of
40%, 33% and 25%; risk-free interest rates of 5.53%, 5.96% and 6.07%; and an
expected life of five years for all grants. The weighted average fair value per
share of options granted during 1998, 1997 and 1996 was $16.27, $10.81, and
$4.03, respectively.

Other Plans
- -----------
The Company has a defined contribution employee benefit plan covering
substantially all of the Company's full-time and certain qualified part-time
employees. Company contributions to this plan are determined by the Board of
Directors of the Company annually and were $9.6 million, $9.6 million and $7.4
million for 1998, 1997 and 1996, respectively.

Certain key employees of the Company also participate in the following deferred
compensation arrangements: equity investments in selected merchant banking
activities of the Company funded by deferred compensation; certain non-funded,
non-qualified deferred compensation plans that include managed investments; and
other non-qualified plans that are funded by the Company with insurance
contracts.

15. Leases, Commitments and Contingent Liabilities
----------------------------------------------

The Company leases office space and equipment under cancelable and
non-cancelable lease agreements that expire on various dates through 2021. Rent
expense for the years ended December 31, 1998, 1997 and 1996 was $115.6
million, $89.9 million and $76.6 million, respectively. Sublease revenue was
$0.1 million for each of the years ended December 31, 1998 and 1997 and $1.0
million for the year ended December 31, 1996.

IV-51
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

At December 31, 1998, non-cancelable leases in excess of one year, excluding
sublease revenue, escalation and renewal options had the following minimum
lease commitments:

Period
------ (In thousands)

1999............................ $ 116,947
2000............................ 109,589
2001............................ 106,680
2002............................ 107,463
2003............................ 104,923
2004-2021....................... 1,573,867
------------

Total.................... $ 2,119,469
===========

In the normal course of business, the Company enters into underwriting
commitments. Transactions relating to such underwriting commitments that were
open at December 31, 1998, and were subsequently settled, had no material
effect on the consolidated financial statements. The Company also issues
letters of credit for which it is contingently liable for $657.5 million and
$244.0 million at December 31, 1998 and 1997, respectively.

The Company has outstanding commitments, expiring on March 16, 2000, to finance
$150.0 million to third parties to be secured by mortgage loans on real estate
properties. At December 31, 1998, unfunded commitments outstanding under this
facility amounted to $74.0 million. In addition, the Company enters into
commitments to extend credit to non-investment grade borrowers in connection
with the origination and syndication of senior bank debt. At December 31, 1998,
unfunded senior bank loan commitments outstanding were $589.5 million.

At December 31, 1998, the Company has commitments of $718.0 million to invest
on a side-by-side basis with merchant banking partnerships.

16. Industry Segment and Geographic Area Data
-----------------------------------------

In 1998 and prior years, the Company operated in three principal segments in
the financial service industry: Banking Group, Capital Markets Group and
Financial Services Group. Such segments are managed separately based on types
of products and services offered and their related client bases. The Company
evaluates the performance of its segments based primarily on income before
income taxes.

o The Banking Group raises and invests capital and provides financial
advice to companies throughout the U.S. and abroad. Through this group,
the Company manages and underwrites public offerings of securities,
arranges private placements, provides client advisory and other services,
pursues direct investments in a variety of areas and provides venture
capital to institutional investors.

o The Capital Markets Group trades, conducts research on, originates and
distributes equity and fixed-income securities, and places private equity
investments.

o The Financial Services Group provides a broad array of services to
individual and high-net-worth investors and the financial intermediaries
that represent them, including correspondent brokerage services, online
investment services, research and trading services, cash management and
investment advisory services.

IV-52
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

For internal management reporting, the Company allocates certain revenues to
its operating segments in excess of the amount realized on the related
transactions. Such excess amounts are eliminated in consolidation. The Company
also allocates to segments a pro rata share of amounts for leased facilities,
equipment and certain general overhead expenses based upon specified amounts,
usage criteria or agreed rates, and allocates interest expense based upon
capital utilization at rates that approximate market. All other accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.

Capital Financial
Banking Markets Services Elimination
Group Group Group and Other Total
----- ----- ----- --------- -----
(in millions)
December 31, 1998:
- ------------------
<S> <C> <C> <C> <C> <C>
Net revenues from external sources $ 1,488.00 $ 1,139.10 $ 979.00 $ (388.20) $ 3,217.90
------------ ------------ ------------ ----------- ------------
Net intersegment revenues ........ - (3.9) 54.2 (50.3) 0.0
------------ ------------ ------------ ----------- ------------
Net interest revenue ............. (1.2) 138.1 215.2 381.2 733.3
------------ ------------ ------------ ----------- ------------
Depreciation and amortization .... 19.2 27.8 31.5 9.6 88.1
------------ ------------ ------------ ----------- ------------
Income before income taxes ....... 415.8 190.8 185.6 (191.7) 600.5
------------ ------------ ------------ ----------- ------------

Segment assets ................... $ 1,132.10 $ 48,378.50 $ 19,925.00 $ 2,846.60 $ 72,282.20
------------ ------------ ------------ ----------- ------------
Expenditures for long-lived assets $ 37.40 $ 26.9 $ 77.3 $ 12.2 $ 153.8
------------ ------------ ------------ ----------- ------------

December 31, 1997:
- ------------------
Net revenues from external sources $ 1,216.70 $ 1,156.70 $ 793.60 $ (178.40) $ 2,988.60
------------ ------------ ------------ ----------- ------------
Net intersegment revenues ........ 1.3 0.7 46.0 (48.0) 0.0
------------ ------------ ------------ ----------- ------------
Net interest revenue ............. 2.2 104.8 169.3 222.4 498.7
------------ ------------ ------------ ----------- ------------
Depreciation and amortization .... 15 21 16.6 7.5 60.1
------------ ------------ ------------ ----------- ------------
Income before income taxes ....... 381.9 319.4 157.6 (197.8) 661.1
------------ ------------ ------------ ----------- ------------

Segment assets ................... $ 709.6 $ 47,950.10 $ 18,124.30 $ 3,721.80 $ 70,505.80
------------ ------------ ------------ ----------- ------------
Expenditures for long-lived assets $ 68.7 $ 44.0 $ 83.1 $ 28.2 $ 224.0
------------ ------------ ------------ ----------- ------------

December 31, 1996:
- ------------------
Net revenues from external sources $ 841.40 $ 964.40 $ 680.40 $ (69.70) $ 2,416.50
------------ ------------ ------------ ----------- ------------
Net intersegment revenues ........ 0.8 (1.1) 32.5 (32.2) 0.0
------------ ------------ ------------ ----------- ------------
Net interest revenue ............. 11.2 105.1 114.7 110 341.0
------------ ------------ ------------ ----------- ------------
Depreciation and amortization .... 8.5 18.3 20.2 5.9 52.9
------------ ------------ ------------ ----------- ------------
Income before income taxes ....... 265.9 271.0 142.2 (205.3) 473.8
------------ ------------ ------------ ----------- ------------

Segment assets ................... $ 416.90 $ 42,104.20 $ 8,903.80 $ 4,078.80 $ 55,503.70
------------ ------------ ------------ ----------- ------------
Expenditures for long-lived assets $ 16.9 $ 21.7 $ 43.4 $ 60.6 $ 142.6
------------ ------------ ------------ ----------- ------------
</TABLE>

IV-53
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

The Company ceased its proprietary trading in emerging markets in September
1998 and eliminated the bulk of its trading positions during the fourth quarter
of 1998. As a result of this and a subsequent reorganization, the activities of
the Emerging Markets Group are included in the Elimination and Other column in
the above table. Related net revenues from external sources were $5.0 million,
$117.8 million and $109.9 million and earnings (losses) before income taxes
were $(58.7) million, $32.5 million and $28.1 million for 1998, 1997 and 1996,
respectively. The related assets were $1,124.2 million, $2,680.3 million and
$3,565.8 million at December 31, 1998, 1997 and 1996, respectively.

The following is a reconciliation of the Company's reported segment revenues,
income before provision for income taxes and segment assets to the Company's
consolidated totals:

December 31, December 31, December 31,
1998 1997 1996
----------------------------------------------------------
(in millions)
Revenues:

<S> <C> <C> <C>
Total net revenues for reported segments............. $ 4,008.5 $ 3,491.3 $ 2,749.4
All other revenues................................... 148.7 166.2 147.7
Consolidation/elimination (1)........................ (206.0) (170.2) (139.6)
----------- ----------- ------------

Total consolidated net revenues................... $ 3,951.2 $ 3,487.3 $ 2,757.5
========= ========= =========

Income before provision for income taxes:

Total income for reported segments..................... $ 792.2 $ 858.9 $ 679.1
All other income (losses).............................. 46.0 (25.7) (69.6)
Consolidation/elimination (1).......................... (237.7) (172.1) (135.7)
----------- ---------- ----------

Total income before provision for income taxes...... $ 600.5 $ 661.1 $ 473.8
========== ========== ========

Segment assets:

Total assets for reported segments..................... $ 69,435.6 $ 66,784.0 $ 51,424.9
All other assets....................................... 2,717.8 4,026.6 4,151.1
Consolidation/elimination (1).......................... 128.8 (304.8) (72.3)
------------ ------------- --------------

Total segment assets................................ $ 72,282.2 $ 70,505.8 $ 55,503.7
========== ========== ==========
</TABLE>

(1) Consolidation/elimination represents intercompany accounts/intersegment
revenue-sharing arrangements that are eliminated in consolidation.

The Company's principal operations are located in the United States. The
Company maintains offices in Europe, Latin America and Asia, with the majority
of business done through the London offices. The following are net revenues by
geographic region:

December 31, December 31, December 31,
1998 1997 1996
----------------------------------------------------------
(in millions)
<S> <C> <C> <C>
United States.......................................... $ 3,623.9 $ 3,116.2 $ 2,474.3
Emerging markets....................................... 5.0 117.8 109.9
Other foreign.......................................... 322.3 253.3 173.3
----------- ----------- -----------

Total............................................ $ 3,951.2 $ 3,487.3 $ 2,757.5
========== ========= ==========
</TABLE>

IV-54
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

The following are long-lived assets by geographic region:

United States........... $ 384.7 $ 356.3 $ 277.2
Foreign................. 128.0 98.9 14.2
-------- --------- ---------

Total............. $ 512.7 $ 455.2 $ 291.4
======= ======= =======

17. Legal Proceedings
-----------------

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. From time to
time, the Company is also involved in proceedings with, and investigations by,
government agencies and self-regulatory organizations. Some of the actions have
been brought on behalf of various classes of claimants and seek damages of
material or indeterminate amounts. Although the ultimate outcome of litigation
involving the Company cannot be predicted with certainty, after reviewing these
actions with its counsel, management believes it has meritorious defenses to
all such actions and intends to defend each of these vigorously.

Although there can be no assurance that such 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, based
upon advice of counsel, the ultimate resolution of such 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; except that, for the four actions described below,
based upon information currently available to it, management cannot predict
whether or not such litigation will have a material adverse effect on the
Company's results of operations in any particular period.

Beginning on March 25, 1991, Dayton Monetary Associates and Charles Davison,
along with more than 200 other plaintiffs, filed several complaints against
DLJSC and a number of other financial institutions and several individuals in
the U.S. District Court for the Southern District of New York. The plaintiffs
allege that DLJSC and other defendants violated civil provisions of RICO by
inducing plaintiffs to invest over $40 million during the years 1978 through
1982 in The Securities Groups, a number of tax shelter limited partnerships.
The plaintiffs seek recovery of the loss of their entire investment and an
approximately equivalent amount of tax-related damages. Judgments for damages
under RICO are subject to trebling. Discovery is complete. DLJSC's motions for
summary judgments were denied in April 1998. Trial has been scheduled for May
17, 1999. DLJSC believes that it has meritorious defenses to the complaints and
is contesting the suits vigorously.

IV-55
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

false, misleading or incomplete information to deliberately understate the
value of NGC. The class action complaint seeks compensatory and punitive
damages purportedly sustained by the class. On October 10, 1997, DLJSC and
others were named as defendants in a new adversary proceeding in the Bankruptcy
Court brought by the NGC Settlement Trust, an entity created by the NGC plan of
reorganization to deal with asbestos-related claims. The Trust's allegations
are substantially similar to the claims in the State Court action. On January
21, 1998, the Bankruptcy Court ruled 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 announced by NGC in October 1993.
DLJSC has appealed the Bankruptcy Court's ruling. On May 7, 1998, DLJSC and
others were named as defendants in a second action in a Texas State Court
brought by the NGC Settlement Trust. The allegations of this second Texas State
Court action are substantially similar to those of the earlier class action
pending in State Court. In an amended order dated January 5, 1999, the State
Court granted the class action plaintiff's motion for class certification.
Discovery is proceeding in both State Court actions. In early February 1999,
DLJSC filed motions for summary judgment which are pending. Trial in the two
State Court actions is expected in May 1999. DLJSC intends to defend itself
vigorously against all of the allegations contained in the complaints.

On January 26, 1996, a purported purchaser of certain notes and warrants to
purchase shares of common stock of Rickel Home Centers, Inc. ("Rickel") filed a
class action complaint against DLJSC and certain other defendants for
unspecified compensatory and punitive damages in the U. S. District Court for
the Southern District of New York. The suit was brought on behalf of the
purchasers of 126,457 units consisting of $126,457,000 aggregate principal
amount of 13 1/2% senior notes due 2001 and 126,457 warrants to purchase shares
of common stock of Rickel (the "Units") issued by Rickel in October 1994. The
complaint alleges violations of federal securities laws and common law fraud
against DLJSC, as the underwriter of the Units and as an owner of 7.3% of the
common stock of Rickel, Eos Partners, L.P. and General Electric Capital
Corporation, each as owners of 44.2% of the common stock of Rickel, and members
of the board of directors of Rickel, including a DLJSC managing director. The
complaint seeks to hold DLJSC liable for alleged misstatements and omissions
contained in the prospectus and registration statement filed in connection with
the offering of the Units, alleging that the defendants knew of financial losses
and a decline in value of Rickel in the months prior to the offering and did not
disclose such information. The complaint also alleges that Rickel failed to pay
its semi-annual interest payment due on the Units on December 15, 1995 and that
Rickel filed a voluntary petition for reorganization pursuant to Chapter 11 of
the Bankruptcy Code on January 10, 1996. In April 1998, DLJSC's motion to
discuss the complaint against it was denied, and plaintiff's motion for class
certification was denied. In December 1998, the motion of two other potential
class representatives to intervene in the action was denied. DLJSC intends to
defend itself vigorously against all of the allegations contained in the
complaint.

On January 24, 1997, various money management firms and others who allegedly
purchased and/or beneficially owned $116 million aggregate principal amount of
Senior Subordinated Notes (the "Notes") issued in May 1994 by Mid-American
Waste Systems, Inc. ("Mid-American") filed a complaint against DLJSC and a
number of other financial institutions and several former officers and
directors of Mid-American in the Court of Common Pleas, Franklin County, Ohio.
The action seeks rescission, compensatory and punitive damages. The suit
alleges violations of federal securities laws and the Ohio Securities Act, and
common law fraud, aiding and abetting common law fraud, negligent
misrepresentation, breach of contract, breach of fiduciary duty/acting in
concert and negligence. DLJSC was an underwriter for the initial offering of
the Notes. The Notes went into default in February 1996 and Mid-American filed
a voluntary petition for reorganization pursuant to Chapter 11 of the United
States Bankruptcy Code in January 1997. The complaint seeks to hold DLJSC
liable for various alleged misrepresentations and omissions contained in the
prospectus for the Notes and other filings and for various oral representations
concerning the Notes, which plaintiffs claim were false and misleading. Fact
discovery is complete and expert discovery is ongoing. Both DLJSC and
plaintiffs filed motions for summary judgment, all of which are pending. Trial
is currently scheduled to commence on May 4, 1999. Other alleged purchasers
and/or beneficial owners of an additional $15 million aggregate principal
amount of the Notes issued by Mid-American described above filed two additional
lawsuits against DLJSC both in the U.S. District Court for the Southern
District of Ohio, on April 14, 1997 and December 30, 1997. The allegations are
substantially similar to those described above. Discovery in these actions,

IV-56
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements-(Continued)

consolidated with fact discovery in the Ohio state court action described
above, is still ongoing. No trial date has been set in either case. On July 31,
1998, DLJSC filed a motion to dismiss the later filed action for lack of timely
service of valid process, which is pending. DLJSC believes that it has
meritorious defenses to all of the allegations contained in all of the
complaints described above and is contesting the suits vigorously.

On January 20, 1999, the Plan Administrator for the bankruptcy estate of
Mid-American, represented by counsel for plaintiffs in the Ohio state court
action against DLJSC described above, filed another action against DLJSC and
other financial institutions, several individuals and two law firms in the
Supreme Court of the State of New York based on factual allegations similar to
those made in the Ohio state court action. The actions seeks compensatory and
punitive damages. The plaintiff alleges claims against DLJSC for breach of
fiduciary duty, aiding and abetting breach of fiduciary duty, professional
malpractice, common law fraud, constructive fraud, aiding and abetting common
law fraud, negligence, negligent misrepresentation and breach of contract. The
complaint alleges that, as an underwriter, DLJSC is liable for alleged
misrepresentations and omissions in the prospectus for the Mid-American Senior
Subordinated Notes, and that, as Mid-American's financial advisor after the
initial offering, DLJSC allegedly knew or should have known about and should
have disclosed to Mid-American that Mid-American's financial condition was
precarious and that publicly disclosed documents were false and misleading
regarding Mid-American's finances and operations. There has been no discovery
or other proceedings in this action. DLJSC believes that it has meritorious
defenses to all of the allegations contained in the complaint and will contest
the suit vigorously.

18. Quarterly Data (Unaudited)
--------------------------
<TABLE>
<CAPTION>

Income Basic Diluted
Before Earnings Earnings
Provision Per Per
Total For Income Net Common Common
Revenues Taxes Income Share * Share *
-------- ----- ------ ------- -------
<S> <C> <C> <C> <C> <C>
1998:
First quarter........................$ 1,493,421 $ 217,250 $ 134,150 $ 1.12 $ 1.00
Second quarter........................ 1,556,745 230,500 142,300 1.17 1.05
Third quarter......................... 1,069,827 41,600 25,700 0.17 0.15
Fourth quarter........................ 1,287,049 111,150 68,650 0.52 0.47
---------- ---------- ---------- ------- -------
Total year.............$ 5,407,042 $ 600,500 $ 370,800 $ 2.93 $ 2.65
=========== ========= ========= ====== ======

1997:
First quarter.......................$. 981,403 $ 144,000 $ 86,400 $ 0.77 $ 0.69
Second quarter........................ 1,061,180 167,000 100,200 0.88 0.79
Third quarter......................... 1,268,496 188,100 120,300 1.06 0.93
Fourth quarter........................ 1,329,390 162,000 101,350 0.88 0.77
---------- ------------ ----------- ------- -------
Total year.............$ 4,640,469 $ 661,100 $ 408,250 $ 3.59 $ 3.16
=========== =========== ========== ====== ======

</TABLE>

* Due to the effect of averaging the number of shares of common stock and
common stock equivalents throughout the year, the sum of the quarters'
earnings per common share may not equal the total year amounts.

19. Subsequent Event
----------------

On March 17, 1999 the Company filed a registration statement with the Securities
and Exchange Commission relating to a proposed initial public offering of a new
class of common stock that will track the performance of DLJdirect, its online
brokerage business.

IV-57
<PAGE>

SCHEDULE I

DONALDSON, LUFKIN & JENRETTE, INC.
(Parent Company Only)

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

December 31,
1998 1997
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents.................................................... $ 706,010 $ 8

Receivables from brokers, dealers and other ................................. 9,168 6,879

Long-term corporate development investments.................................. 57,029 47,896

Receivables from subsidiaries................................................ 4,110,750 3,335,459

Investment in subsidiaries, at equity........................................ 2,790,692 2,332,338

Other assets and deferred amounts............................................ 926,139 845,997
------------ ------------

Total Assets................................................................. $ 8,599,789 $ 6,568,577
=========== ===========

</TABLE>

See accompanying notes to condensed financial statements.

IV-58
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC.
(Parent Company Only)

Condensed Statements of Financial Condition
(In thousands, except share and per share data)

December 31,
1998 1997
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Short-term borrowings....................................................... $ 234,843 $ 667,757
Accounts payable and accrued expenses....................................... 1,261,171 1,180,714
Other liabilities........................................................... 958,814 684,688
------------- -------------

2,454,828 2,533,159

8.42% Junior subordinated debentures, held by a subsidiary trust .......... 206,224 206,224

Other long-term borrowings................................................. 3,011,038 1,767,704
------------ ------------

Total liabilities................................................... 5,672,090 4,507,087
------------ ------------

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; 122,812,558
and 111,852,762 shares issued and outstanding, respectively)..........
12,281 5,593
Restricted stock units (10,358,294 units authorized; 2,082,236 and
6,562,414 units issued and outstanding, respectively) ................ 21,333 67,255
Paid-in capital......................................................... 858,066 446,518
Retained earnings....................................................... 1,657,710 1,338,220
Accumulated other comprehensive income.................................. 3,309 3,904
Employee deferred compensation stock trust.............................. 12,329 12,061
Common stock issued to employee deferred compensation trust............. (12,329) (12,061)
--------------- ---------------

Total stockholders' equity........................................... 2,927,699 2,061,490
------------ ------------

Total Liabilities and Stockholders' Equity.................................. $ 8,599,789 $ 6,568,577
=========== ===========
</TABLE>

See accompanying notes to condensed financial statements.

IV-59
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC.
(Parent Company Only)

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

Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Dividends from affiliates................................. $ 205,090 $ 136,000 $ 57,094
Interest from affiliates.................................. 229,785 129,256 151,774
Allocations to affiliates................................. 19,021 17,809 16,805
Other..................................................... 27,486 19,958 23,508
----------- ----------- -----------

Total revenues....................................... 481,382 303,023 249,181
---------- ---------- ----------

Costs and Expenses:
Compensation and benefits................................. 147,952 155,224 144,574
Interest and operating expenses........................... 87,788 60,141 110,447
------------ ---------- ----------

Total costs and expenses............................. 235,740 215,365 255,021
----------- ---------- ----------

Income (loss) before income tax benefit and equity
in undistributed net income of subsidiaries............... 245,642 87,658 (5,840)
---------- ----------- -----------

Income tax benefit............................................ 139,799 72,870 51,766
---------- ----------- ----------

Income before equity in undistributed
net income of subsidiaries................................ 385,441 160,528 45,926
---------- ----------- ----------

Equity in undistributed net income (loss) of subsidiaries..... (14,641) 247,722 245,374
----------- ---------- -------

Net income.................................................... $ 370,800 $ 408,250 $ 291,300
========= ========= ---------

Dividends on preferred stock................................... $ 21,310 $ 12,144 $ 18,653
========== ========== ==========

Earnings applicable to common shares........................... $ 349,490 $ 396,106 $ 272,647
========= ========= =========

Earnings per common share:
Basic..................................................... $ 2.93 $ 3.59 $ 2.56
=========== =========== ===========
Diluted................................................... $ 2.65 $ 3.16 $ 2.30
=========== =========== ===========

Weighted average common shares outstanding:
Basic..................................................... 119,260 110,318 106,600
========== =========== ==========
Diluted................................................... 131,980 125,498 118,712
========== =========== ==========

</TABLE>

See accompanying notes to condensed financial statements.

IV-60
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC.
(Parent Company Only)

Condensed Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>

Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net cash provided by operating activities..................... $ 544,785 $ 153,693 $ 194,253
----------- ---------- ----------

Cash flows from investing activities: Net proceeds from (payments for):
Dividends from affiliates................................ 205,090 136,000 57,094
Investment in subsidiaries............................... (472,996) (222,083) (563,222)
Other assets............................................. (51,474) (1,873) 3,111
------------- ------------- -------------

Net cash used in investing activities......................... (319,380) (87,956) (503,017)
----------- ------------ -----------

Cash flows from financing activities: Net proceeds from (payments for):
Short-term borrowings..................................... (432,914) 331,845 (244,557)
Senior Notes.............................................. 893,552 - -
Medium-Term Notes......................................... 349,337 359,646 249,515
Global floating notes..................................... 448 347,760 -
Swiss Franc Bonds......................................... - - (105,513)
Convertible debentures.................................... - 28,779 -
Other long-term debt...................................... - (2,434) (687)
Junior subordinated debentures............................ - - 206,224
Issuance of Series A Preferred Stock...................... - - 200,000
Issuance of Series B Preferred Stock...................... 175,000 - -
Subordinated loan from subsidiaries....................... (623,176) (149,274) -
Dividends................................................. (51,310) (39,886) (45,303)
Sale of common stock to Equitable/AXA..................... 300,000 - -
Exercise of stock options................................. 21,775 4,074 -
Receivables from subsidiaries............................. (152,115) (953,986) 51,989
----------- ----------- -----------

Net cash provided by (used in) financing activities........... 480,597 (73,476) 311,668
---------- ----------- ----------

Increase (decrease) in cash and cash equivalents.............. 706,002 (7,739) 2,904
----------- ------------- -----------

Cash and cash equivalents at beginning of year............... 8 7,747 4,843
--------------- ------------ -----------

Cash and cash equivalents at end of year...................... $ 706,010 $ 8 $ 7,747
========== ============== ==========

</TABLE>

See accompanying notes to condensed financial statements.

IV-61
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC.
(Parent Company Only)

Notes to Condensed Financial Statements

1. Basis of Presentation
---------------------

The condensed financial statements of Donaldson, Lufkin & Jenrette, Inc.
("Parent Company Only") should be read in conjunction with the
consolidated financial statements of Donaldson, Lufkin & Jenrette, Inc.
and subsidiaries ("DLJ" or the "Company") and the notes thereto.
Investments in subsidiaries are accounted for under the equity method.

2. Related Party Transactions
--------------------------

Receivables from subsidiaries include $781.0 million and $1,923.7
million loaned under master note agreements at December 31, 1998 and
1997, respectively. Substantially all receivables from subsidiaries
provide for interest based on Federal funds rates.

The amount of cash dividends paid to the Company by consolidated
subsidiaries of the Company amounted to $205.1 million, $136.0 million
and $57.1 million for the years ended December 31, 1998, 1997, and 1996,
respectively. There are no restrictions on the payment of dividends,
except for those stipulated in certain debt agreements and in those
applicable to brokers and dealers which provide for certain minimum
amounts of capital to be maintained to satisfy regulatory requirements
in the Company's domestic and foreign broker-dealer subsidiaries. Under
certain circumstances, the amount of excess capital that can be
withdrawn is limited. The regulatory requirements are designed to
measure the general financial integrity and liquidity of broker-dealers
and provide minimum acceptable net capital levels to satisfy commitments
to customers. Unless an adequate level of capital is maintained,
regulated broker-dealer subsidiaries would be prohibited from paying
dividends to the Company.

3. Long-term Borrowings
--------------------

The Company finances certain of its activities through long-term
borrowing arrangements. At December 31, 1998, there were current
maturities of long-term borrowings of $99.9 million. Long-term
borrowings consist of the following:

December 31,
1998 1997
---- ----
(In thousands)

<S> <C> <C>
Senior notes, 6% - 6.875% due various dates through 2008.............. $ 1,391,036 $ 497,484
Subordinated exchange notes, 9 5/8% due in 2003....................... 225,000 225,000
Medium-term notes, 5.402% - 6.90% due various dates through 2016....
1,046,645 697,310
Global floating rate notes, due in 2002............................... 348,357 347,909
------------- -------------

Total long-term borrowings....................................... $ 3,011,038 $ 1,767,703
=========== ===========

</TABLE>

For a detailed description of the Parent Company's long-term
borrowings, see Note 5 of the Notes to Consolidated Financial
Statements of Donaldson, Lufkin & Jenrette, Inc. and Subsidiaries.

IV-62
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC.
(Parent Company Only)

Notes to Condensed Financial Statements

Scheduled maturities of long-term borrowings are as follows:

December 31,
1998 1997
---- ----
(In thousands)
1999 ........... $ 99,888 $ -
2000............. 189,917 189,856
2001............. 349,455 -
2002............. 358,348 357,897
2003............. 374,397 225,000
2004-2016........ _ 1,639,033 994,951
------------ ------------

$ 3,011,038 $ 1,767,704
============ ===========

DLJ entered into a $2.75 billion revolving credit facility in 1998 which
allows the Parent Company to borrow up to $1.65 billion on an unsecured
basis, subject to certain limitations. There were no borrowings
outstanding under this agreement at December 31, 1998.

3. Income Taxes
-------------

Certain of the Company's subsidiaries record income taxes as if each
subsidiary files a separate income tax return. The tax rates used in the
computation for such subsidiaries are generally higher than the
Company's overall consolidated effective tax rate. The income tax
benefit recorded by the Parent Company results from the Company's
overall lower consolidated effective tax rate and the ability of the
Company to utilize tax attributes related to its subsidiaries and
affiliates.

4. Contingent Liabilities
----------------------

From time to time the Parent Company issues guarantees of the
obligations of certain subsidiaries. The amounts of such items in the
aggregate are not considered excessive in relation to the normal
operating levels of the Company and management does not anticipate, as
of December 31, 1998, losses as a result of these guarantees.

IV-63
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

None

IV-64
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------

The information required to be furnished pursuant to this item is set
forth under the caption "Election of Directors" of the Proxy Statement, and is
incorporated herein by reference.

The information required to be furnished pursuant to this item with
regard to executive officers of the Registrant that has not been included in
the Registrant's Proxy Statement is as follows:

Michael M. Bendik was appointed Senior Vice President and Chief
Accounting Officer in 1983. Mr. Bendik joined the Company as an accounting
supervisor in 1974 and since then has held various executive positions at the
Company until his appointment as Senior Vice President and Chief Accounting
Officer.

Michael A. Boyd was appointed Senior Vice President and General
Counsel in 1975. Mr. Boyd joined the Company in 1971 as an Associate General
Counsel of the Company and General Counsel of its then subsidiary Alliance
Capital Management Corporation.

Gerald B. Rigg was appointed Senior Vice President and Director of
Human Resources in 1986. Mr. Rigg joined the Company in 1971 as a salesman in
the Company's Institutional Equities Division. Since then Mr. Rigg has held
various executive positions at the Company until his election as Senior Vice
President and Director of Human Resources.

ITEM 11. EXECUTIVE COMPENSATION
----------------------

The information required to be furnished pursuant to this item is set
forth under the caption "Executive Compensation" of the Proxy Statement, and is
incorporated herein by reference.

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

The information required to be furnished pursuant to this item is set
forth under the captions "Voting Securities" and "Security Ownership
Management" of the Proxy Statement, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------

The information required to be furnished pursuant to this item is set
forth under the caption "Certain Relationships and Related Party Transactions"
of the Proxy Statement, and is incorporated herein by reference.

IV-65
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, hereunto duly authorized, on the 30th day of
March 1999.

Donaldson, Lufkin & Jenrette, Inc.
(Registrant)

By:
/s/ Joe L. Roby
-------------------------------------
Joe L. Roby
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has to be signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 30th day of March 1999.

Name Title
---- -----

/s/ John S. Chalsty Chairman of the Board; Director
- -------------------------------
John S. Chalsty

/s/ Joe L. Roby President and Chief Executive
- ------------------------------- Officer; Director
Joe L. Roby

/s/ Anthony F. Daddino Executive Vice President and Chief
- ------------------------------- Financial Officer; Director
Anthony F. Daddino

/s/ Hamilton E. James Managing Director; Director
- -------------------------------
Hamilton E. James

/s/ Richard S. Pechter Managing Director; Director
- -------------------------------
Richard S. Pechter

/s/ Michael M. Bendik Senior Vice President and
- ------------------------------- Chief Accounting Officer
Michael M. Bendik

/s/ Michael A. Boyd Senior Vice President and
- ------------------------------- General Counsel
Michael A. Boyd

/s/ Gerald B. Rigg Senior Vice President and
- ------------------------------- Director of Human Resources
Gerald B. Rigg

/s/ Henri de Castries Director
- -------------------------------
Henri de Castries

/s/ Denis Duverne Director
- -------------------------------
Denis Duverne

/s/ Louis Harris Director
- -------------------------------
Louis Harris

IV-66
<PAGE>

Name Title
---- -----

/s/ Henri G. Hottinguer Director
- -------------------------------
Henri G. Hottinguer

/s/ W. Edwin Jarmain Director
- -------------------------------
W. Edwin Jarmain

/s/ Francis Jungers Director
- -------------------------------
Francis Jungers

/s/ Edward Miller Director
- -------------------------------
Edward Miller

/s/ W. J. Sanders III Director
- -------------------------------
W.J. Sanders III

/s/ Stanley Tulin Director
- -------------------------------
Stanley Tulin

/s/ John C. West Director
- -------------------------------
John C. West

/s/ Michael Hegarty Director
- -------------------------------
Michael Hegarty

IV-67
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC.
FORM 10-K
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 1998

TABLE OF CONTENTS

Part IV EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

Page Number
Item 14 (a) (1) Financial Statements -----------
<S> <C>
Independent Auditors' Report.................................................. 30

Consolidated Statements of Financial Condition at December 31, 1998 and 1997..
31

Consolidated Statements of Income for the years ended December 31, 1998, 1997
and 1996...................................................................... 33

Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996........................................ 34

Consolidated Statements of Cash Flows for years ended December 31, 1998, 1997
and 1996...................................................................... 35

Notes to Consolidated Financial Statements.................................... 37

Item 14 (a) (2) Financial Statement Schedule

Schedule I Condensed Financial Information of Registrant..................... 58

Item 14 (a) (3) Exhibits

</TABLE>

EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Registrant

3.2 By-laws of the Registrant

4.1 Registration Rights and Indemnification Agreement

4.8 Certificate of Designation of 3,500,000 shares of Fixed/Adjustable Rate
Cumulative Preferred Stock, Series B

10.1 Donaldson, Lufkin & Jenrette, Inc. 1991-1993 Long-term Incentive Plan

10.2 Amendment No. 1 to the Donaldson, Lufkin & Jenrette, Inc. 1991-1993 Long-term
Incentive Plan

10.3 Amendment No. 2 to the Donaldson, Lufkin & Jenrette, Inc. 1991-1993 Long-term
Incentive Plan

IV-68
<PAGE>

Item 14 (a) (3) Exhibits (Continued)

EXHIBIT NO. DESCRIPTION
----------- -----------

10.4 Donaldson, Lufkin & Jenrette, Inc. 1994-1996 Long-term Incentive Plan

10.5 Amendment No. 1 to the Donaldson, Lufkin & Jenrette, Inc. 1994-1996 Long-term
Incentive Plan

10.6 Donaldson, Lufkin & Jenrette, Inc. 1995 Restricted Stock Unit Plan

10.7 Donaldson, Lufkin & Jenrette, Inc. 1995 Stock Option Plan

10.8 Donaldson, Lufkin & Jenrette, Inc. 1996 Stock Option Plan

10.9 Deferred Compensation Agreement, dated December 30, 1983, between Michael M.
Bendik and the Registrant

10.10 Deferred Compensation Agreement, dated December 30, 1983, between Michael A.
Boyd and the Registrant

10.11 Deferred Compensation Agreement, dated December 30, 1983, between John S.
Chalsty and the Registrant

10.12 Deferred Compensation Agreement, dated December 30, 1983, between Anthony F.
Daddino and the Registrant

10.15 Deferred Compensation Agreement, dated December 30, 1983, between Richard S.
Pechter and the Registrant

10.16 Deferred Compensation Agreement, dated December 30, 1983, between Gerald B.
Rigg and the Registrant

10.17 Deferred Compensation Agreement, dated December 30, 1983, between Joe L. Roby
and the Registrant

10.19 Letter agreement between the Registrant and ACMC, Inc.,
dated as of August 25, 1995, regarding certain state and
local tax sharing arrangements

10.20 Insurance Agreement, dated August 27, 1992, by and between
the Registrant and Thomas E. Siegler, as Trustee and Owner
of the 1992 Chalsty Insurance Trust, dated August 25, 1995

10.21 Amendment, dated August 28, 1992, to the Insurance
Agreement, dated August 27, 1992, by and between the
Registrant and Michael Cappiccille, as Trustee and Owner

10.22 Federal tax sharing agreement

IV-69
<PAGE>

Item 14 (a) (3) Exhibits (Continued)

EXHIBIT NO. DESCRIPTION
----------- -----------
10.23 Agreement of lease between 99 Bishopsgate Limited,
Landlord, and DLJ International Limited, Tenant and the
Registrant, Tenant's Guarantor, 99 Bishopsgate London, EC2,
dated as of October 24, 1996.

10.24 Agreement of sublease between SBC Warburg, Inc. and the
Registrant's tenant, 277 Park Avenue, New York, New York,
dated June 13, 1997.

10.30 Agreement of Lease between Stanley Stahl D/B/A Stahl Park
Avenue Co., Landlord, and the Registrant, Tenant, 277 Park
Avenue, New York, New York, dated as of October 26, 1994

10.31 First Amendment of Lease by and between Stanley Stahl D/B/A Stahl Park Avenue
Co. and the Registrant, dated as of March 30, 1995

10.32 Amended and Restated Equitable Credit Agreement, dated
March 1, 1994, among the Registrant, The Equitable Life
Assurance Society of the United States, Equitable Variable
Life Insurance Company, DLJ Bridge Finance, Inc., DLJ
Capital Corporation and DLJ Investment Inc.

10.33 Preferred Stock purchase agreement between the Registrant and The Equitable
Life Assurance Society of the United States

10.34 Master Repurchase Agreement between Column Financial, Inc. and DLJ Mortgage
Capital, Inc. dated as of November 1, 1993

10.36 First Amendment to the Amended and Restated Equitable
Credit Agreement dated March 1, 1994, among the Registrant,
The Equitable Life Assurance Society of the United States,
Equitable Variable Life Insurance Company, DLJ Bridge
Finance, Inc., DLJ Capital Corporation and DLJ Investment
Inc.

10.37 Agreement of lease between Broadpine Realty Holding Company, Inc. and the
Registrant, Tenant, 120 Broadway, New York, New York, dated as of November 10,
1995

10.38 Donaldson, Lufkin & Jenrette, Inc. 1996 Incentive Compensation Plan

10.39 1995 Restricted Stock Unit Plan Agreement (Base), dated October 24, 1995,
between Michael M. Bendik and the Registrant

10.40 1995 Restricted Stock Unit Plan Agreement (Base), dated October 24, 1995,
between Michael A. Boyd and the Registrant

10.41 1995 Restricted Stock Unit Plan Agreement (Base), dated October 24, 1995,
between John S. Chalsty and the Registrant

10.42 1995 Restricted Stock Unit Plan Agreement (Base), dated October 24, 1995,
between Anthony F. Daddino and the Registrant

10.43 1995 Restricted Stock Unit Plan Agreement (Base), dated October 24, 1995,
between Hamilton E. James and the Registrant

IV-70
<PAGE>

Item 14 (a) (3) Exhibits (Continued)

EXHIBIT NO. DESCRIPTION
----------- -----------

10.45 1995 Restricted Stock Unit Plan Agreement (Base), dated October 24, 1995,
between Richard S. Pechter and the Registrant

10.46 1995 Restricted Stock Unit Plan Agreement (Base), dated October 24, 1995,
between Gerald B. Rigg and the Registrant

10.47 1995 Restricted Stock Unit Plan Agreement (Base), dated October 24, 1995,
between Joe L. Roby and the Registrant

10.49 1995 Restricted Stock Unit Plan Agreement (Premium), dated October 24, 1995,
between Michael M. Bendik and the Registrant

10.50 1995 Restricted Stock Unit Plan Agreement (Premium), dated October 24, 1995,
between Michael A. Boyd and the Registrant

10.51 1995 Restricted Stock Unit Plan Agreement (Premium), dated October 24, 1995,
between John S. Chalsty and the Registrant

10.52 1995 Restricted Stock Unit Plan Agreement (Premium), dated October 24, 1995,
between Anthony F. Daddino and the Registrant

10.53 1995 Restricted Stock Unit Plan Agreement (Premium), dated October 24, 1995,
between Hamilton E. James and the Registrant

10.55 1995 Restricted Stock Unit Plan Agreement (Premium), dated October 24, 1995,
between Richard S. Pechter and the Registrant

10.56 1995 Restricted Stock Unit Plan Agreement (Premium), dated October 24, 1995,
between Gerald B. Rigg and the Registrant

10.57 1995 Restricted Stock Unit Plan Agreement (Premium), dated October 24, 1995,
between Joe L. Roby and the Registrant

10.59 1995 Stock Option Plan Agreement, dated October 24, 1995, between Michael M.
Bendik and the Registrant

10.60 1995 Stock Option Plan Agreement, dated October 24, 1995, between Michael A.
Boyd and the Registrant

10.61 1995 Stock Option Plan Agreement, dated October 24, 1995, between John S.
Chalsty and the Registrant

10.62 1995 Stock Option Plan Agreement, dated October 24, 1995, between Anthony F.
Daddino and the Registrant

10.63 1995 Stock Option Plan Agreement, dated October 24, 1995, between Hamilton E.
James and the Registrant

IV-71
<PAGE>

Item 14 (a) (3) Exhibits (Continued)

EXHIBIT NO. DESCRIPTION
----------- -----------
10.65 1995 Stock Option Plan Agreement, dated October 24, 1995, between Richard S.
Pechter and the Registrant

10.66 1995 Stock Option Plan Agreement, dated October 24, 1995, between Gerald B.
Rigg and the Registrant

10.67 1995 Stock Option Plan Agreement, dated October 24, 1995, between Joe L. Roby
and the Registrant

10.69 Amendment No. 1 to LTI-IV Unit Award Agreement, dated October 24, 1995,
between Michael M. Bendik and the Registrant

10.70 Amendment No. 2 to LTI-III Unit Award Agreement, dated October 24, 1995,
between Michael A. Boyd and the Registrant

10.71 Amendment No. 2 to LTI-III Unit Award Agreement, dated October 24, 1995,
between John S. Chalsty and the Registrant

10.72 Amendment No. 2 to LTI-III Unit Award Agreement, dated October 24, 1995,
between Anthony F. Daddino and the Registrant

10.73 Amendment No. 1 to LTI-IV Unit Award Agreement, dated October 24, 1995,
between Hamilton E. James and the Registrant

10.75 Amendment No. 2 to LTI-III Unit Award Agreement, dated October 24, 1995,
between Richard S. Pechter and the Registrant

10.76 Amendment No. 2 to LTI-III Unit Award Agreement, dated October 24, 1995,
between Gerald B. Rigg and the Registrant

10.77 Amendment No. 2 to LTI-III Unit Award Agreement, dated October 24, 1995,
between Joe L. Roby and the Registrant

10.79 Insurance Agreement dated November 29, 1995, by and between
the Registrant and Kayla L. Pechter and Philip M. Satow, as
Trustees and Owners of the 1995 Pechter Insurance Trust,
dated August 22, 1995

10.80 Insurance Agreement dated October 31, 1995, by and between the Registrant and
Winthrop Trust Company, as Trustee and Owner of the Anthony F. Daddino
Insurance Trust, dated August 25, 1995

IV-72
<PAGE>

Item 14 (a) (3) Exhibits (Continued)

EXHIBIT NO. DESCRIPTION
----------- -----------
10.84 Insurance Agreement dated January 4, 1996 by and between
the Registrant and Dan Curtis Roby as Trustee and Owner of
the Roby 1995 Insurance Trust dated November 27, 1995.

10.85 Second Amendment of Lease by and between Stanley Stahl
D/B/A Stahl Park Avenue Co. and the Registrant, dated
August 24, 1995.

10.86 Third Amendment of Lease by and between Stanley Stahl D/B/A
Stahl Park Avenue Co. and the Registrant dated October 6,
1995.

10.87 Fourth Amendment of Lease by and between Stanley Stahl
D/B/A Stahl Park Avenue Co. and the Registrant dated April
29, 1996.

10.88 1996 Non-Employee Directors Stock Plan.

10.89 1996 Stock Option Plan Agreement, dated May 16, 1996,
between Joe L. Roby and the Registrant.

10.91 Purchase and Sale Agreement, dated July 16, 1998 among the
Company, The Equitable Companies Incorporated and AXA
Holdings (Belgium).

10.92 First Amended and Restated Credit Agreement, dated May 29,
1998 among the Company, a syndicate of banks, Chase
Securities, Inc. the Chase Manhattan Bank, the Bank of New
York and The First National Bank of Chicago

10.93 Agreement of Lease between USF Nominees Limited, Landlord,
DLJ UK Properties Limited, Tenant, 111 Old Broad Street,
London and the Company, Surety, dated as of June 3, 1998.

10.94 Sublease Agreement between Furman Selz, LLC, Sublandlord
and the Company, Subtenant, 280 Park Avenue, New York, New
York, dated as of June 16, 1998.

IV-73
<PAGE>

Item 14 (a) (3) Exhibits (Continued)

EXHIBIT NO. DESCRIPTION
----------- -----------

11.1 Statement re: computation of basic earnings per share.

11.2 Statement re: computation of diluted earnings per share.

12.1 Computation of ratio of earnings to fixed charges and
ratio of earnings to combined fixed charges and preferred
stock dividends.

21.1 Subsidiaries of the Registrant

23.1 Consent of KPMG LLP

27 Financial Data Schedule
</TABLE>

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 July 16,1998; Item 5
2. Form 8-K dated July 17, 1998; Item 5
3. Form 8-K dated September 2, 1998; Item 5
4. Form 8-K dated October 14, 1998; Item 5
5. Form 8-K dated October 16, 1998; Item 5

IV-74
<PAGE>

ANNEX V

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use
[X] Definitive Proxy Statement of the Commission
[ ] Definitive Additional Materials Only (as permitted)
by Rule 14a-6(c)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
</TABLE>

DONALDSON, LUFKIN & JENRETTE, INC.
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:
--------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------

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

<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC.
277 PARK AVENUE
NEW YORK, NEW YORK 10172

March 18, 1999

Dear Stockholder:

You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of Donaldson, Lufkin & Jenrette, Inc. The meeting will be held at
the Company's offices, 8th Floor, 277 Park Avenue, New York, New York 10172, on
Wednesday, April 21, 1999 at 10:00 a.m., New York City time.

The business of the meeting will be to (i) elect directors to the
Company's Board of Directors, (ii) approve the sale by the Company of
$300,000,000 of its common stock in July 1998 to The Equitable Life Assurance
Society of the United States and AXA Holdings (Belgium), (iii) consider and
vote upon the approval of an amendment to the Company's 1996 Stock Option Plan,
including increasing the number of shares of common stock authorized under such
plan by 15,000,000 and (iv) ratify the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999. Information
on these matters can be found in the accompanying proxy statement.

Whether or not you plan to attend the meeting in person, your shares
should be represented and voted at the meeting. Accordingly, after reading the
enclosed proxy statement, kindly mark the proxy card to indicate your vote,
date and sign the proxy card, and return it in the enclosed postage-paid
envelope as soon as conveniently possible. If you desire to vote in accordance
with management's recommendations, you need not mark your votes on the proxy
card but need to sign, date and return it in the enclosed postage-paid envelope
in order to record your vote. If you later decide to attend the meeting and
wish to vote your shares personally, you may revoke your proxy at any time
before it is exercised.

Sincerely,

Joe L. Roby John S. Chalsty
President and Chairman of the
Chief Executive Officer Board

V-i

<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To the Stockholders of
Donaldson, Lufkin & Jenrette, Inc.:

Notice is hereby given that the 1999 Annual Meeting (the "Annual Meeting")
of the stockholders of Donaldson, Lufkin & Jenrette, Inc. (the "Company") will
be held at the Company's offices, 8th Floor, 277 Park Avenue, New York, New
York 10172, on Wednesday, April 21, 1999, at 10:00 a.m., New York City time,
for the following purposes:

1. To elect all of the members of the Company's Board of Directors to
serve until the Company's next annual meeting and until such directors'
successors are elected and shall have qualified.

2. To approve the sale by the Company of $300,000,000 of its common stock
in July 1998 to The Equitable Life Assurance Society of the United States and
AXA Holdings (Belgium).

3. To consider and vote upon the approval of an amendment to the Company's
1996 Stock Option Plan.

4. To ratify the appointment of KPMG LLP as the Company's independent
auditors for the fiscal year ending December 31, 1999.

5. To transact such other business as may properly come before the Annual
Meeting or at any adjournments thereof.

A proxy statement describing the matters to be considered at the Annual
Meeting is attached to this notice. Only stockholders of record at the close of
business on March 8, 1999 are entitled to notice of, and to vote at, the Annual
Meeting and at any adjournments thereof.

BY ORDER OF THE BOARD OF DIRECTORS

Marjorie S. White
Secretary

March 18, 1999

PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. THIS WILL INSURE THAT YOUR SHARES ARE VOTED
IN ACCORDANCE WITH YOUR WISHES.

V-ii
<PAGE>

DONALDSON, LUFKIN & JENRETTE, INC.
277 PARK AVENUE
NEW YORK, NEW YORK 10172
---------------------
PROXY STATEMENT
---------------------
This Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors of Donaldson, Lufkin & Jenrette, Inc., a
Delaware corporation (the "Company"), of proxies to be voted at the 1999 annual
meeting of stockholders to be held on Wednesday, April 21, 1999 at 10:00 a.m.,
New York City time, at the Company's offices, 8th Floor, 277 Park Avenue, New
York, New York 10172, and at any adjournments thereof (the "Annual Meeting").
The Notice of Annual Meeting, this Proxy Statement and the accompanying proxy
card are first being mailed to stockholders on or about March 18, 1999, to all
stockholders entitled to vote at the Annual Meeting.

At the Annual Meeting, the Company's stockholders will be asked (i) to
elect the following persons as directors of the Company to serve until the
Company's next annual meeting and until such directors' successors are elected
and shall have qualified: Joe L. Roby, John S. Chalsty, Anthony F. Daddino,
David DeLucia, Hamilton E. James, Richard S. Pechter, Stuart M. Robbins, Henri
de Castries, Denis Duverne, Jane Mack Gould, Louis Harris, Michael Hegarty,
Henri G. Hottinguer, W. Edwin Jarmain, Francis Jungers, Edward D. Miller, W.J.
Sanders III, Stanley B. Tulin and John C. West, (ii) to approve the sale by the
Company of $300,000,000 of its common stock, par value $0.10 per share ("Common
Stock") in July 1998 to The Equitable Life Assurance Society of the United
States and AXA Holdings (Belgium), (iii) to consider and vote upon the approval
of an amendment to the Company's 1996 Stock Option Plan, including increasing
the number of shares of Common Stock authorized under such plan by 15,000,000,
(iv) to ratify the appointment of KPMG LLP as the Company's independent
auditors for the fiscal year ending December 31, 1999, and (v) to take such
other action as may properly come before the Annual Meeting or any adjournments
thereof.

GENERAL INFORMATION

SOLICITATION AND VOTING OF PROXIES; REVOCATION; RECORD DATE

All proxies duly executed and received by the Company will be voted on all
matters presented at the Annual Meeting in accordance with the instructions
given therein by the person executing such proxy or, in the absence of such
instructions, will be voted in favor of the election to the Company's Board of
Directors of the nineteen nominees for director identified in this Proxy
Statement, the approval of the sale by the Company of $300,000,000 of its
Common Stock in July 1998 to The Equitable Life Assurance Society of the United
States and AXA Holdings (Belgium), the approval of the increase in available
shares under the Company's 1996 Stock Option Plan by 15,000,000 and the
ratification of the appointment of KPMG LLP as the Company's independent
auditors for the fiscal year ending December 31, 1999. Any stockholder may
revoke his or her proxy at any time prior to the Annual Meeting before it is
voted by written notice to such effect delivered to the Company at 277 Park
Avenue, New York, New York 10172, Attention: Marjorie S. White, Secretary, by
delivery prior to the Annual Meeting of a subsequently dated proxy or by
attending the Annual Meeting and voting in person.

V-1
<PAGE>

Solicitation of proxies may be made by mail and may also be made by
personal interview, telephone and facsimile transmission, and by directors,
officers and regular employees of the Company without special compensation
therefor. The expenses of the preparation of proxy materials and the
solicitation of proxies for the Annual Meeting will be paid by the Company. The
Company expects to reimburse banks, brokers and other persons for their
reasonable out-of-pocket expenses in handling proxy materials for beneficial
owners, which expenses are expected to amount in aggregate to approximately
$25,000.

Only holders of record of Common Stock at the close of business on March 8,
1999 (the "Record Date") will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on the Record Date, there were issued and
outstanding 124,369,505 shares of Common Stock, each of which is entitled to one
vote.

A quorum for the Annual Meeting consists of a majority of the total number
of shares of Common Stock outstanding on the Record Date. Directors of the
Company will be elected by a plurality vote of the shares of Common Stock
represented at the Annual Meeting and entitled to vote. Accordingly,
abstentions and broker non-votes will not affect the outcome of the election.
The affirmative vote of a majority of the shares of Common Stock represented at
the Annual Meeting and entitled to vote is required for the approval of the
sale of Common Stock, the approval of the amendment to the Company's 1996 Stock
Option Plan and the ratification of the appointment of KPMG LLP as the
Company's independent auditors for the fiscal year ending December 31, 1999. On
such items, an abstention will have the same effect as a negative vote, but,
because shares held by brokers will not be considered entitled to vote on
matters as to which the brokers withhold authority, a broker non-vote will have
no effect on the vote.

As of March 1, 1999, The Equitable Companies Incorporated ("EQ" and,
together with its subsidiaries other than the Company, "Equitable")
beneficially owned an aggregate of 88,603,837 shares of Common Stock,
representing approximately 71.3% of the total number of shares of Common Stock
outstanding. AXA and certain of its affiliates beneficially own 1,836,669
shares of Common Stock. AXA is the largest shareholder of EQ and, therefore,
may be considered to beneficially own 90,440,006 shares of Common Stock,
representing 72.7% of the total number of shares of Common Stock outstanding.
See "Security Ownership of Certain Beneficial Holders and Management." The
affirmative vote of the shares of Common Stock beneficially owned by EQ is
sufficient to ensure election of the nominees to the Board of Directors named
herein, approval of the sale of Common Stock, approval of the amendment to the
Company's 1996 Stock Option Plan and ratification of the appointment of KPMG LLP
as the Company's independent auditors for the fiscal year ending December 31,
1999.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR OF THE COMPANY (AS
SPECIFIED BELOW), APPROVAL OF THE SALE OF COMMON STOCK, APPROVAL OF THE
AMENDMENT TO THE COMPANY'S 1996 STOCK OPTION PLAN AND RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL
YEAR ENDING DECEMBER 31, 1999.

V-2
<PAGE>

ITEM 1: ELECTION OF DIRECTORS

All the Company's directors will be elected at the Annual Meeting to serve
until the next succeeding annual meeting of the Company and until their
successors are elected and shall have qualified. All the nominees listed below
except Mr. DeLucia, Mr. Robbins and Ms. Gould are currently serving as members
of the Board of Directors and, except as stated in the subsequent paragraph,
the proxies solicited hereby will be voted FOR the election of such nominees
unless the completed proxy card directs otherwise.

The Board of Directors has been informed that all of the nominees listed
below are willing to serve as directors, but if any of them should decline or
be unable to act as a director, the individuals named in the proxies may vote
for a substitute designated by the Board of Directors. The Company has no
reason to believe that any nominee will be unable or unwilling to serve.

NOMINEES FOR ELECTION AS DIRECTORS

The name, age, principal occupation for the last five years, selected
biographical information and period of service as a director of the Company of
each nominee are set forth below.

JOE L. ROBY (59) was elected Chief Executive Officer of the Company in
February 1998 and has also served as President of the Company since February
1996. He served as Chief Operating Officer of the Company from November 1995
until February 1998. Previously, Mr. Roby had served as Chairman of the
Company's Banking Group since 1989. Mr. Roby joined the Company as a Vice
President in the Investment Banking Group in 1972 and became head of the group
in 1984. Mr. Roby has been a director of the Company since 1989. He is also a
director of Advanced Micro Devices, Inc. and Sybron International Corporation.

JOHN S. CHALSTY (65) was elected Chairman of the Board of the Company in
1996. Mr. Chalsty was Chief Executive Officer of the Company from 1986 until
February 1998, and also served as President of the Company from 1986 until
1996, after having served as Chairman of the Company's Capital Markets Group
for more than two years. Mr. Chalsty joined the firm in 1969 as an oil analyst.
He was named Director of Research in 1971, was appointed head of the Investment
Banking Group in 1979, and was named Chairman of the Capital Markets Group in
1984. Mr. Chalsty has been a director of the Company since 1971 and is also a
director of EQ, IBP, Inc., Occidental Petroleum Corporation and Sappi, Limited.
He has been a member of the Executive Committee of AXA since January 1997. From
1990 to 1994 he served as Vice Chairman of the New York Stock Exchange, Inc.

ANTHONY F. DADDINO (58) was appointed Executive Vice President and Chief
Financial Officer of the Company in 1983 and also serves as Chairman of the
Finance Committee. Mr. Daddino has been a director of the Company since 1985.
He joined the Company in 1976 from the accounting firm of Peat, Marwick,
Mitchell & Co. where he was a Partner. He served as the Company's Chief
Accountant and as a Group Managing Director prior to 1983. He is also a
director of International Commodities Export Corp.

DAVID DELUCIA (46) joined the Company in 1995 as a Managing Director and
Chief Operating Officer of the Fixed Income Division and became head of that
division in 1997. Prior to that time he had been a Partner at Goldman, Sachs &
Co. from 1986 until 1995 in the fixed income division.

V-3
<PAGE>

HAMILTON E. JAMES (48) was appointed Chairman of the Company's Banking
Group in 1995. Mr. James joined the Company as an Associate in the Investment
Banking Group in 1975 and since then has held various executive positions in
the group until his appointment as Chairman of the Banking Group. Mr. James has
been a director of the Company since 1996. He is also a director of Costco
Companies Inc.

RICHARD S. PECHTER (53) was appointed Chairman of the Company's Financial
Services Group in 1987. Mr. Pechter joined the Company in 1969 as a research
analyst and has held various executive positions at the Company since then,
including Chief Financial Officer, Executive Vice President and Chief
Administrative Officer, and Chief Executive Officer of the Company's Pershing
Division ("Pershing"). Mr. Pechter has been a director of the Company since
1979. He is also Director of the Securities Industry Association.

STUART M. ROBBINS (55) was appointed Managing Director, Global
Institutional Equities, of the Company in 1995. Mr. Robbins joined the Company
in 1984 as a Vice President and Retail Industry Specialist. From 1987 until
1994 he was Managing Director, Research and from 1994 until his appointment to
his current position he was a Managing Director and Co-Head, Institutional
Equities.

HENRI DE CASTRIES (44) has been a director of the Company since 1993.
Since April 1998, Mr. de Castries has been Chairman of the Board of EQ and
since 1996 he has been Senior Executive Vice President Financial Services and
Life Insurance Activities of AXA. Prior thereto, Mr. de Castries was Executive
Vice President Financial Services and Life Insurance Activities from 1993 to
1996, General Secretary from 1991 to 1993 and Central Director of Finances from
1989 to 1991 of AXA S.A. He is also a director or officer of various
subsidiaries and affiliates of the AXA Group. He has been a director of EQ
since May 1994 and The Equitable Life Assurance Society of the United States
("Equitable Life"), a wholly-owned subsidiary of EQ, since September 1993. He
is also a director of Alliance Capital Management Corporation ("Alliance"), the
general partner of Alliance Capital Management L.P.

DENIS DUVERNE (45) has been a director of the Company since 1997. Mr.
Duverne has been Senior Vice President -- International Life of AXA since 1995.
Prior to that Mr. Duverne was a member of the Executive Committee, Operations
of Banque Colbert from 1992 to 1995. Mr. Duverne was Secretary General of
Compagnie Financiere IBI from 1991 to 1992. Mr. Duverne worked for the French
Ministry of Finance serving as Deputy Assistant Secretary for Tax Policy from
1988 to 1991 and director of the Corporate Taxes Department from 1986 to 1988.
Mr. Duverne is a Director of Alliance and Equitable Life. He is also a director
or officer of various subsidiaries and affiliates of the AXA Group.

JANE MACK GOULD (60) has been a Senior Vice President and Portfolio
Manager of Alliance and its predecessors since 1969, after having joined that
firm as a research analyst in 1965. Ms. Gould is a member of the Smithsonian
Institute Investment Policy Committee.

LOUIS HARRIS (77) has been a director of the Company since 1995. Mr.
Harris has been an independent public opinion consultant since 1992. Prior
thereto, Mr. Harris was President of Louis Harris and Associates, Inc., an
opinion research company he founded in 1956. Mr. Harris had previously served
on the Board of Directors of the Company from 1971 to 1985 and had been an
Advisory Director of the Company from 1985 until his re-election to the Board
in 1995.

V-4
<PAGE>

MICHAEL HEGARTY (54) has been a director of the Company since May 1998.
Mr. Hegarty has been Vice Chairman of EQ since April 1998 and Chief Operating
Officer and a director of EQ since February 1998. He was Senior Executive Vice
President of EQ from January 1998 to April 1998. He has also been a Director
and President of Equitable Life since January 1998 and Chief Operating Officer
since February 1998. From 1996 to 1997 he was Vice Chairman of Chase Manhattan
Corporation ("Chase"). Prior thereto, he was Vice Chairman (1995-1996) and
Senior Executive Vice President (1991-1995) of Chemical Bank, which merged with
Chase in 1996.

HENRI G. HOTTINGUER (63) has been a director of the Company since 1992. He
has been a partner of Hottinguer & Company since 1968 and he is also Chairman
and Chief Executive Officer of Banque Hottinguer and Societe Financiere pour le
Financement de Bureaux et d'Usines-Sofibus. Mr. Hottinguer is also Chairman of
the Supervisory Board of Credit Suisse Hottinguer, Vice President and Director
of Financiere Hottinguer, a director of Investissement Hottinguer S.A., AXA and
of various subsidiaries and affiliates of the AXA Group, representative of
Financiere SGTE at the Board of Schneider S.A., the Partner of Hottinguer & Cie
Zurich, Chairman of the Board of Hottinguer Capital Corp., and a director of
Swiss Helvetia Fund, Inc. and Hottinguer US Inc.

W. EDWIN JARMAIN (60) has been a director of the Company since 1992. Mr.
Jarmain is President of Jarmain Group Inc. (a private investment holding
company), a position he has held since 1979, and is also an officer and
director of several affiliated companies. He is also a director of EQ,
Equitable Life, AXA Insurance (Canada), Anglo Canada General Insurance Company,
AXA Pacific Insurance Company and National Mutual Holdings Limited as well as
an alternate director of National Mutual Asia Limited and National Mutual
Insurance Company Limited of Hong Kong. From 1994 to 1998, Mr. Jarmain also
served as non-executive chairman and director of FCA International Ltd.

FRANCIS JUNGERS (72) has been a director of the Company since 1995. Mr.
Jungers is an independent consultant on energy and the Middle East and has been
so since 1978 when he retired as Chairman of the Board and Chief Executive
Officer of Arabian American Oil Company, an oil producing company with which
Mr. Jungers was associated for over thirty years. Mr. Jungers had previously
served on the Board of Directors of the Company from 1978 to 1985 and had been
an Advisory Director of the Company from 1985 until his re-election to the
Board in 1995. Mr. Jungers is also a director of the AES Corporation, Onix
Systems, Inc., Statia Terminals Inc., Thermo Ecotek Corporation, Thermo
Electron Corporation and Thermo Quest, Inc.

EDWARD D. MILLER (58) has been a director of the Company since 1997. Mr.
Miller has been President, Chief Executive Officer and a director of EQ since
August 1997. He was President of Equitable Life from August 1997 to January
1998 and has been a director and Chief Executive Officer since August 1997 and
Chairman since January 1998. He is also a Senior Executive Vice President of
AXA and has been a member of the Executive Committee of AXA since September
1997. Mr. Miller was Senior Vice Chairman of Chase from 1995 to 1997, and
President of Chemical Bank (which merged into Chase in 1995) from 1994 to 1995
and its Vice Chairman from 1991 to 1994. He is currently a director of Alliance
and KeySpan Energy Corporation (formerly Brooklyn Union Gas Co.).

W.J. SANDERS III (62) has been a director of the Company since 1995. Mr.
Sanders is Chairman of the Board and Chief Executive Officer of Advanced Micro
Devices, Inc., a semiconductor manufacturer he founded in 1969. Mr. Sanders had
previously served on the Board of Directors of the Company from 1979 to 1985
and had been an Advisory Director of the Company from 1985 until his
re-election to the Board in 1995.

V-5
<PAGE>

STANLEY B. TULIN (49) has been a director of the Company since 1997. He
has been Executive Vice President of EQ since 1996 and its Chief Financial
Officer since May 1997. He has been Director, Chairman, President and Chief
Executive Officer of Equitable Capital Management Corporation since June 1997,
Director, Executive Vice President and Chief Financial Officer of Equitable
Investment Corporation since June 1997 and Chairman, President, Chief Executive
Officer and Chief Financial Officer of ACMC, Inc. since July 1997. Mr. Tulin
has been Vice Chairman and Director of Equitable Life since February 1998,
Senior Executive Vice President from 1996 to February 1998 and Chief Financial
Officer since 1996. Mr. Tulin was Chairman of the Insurance Consulting and
Actuarial practice, Coopers & Lybrand from 1988 to 1996 and a Principal of
Milliman and Robertson, Inc. from 1971 to 1988. He is currently a director of
Alliance.

JOHN C. WEST (76) has been a director of the Company since 1995. Mr. West
is an attorney who has served as the United States Ambassador to the Kingdom of
Saudi Arabia and as Governor of the State of South Carolina. Mr. West had
previously served on the Board of Directors of the Company from 1981 to 1985
and had been an Advisory Director of the Company from 1985 until his
re-election to the Board in 1995. Mr. West is Chairman of the Board of Seibels
Bruce Group, Inc. He is also Distinguished Professor of Middle East Studies at
the University of South Carolina.

THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR
LISTED ABOVE.

COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS

The Board of Directors has a standing Audit Committee (the "Audit
Committee") and a standing Compensation and Management Committee (the
"Compensation and Management Committee"). The Company does not currently have a
standing nominating committee.

The Audit Committee currently consists of Messrs. Jungers (Chairman) and
Jarmain. Among other things, the Audit Committee makes recommendations to the
Board of Directors regarding the engagement of the Company's independent
auditors, reviews the plan, scope and results of the audit, reviews with the
auditors and management the Company's policies and procedures with respect to
internal accounting and financial controls and reviews changes in accounting
policy and the scope of the non-audit services which may be performed by the
Company's independent auditors.

The Compensation and Management Committee currently consists of Messrs.
West (Chairman), Harris and Jarmain. The Compensation and Management Committee
has primary responsibility for all aspects of executive officer compensation
and benefits, including salaries and grants and awards under the Company's 1995
Restricted Stock Unit Plan, 1996 Stock Option Plan and 1996 Incentive
Compensation Plan.

During 1998, the Board of Directors held five meetings, the Compensation
and Management Committee held four meetings and the Audit Committee held three
meetings. During 1998, each of the directors attended at least seventy-five
percent of the meetings of the Board of Directors or Committees held during the
period that he was a director except Mr. Sanders, who missed 2 of the 5
meetings he was eligible to attend.

V-6
<PAGE>

COMPENSATION OF DIRECTORS

The Company's policy is not to pay compensation to directors who are also
employees of the Company, Equitable or any affiliates of Equitable. The
Company's policy is to pay independent directors an annual retainer of $25,000
plus $1,000 for each Board Meeting attended and $500 for each meeting of a
Committee of the Board attended. Under the Company's 1996 Non-Employee
Directors Stock Plan, on November 21, 1996, April 16, 1997 and April 22, 1998
each independent director was granted an option to purchase 8,000 shares of
Common Stock. In addition, under that plan each eligible director will receive
an annual option grant to purchase 8,000 shares of Common Stock at the end of
each Annual Meeting of Stockholders. Each option will have an exercise price
equal to the fair market value of a share of Common Stock as of the date of
grant, will vest and be exercisable with respect to one fourth of the covered
shares on each of the first four anniversaries of the date of grant and will
have a ten-year term. Except for a person whose service as a director is
terminated for cause, after a person ceases to be a director options remain
exercisable for various periods, depending on the reason for the termination.

V-7
<PAGE>

EXECUTIVE COMPENSATION AND BENEFIT PLANS

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid by the Company to its
Chief Executive Officer and each of the Company's four other most highly
compensated executive officers based on 1998 salary and annual bonuses
(collectively, the "Named Executive Officers") who were serving as executive
officers at the end of the fiscal year ended December 31, 1998.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
SALARY BONUS OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(1) COMPENSATION ($)
- ----------------------------- ------ ----------- ------------- ------------------
<S> <C> <C> <C> <C>
Joe L. Roby(6) .............. 1998 $ 175,000 $ 8,500,000 $ 115,770(7)
President and 1997 175,000 9,500,000 107,664(7)
Chief Executive Officer 1996 175,000 8,500,000 97,672(7)
John S. Chalsty(6) .......... 1998 500,000 8,000,000 159,931(8)
Chairman 1997 500,000 12,500,000 155,400(8)
1996 500,000 10,000,000 167,645(8)
Anthony F. Daddino .......... 1998 175,000 3,375,000 25,868(9)
Executive Vice President 1997 175,000 3,750,000 25,201(9)
and Chief Financial Officer 1996 175,000 3,000,000 27,112(9)
Michael A. Boyd ............. 1998 150,000 770,000 14,130(10)
Senior Vice President and 1997 150,000 825,000 14,452(10)
General Counsel 1996 150,000 750,000 14,065(10)
Michael M. Bendik ........... 1998 140,000 850,000 11,779(11)
Senior Vice President and 1997 140,000 950,000 10,467(11)
Chief Accounting Officer 1996 140,000 850,000 10,527(11)

<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------------------------
RESTRICTED OPTIONS/ LTIP
STOCK SARS PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION AWARDS($)(2) (#)(3) ($)(4) COMPENSATION (5)
- ----------------------------- -------------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
Joe L. Roby(6) .............. -- -- $ 2,559,098 $ 237,429
President and -- -- 2,414,243 163,797
Chief Executive Officer -- 500,000 23,983,762 403,765
John S. Chalsty(6) .......... -- -- -- 358,466
Chairman -- -- -- 369,886
-- -- -- 695,447
Anthony F. Daddino .......... -- -- 1,933,127 210,019
Executive Vice President -- -- 1,823,705 193,093
and Chief Financial Officer -- -- 6,996,750 242,702
Michael A. Boyd ............. -- -- 871,188 5,051
Senior Vice President and -- -- 821,876 --
General Counsel -- -- 904,303 13,202
Michael M. Bendik ........... -- -- 614,574 18,082
Senior Vice President and -- -- 579,788 36,336
Chief Accounting Officer -- -- -- 55,667
</TABLE>

- ----------
(1) Includes amounts contributed by each of the Named Executive Officers
under various deferred compensation plans maintained by the Company.

(2) In exchange for surrendering amounts accrued under certain multi-year
compensation arrangements maintained by the Company, each of the Named
Executive Officers received restricted stock units under the Company's
1995 Restricted Stock Unit Plan at the time of the Company's initial
public offering in October 1995 (the "Initial Public Offering"). Each
restricted stock unit represents the right to receive a share of Common
Stock, subject to certain conditions described below. Units awarded under
the 1995 Restricted Stock Unit Plan fall into two categories: "Base
Units" and "Premium Units." Base Units vested 50% in February 1997 and
February 1998. Premium Units vest in three equal installments in each of
February 1998, February 1999 and February 2000. No dividends or dividend
equivalents are paid on the restricted stock units. As of December 31,
1998, the last day of trading during the fiscal year ended December 31,
1998, the aggregate value of the unvested restricted stock units, based
on the average of the high and low prices of Common Stock as reported on
the New York Stock Exchange on such date of $41.3125 was $4,230,565,
$5,640,726, $2,350,351, $352,561 and $176,322 for Messrs. Roby, Chalsty,
Daddino, Boyd and Bendik, respectively.

(3) The options shown for Mr. Roby for 1996 have an exercise price of $16.25,
a term of ten years, and become exercisable in four equal installments on
May 16, 1997, May 16, 1998, May 16, 1999 and May 16, 2000. The Company's
stock plans do not permit the granting of stock appreciation rights
("SARs").

V-8
<PAGE>

(4) All amounts shown for 1998 reflect amounts earned under the Company's
1994-1996 Long Term Incentive Plan. The amounts shown for Mr. Roby in
1997 and 1996 reflect payment of amounts earned under the Company's
1991-1993 and 1994-1996 Long Term Incentive Plans and amounts previously
earned under a prior multi-year bonus program. The amounts shown for Mr.
Daddino reflect payments made in 1997 and 1996 of amounts earned under
the Company's 1994-1996 and 1991-1996 Long Term Incentive Plans.

(5) Of the amounts shown in the table $153,178, $124,869 and $160,736 for
1998, $163,797, $138,394 and $169,066 for 1997 and $167,954, $144,807,
and $142,954 for 1996 reflect the value of premiums paid by the Company
on behalf of Messrs. Roby, Chalsty and Daddino, respectively, under
split-dollar life insurance policies. The amounts represent the present
value of the interest projected, on an actuarial basis, to accrue for the
benefit of Messrs. Roby, Chalsty and Daddino, respectively, on the
portions of the premiums paid by the Company in that year. In addition,
$84,251, $233,597, $49,283, $5,051 and $18,082 is included for 1998 for
Messrs. Roby, Chalsty, Daddino, Boyd and Bendik, respectively, $231,492,
$24,027 and $36,336 is included for 1997 for Messrs. Chalsty, Daddino and
Bendik, respectively, and $235,811, $550,640, $99,748, $13,202 and
$55,667 is included for 1996 for Messrs. Roby, Chalsty, Daddino, Boyd and
Bendik, respectively, to reflect distributions in 1998, 1997 and 1996 in
respect of units awarded in prior years under a plan which allocated to
the participants a portion of the profits realized by the Company on
certain investments.

(6) Effective February 23, 1998 Mr. Chalsty stepped down as Chief Executive
Officer but remains Chairman of the Board. On the same date Mr. Roby was
elected Chief Executive Officer and relinquished the title of Chief
Operating Officer. Effective February 17, 1999, Mr. Chalsty's salary will
be $175,000 per annum.

(7) Of the amounts shown in the table for Mr. Roby, $51,246, $28,547 and
$23,552 reflect the use of transportation equipment provided by the
Company in 1998, 1997 and 1996, respectively. In addition, $64,524,
$79,117 and $74,120 of the amounts shown reflect the value of financial
planning services provided on Mr. Roby's behalf by Wood, Struthers &
Winthrop during 1998, 1997 and 1996, respectively.

(8) Of the amounts shown in the table for Mr. Chalsty, $42,456, $18,804 and
$16,487 reflect the use of transportation equipment provided by the
Company in 1998, 1997 and 1996, respectively. In addition, $21,475,
$40,596 and $55,158 of the amounts shown reflect the value of financial
planning services provided on his behalf by Wood, Struthers & Winthrop
during 1998, 1997 and 1996, respectively, and $96,000, $96,000 and
$96,000 of the amounts shown reflect contributions by the Company toward
the cost of an apartment for Mr. Chalsty during 1998, 1997 and 1996,
respectively.

(9) Of the amounts shown in the table for Mr. Daddino, $21,291, $22,001 and
$21,404 reflect the use of transportation equipment provided by the
Company in 1998, 1997 and 1996, respectively. In addition, $4,577, $3,200
and $5,708 of the amounts shown reflect the value of financial planning
services provided on Mr. Daddino's behalf by Wood, Struthers & Winthrop
during 1998, 1997 and 1996, respectively.

(10) Of the amounts shown in the table for Mr. Boyd, $10,930, $11,252 and
$11,065 reflect the use of transportation equipment in 1998, 1997 and
1996, respectively. In addition, $3,200, $3,200 and $3,000 of the amounts
shown reflect the value of financial planning service provided on Mr.
Boyd's behalf by Wood, Struthers & Winthrop during 1998, 1997 and 1996,
respectively.

(11) The amounts shown for Mr. Bendik reflect the use of transportation
equipment provided by the Company in 1998, 1997 and 1996, respectively.

V-9
<PAGE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR (1998)
AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES ACQUIRED OPTIONS AT FY-END (#) AT FY-END ($)(1)
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Joe L. Roby ................ -- -- 1,198,834/250,000 $32,659,473/6,265,625
John S. Chalsty ............ -- -- 1,272,714/0 35,397,358/$0
Anthony F. Daddino ......... -- -- 530,298/0 14,748,913/$0
Michael A. Boyd ............ -- -- 79,544/0 2,212,317/$0
Michael M. Bendik .......... -- -- 39,772/0 1,106,159/$0
</TABLE>

- ----------
(1) An "in-the-money option" is an option for which the market price of the
underlying Common Stock at year-end 1998 exceeds the exercise price of
the option. The value of unexercised, in-the-money options shown above is
based upon the difference between the exercise price of all options and
$41.3125, the average of the high and low prices of the Common Stock as
reported on the New York Stock Exchange on December 31, 1998, the last
day of trading during the fiscal year ended December 31, 1998. The actual
amount, if any, realized upon exercise of stock options will depend upon
the market price of the Common Stock relative to the exercise price per
share of the stock option at the time the stock option is exercised.
There is no assurance that the values of unexercised in-the-money stock
options reflected in this table will be realized.

CERTAIN DEFERRED COMPENSATION PLANS AND ARRANGEMENTS

Certain employees, including the Named Executive Officers, deferred a
portion of their 1983 or 1984 compensation in return for which the Company
agreed to pay each of them a specified annual benefit for 15 years beginning at
age 65. Benefits are based upon the participant's age and the amount deferred
and are calculated to yield an approximate 12.5% annual compound return. In the
event of the participant's disability or death, an equal or lesser amount is to
be paid to the participant or his beneficiary. After age 55, participants, the
sum of whose age and years of service is equal to or greater than 80, may elect
to have their benefits begin before age 65, in an actuarially reduced amount.
The Company has funded its obligations through the purchase of life insurance
policies. The table below shows as to the Named Executive Officers the
estimated annual benefit payable at age 65. Each of these individuals is fully
vested in the applicable benefit.

<TABLE>
<CAPTION>
ESTIMATED
NAME ANNUAL BENEFITS
<S> <C>
Joe L. Roby ......................... $ 56,527
John S. Chalsty ..................... 47,053
Anthony F. Daddino .................. 107,313
Michael A. Boyd ..................... 75,369
Michael M. Bendik ................... 91,781
</TABLE>

V-10
<PAGE>

COMPENSATION AND MANAGEMENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation and Management Committee during the fiscal
year ended December 31, 1998 was an officer or employee of the Company. Mr.
Jarmain has been a director of EQ and Equitable Life since 1992. See "Security
Ownership of Certain Beneficial Holders and Management" and "Certain
Relationships and Related Transactions."

COMPENSATION AND MANAGEMENT COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation and Management Committee of the Board of Directors (for
the purposes of this report, the "Committee") is composed entirely of
independent outside directors, none of whom is a current officer or employee of
the Company or its subsidiaries. The Committee is responsible for the
establishment of policies governing and for the implementation, administration
and interpretation of all aspects of executive officer compensation, which
includes base salary, short term performance incentives, long term performance
incentives and equity based incentives. The Committee reviews the compensation
of executive officers on an ongoing basis, developing and executing cost and
tax-effective plans with the following objectives:

o Support the Company's business strategies and goals,

o Attract and retain the highest caliber executive officers by providing
compensation opportunities comparable to those offered by other leading
financial services firms with whom the Company competes for business
and talent,

o Motivate high performance in an entrepreneurial incentive-driven
culture,

o Closely align executive officers' interests with stockholders'
interests, and

o Reward results achieved short term and in the long term creation of
shareholder value.

The compensation policy of the Company is to base total compensation on
performance. By virtue of the Company's establishment of relatively low fixed
base compensation and highly-leveraged incentive opportunities, total
compensation will vary directly with the financial results of the Company and
the total returns to its stockholders, and may exceed the 75th percentile for
superior performance.

The Committee was established immediately prior to the Initial Public
Offering. As such, the Committee is administering certain plans that were
approved and in place prior to its establishment. The Committee views such
plans as appropriate and supportive of the policies and objectives discussed
above.

In its deliberations, the Committee utilizes the services of an
independent consulting firm with expertise in executive compensation among
financial services firms, as well as historical marketplace survey data. For
1998, the survey data reviewed in setting compensation levels for executive
officers are based on a group of nine firms. Of these firms, three are included
in the Peer Group Index used for the Common Stock Performance graph set forth
below. See "Common Stock Performance." The firms not included in the Peer Group
Index are either not publicly traded or owned, or have a mix of businesses not
representative of the Company on an overall basis, although various segments
are comparable to certain divisions of the Company.

It is the intention of the Committee that executive officer compensation
be determined and administered on the basis of total compensation, rather than
based on separate free-standing components.

V-11
<PAGE>

In keeping with the Company's policy of sustaining its entrepreneurial
incentive-driven culture, no Company-paid retirement benefits are provided to
executive officers.

The total compensation program for executive officers established by the
Committee is comprehensive and integrated to include salary, short term and
long term performance incentives, and equity-based incentives.

SALARY

Salaries are generally below median for similar positions within the
financial services industry. Salaries are reviewed annually by the Committee
for appropriateness in consideration of the Company's compensation policy,
marketplace practice, the Company's financial results, individual position
responsibilities and performance. Of the ten current executive officers, only
three have received salary increases since 1987.

SHORT TERM AND LONG TERM PERFORMANCE INCENTIVES

1996 Incentive Compensation Plan. The 1996 Incentive Compensation Plan,
which is administered by the Committee, provides for the award of short term
and long term incentives based on Company profitability. At the beginning of
each performance period, each executive officer is assigned an interest in one
or more award pools. After completion of each performance period, the Committee
evaluates the performance of each executive officer based on the criteria
discussed below and, in its sole and absolute discretion, may reduce or
increase awards, except that the Committee may only reduce and may not increase
an award to a current Named Executive Officer. Awards may be paid in cash,
stock-based payments, or any combination thereof.

Short Term Performance Incentives. Aggregate short term incentive
compensation awards are based primarily on the Company's profitability over a
one or two year period. Individual awards are based on an assessment of
individual, business unit, and Company performance.

In assessing such performance, the Committee evaluates a number of
quantitative and qualitative factors without assigning weights and considers
absolute and relative results achieved and strategic progress during the prior
one or two years, as well as over a period of years. Such performance is
evaluated by comparisons to prior years, peer companies and overall industry
performance. Factors considered may include the quality, consistency and level
of earnings, growth, return on equity, cost control and margins, as well as the
services rendered and value added to clients of the Company.

With regard to 1998, pre-tax profits declined 9.2% from 1997, and awards
to most executive officers were reduced from prior year levels in recognition
of this performance and competitive pay levels.

Long Term Performance Incentives. Long term performance incentives are
generally based on the Company's adjusted cumulative net income and return on
equity over a period of three years or longer. Such incentives are designed to
strengthen the coincidence of interest of executive officers and the Company's
shareholders in the long term growth of enterprise value, as well as to
encourage retention among key managers of the Company through vesting and
competitive compensation opportunities.

The number of units awarded to each executive officer is subject to annual
review and reflects their individual performance, responsibility level, and
potential impact on the long term financial results of the

V-12
<PAGE>

Company. Long term incentive payments made in 1998 to executive officers named
in the Summary Compensation Table represent amounts earned under the Company's
1994 -- 1996 Long Term Incentive ("LTI") Plans. Awards of units have been made
for the 1997-1999 performance period.

EQUITY-BASED INCENTIVES

o 1995 Restricted Stock Unit Plan. As discussed above, executive
officers were granted restricted stock units in 1995 under the 1995
Restricted Stock Unit Plan. These grants were made to executive
officers in exchange for reduction in the value of their interests in
the 1991 or 1994 LTI Plan. Restricted stock units granted in 1995 vest
in installments from February 1997 to February 2000. No executive
officer received a restricted stock unit grant in 1998.

o 1995 Stock Option Plan. Executive officers were granted options to
purchase shares of Common Stock under the 1995 Stock Option Plan.
These grants were made to executive officers in exchange for reduction
in the value of their interests in the 1991 or 1994 LTI Plan. Options
granted under the 1995 Stock Option Plan vested in February 1997 and
February 1998. No further grants will be made under this plan which
has been replaced by the 1996 Stock Option Plan, as discussed below.

The value of restricted stock units and stock options awarded under the
1995 Restricted Stock Unit Plan and the 1995 Stock Option Plan may be
realized only after vesting from 1997 to 2000, and will depend on the
market value of the Company's Common Stock in the future. Thus, the
ultimate value of such restricted stock unit and stock option awards
will provide a continuing incentive to executive officers for the
creation of shareholder value.

o 1996 Stock Option Plan. At the 1996 Annual Meeting stockholders
approved the 1996 Stock Option Plan which is administered by the
Committee and provides for the award of stock options to employees of
the Company. No executive officer received an option grant in 1998.

The Committee does not consider stock holdings, prior option or stock
grants, prior long term performance incentive awards or the
appreciation thereon when making future option, stock and long term
performance incentive award determinations.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

Both the quantitative and qualitative criteria referenced above are
applied in assessing the performance and determining the compensation of the
Chief Executive Officer, who participates in the Company's executive
compensation program on the same basis as all other executive officers.

Mr. Roby was elected Chief Executive Officer in February 1998. In setting
the Chief Executive Officer's 1998 total compensation, the Committee took into
account the annual and long-term performance of the Company under his
leadership and its outstanding strategic progress, all of which were viewed as
critical to the results realized by the Company in 1998.

The Company's 1998 performance included a 16.5% growth in revenues from
1997. A combination of higher costs associated with an aggressive expansion
strategy and an industry-wide business decline in

V-13
<PAGE>

the second half of 1998 resulted in profit performance that was below 1997.
1998 profit was 9.2% under the record earnings achieved in 1997. In
consideration of the difficult year, the Chief Executive Officer received an
annual incentive award of $8.5 million for 1998. This represented a 10.6%
decline from his 1997 annual incentive award. His salary of $175,000 was last
increased in 1987. The Chief Executive Officer was not granted any restricted
stock units or stock options in 1997 or 1998.

The Committee believes that the total compensation of the Chief Executive
Officer is appropriate relative to his performance, the performance of the
Company and the compensation of other heads of high-performing investment
firms.

TAX CONSIDERATIONS

The Committee's policy is to preserve corporate tax deductions while
maintaining the flexibility to approve compensation arrangements that it deems
to be in the best interests of the Company and its stockholders, but which may
not always qualify for full tax deductibility.

COMPENSATION AND MANAGEMENT COMMITTEE

Louis Harris
W. Edwin Jarmain
John C. West, Chairman

V-14
<PAGE>

COMMON STOCK PERFORMANCE

The following chart compares the Company's cumulative total return on
stockholder investment since the date of the Initial Public Offering
(October 24, 1995) with that of the Standard & Poor's 500 and a Peer Group
Index. All indices include the reinvestment of dividends.

[GRAPHIC OMITTED]

<TABLE>
<CAPTION>
Compound
Annual
10/26/95 12/31/95 12/31/96 12/31/97 12/31/98 Return Rate
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Donaldson, Lufkin & Jenrette, Inc. $ 100.00 $ 115.74 $ 122.94 $ 274.20 $ 284.53 38.9%
S&P 500 $ 100.00 $ 96.74 $ 141.64 $ 246.09 $ 276.04 37.6%
Peer Group* $ 100.00 $ 111.20 $ 130.81 $ 174.44 $ 224.29 28.9%
</TABLE>

* Peer group includes Bear Stearns Companies, Lehman Brothers Holdings, Morgan
Stanley Group (10/26/95 - 5/30/97) and Morgan Stanley Dean Witter & Co.
(6/1/97-12/31/98). Assumes conversion of Morgan Stanley Group shares into
Morgan Stanley Dean Witter & Co. on 6/1/97.

V-15
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT

The following table sets forth, as of March 1, 1999, the total number of
shares of Common Stock beneficially owned, and the percent so owned, by each
director and nominee for director, by each person known to the Company to be
the beneficial owner of more than 5% of the outstanding Common Stock, by the
Named Executive Officers and by all current directors and executive officers as
a group. All numbers reflect the 2 for 1 stock split that was effective May 11,
1998.

<TABLE>
<CAPTION>
CURRENT
BENEFICIAL OWNERSHIP(1) TOTAL(1)
------------------------ -------------------------
NUMBER OF NUMBER OF
SHARES PERCENT SHARES PERCENT
<S> <C> <C> <C> <C>
AXA(2) ...................................................... 90,440,006 72.7% 90,440,006 59.1%
9 Place Vendome
75001 Paris, France
The Equitable Companies
Incorporated(3) ............................................ 88,603,337 71.3 88,603,337 57.9
1290 Avenue of the Americas
New York, New York 10104
The Equitable Life Assurance
Society of the United States(4) ............................ 39,961,542 32.1 39,961,542 26.1
1290 Avenue of the Americas
New York, New York 10104
Joe L. Roby(5) .............................................. 1,692,524 1.3 1,993,726 1.3
John S. Chalsty(6) .......................................... 1,931,263 1.5 1,999,532 1.3
Anthony F. Daddino(7) ....................................... 781,402 * 834,848 *
David DeLucia(8) ............................................ 180,000 * 470,000 *
Hamilton E. James(9) ........................................ 1,001,751 * 1,287,308 *
Richard S. Pechter(10) ...................................... 1,442,524 1.1 1,668,726 1.1
Stuart M. Robbins (11) ...................................... 591,052 * 762,386 *
Theodore P. Shen(12) ........................................ 1,300,424 1.0 1,351,626 *
Michael A. Boyd(13) ......................................... 119,609 * 123,876 *
Michael M. Bendik(14) ....................................... 60,104 * 62,238 *
Henri de Castries(15) ....................................... 2,000 * 2,000 *
Denis Duverne(16) ........................................... 2,000 * 2,000 *
Jane Mack Gould ............................................. 0 * 0 *
Louis Harris(17) ............................................ 8,880 * 22,880 *
Michael Hegarty(18) ......................................... 0 * 0 *
Henri G. Hottinguer(19) ..................................... 14,000 * 28,000 *
W. Edwin Jarmain(20) ........................................ 20,048 * 34,048 *
Francis Jungers(21) ......................................... 12,000 * 26,000 *
Edward D. Miller(22) ........................................ 0 * 0 *
Stanley B. Tulin (23) ....................................... 1,000 * 1,000 *
W.J. Sanders III(24) ........................................ 12,810 * 26,810 *
John C. West(25) ............................................ 31,600 * 45,600 *
All directors and executive officers as a group(26) ......... 9,204,991 7.0 10,802,090 7.1
</TABLE>

- ----------
* Less than 1.0%.

V-16
<PAGE>

(1) The table provides certain information regarding the beneficial ownership
of the Company's Common Stock by AXA, EQ, Equitable Life, each of the
Company's directors and all directors and executive officers as a group
assuming, in the case of the Total column, the issuance of all of the
Common Stock pursuant to outstanding restricted stock units and options.
In connection with the Initial Public Offering, approximately 500
employees of the Company exchanged an aggregate of $100.0 million of
their interests under certain cash compensation arrangements, including
the Company's 1991-1993 Long Term Incentive Plan and the Company's
1994-1996 Long Term Incentive Plan for restricted stock units
representing an aggregate of approximately 10.4 million shares of Common
Stock. Approximately 90% of these units have vested as of February 1,
1999 and are included in the Current Beneficial Ownership column. The
balance of these units, located in the Total column, will vest in
February 2000.

In connection with the Initial Public Offering, employees acquired options
to purchase an aggregate of approximately 18.4 million shares of Common
Stock at a price of $13.50 per share by foregoing an aggregate of $55.7
million of their future interests under cash compensation arrangements
(the "LTI Option Exchange"). As of February 1, 1998, all outstanding
options received in the LTI Option Exchange have vested and are included
in the Current Beneficial Ownership column. In addition, Mr. Roby was
granted an option to purchase 500,000 shares of Common Stock in 1996 and
Messrs. Harris, Hottinguer, Jungers, Jarmain, Sanders and West have each
been granted options to purchase 24,000 shares of Common Stock under the
Company's 1996 Non-Employee Directors Stock Plan.

(2) AXA is EQ's largest stockholder, beneficially owning approximately 59% of
EQ's outstanding common stock. As of March 1, 1999, a group of four
French mutual insurance companies (the "Mutuelles AXA") owned, directly
or indirectly through various holding companies, approximately 23.9% of
the issued shares representing 37.6% of the voting power of AXA. For
insurance regulatory purposes the shares of capital stock of EQ
beneficially owned by AXA and its subsidiaries have been deposited into a
voting trust to ensure that certain of the indirect minority shareholders
of AXA do not exercise control over EQ or certain of its insurance
subsidiaries.

(3) The number listed includes shares of Common Stock beneficially owned by
EQ's wholly-owned subsidiary, Equitable Life.

(4) The number listed includes shares of Common Stock beneficially owned
through its wholly-owned subsidiary, Equitable Holdings, L.L.C.

(5) The Current Beneficial Ownership column for Mr. Roby includes 476,546
vested restricted stock units and 1,198,384 option shares exercisable
within 60 days. The Total column includes 51,202 unvested restricted
stock units and 250,000 stock options that become exercisable more than
60 days after March 1, 1999. In addition, Mr. Roby holds an option to
purchase 50,000 shares of common stock of EQ which is exercisable within
60 days, 2,500 American Depositary Receipts ("ADRs") of AXA and 2,500
option shares of AXA which are exercisable within 60 days.

(6) The Current Beneficial Ownership column for Mr. Chalsty includes 2,500
shares owned by Mr. Chalsty's wife, 650,649 vested restricted stock units
and 1,272,714 option shares exercisable within 60 days. The Total column
includes 68,269 unvested restricted stock units. In addition, Mr. Chalsty
beneficially owns 116,000 shares of common stock of EQ, including 100,000
option shares exercisable within 60 days, 2,500 ADRs of AXA and 5,000
option shares of AXA which are exercisable within 60 days.

(7) The Current Beneficial Ownership column for Mr. Daddino includes 198,755
vested restricted stock units and 530,298 option shares exercisable
within 60 days. The Total column includes 28,446 unvested restricted
stock units and 25,000 stock options that become exercisable more than 60
days after March 1, 1999. Mr. Daddino beneficially owns 100 shares of
common stock of EQ which are held in an insurance trust for the benefit
of his wife and children and also holds an option to purchase 50,000
shares of common stock of EQ which is exercisable within 60 days.

(8) The Current Beneficial Ownership column for Mr. DeLucia includes 180,000
option shares exercisable within 60 days. The Total column includes
470,000 stock options that become exercisable more than 60 days after
March 1, 1999.

(9) The Current Beneficial Ownership column for Mr. James includes 662,872
option shares exercisable within 60 days. The Total column includes
35,557 unvested restricted stock units and 250,000 stock options that
become exercisable more than 60 days after March 1, 1999. Mr. James also
holds an option to purchase 50,000 shares of common stock of EQ which is
exercisable within 60 days and 1,000 ADRs of AXA.

(10) The Current Beneficial Ownership column for Mr. Pechter includes 954,536
option shares exercisable within 60 days. The Total column includes
51,202 unvested restricted stock units and 175,000 stock options that
become exercisable more than 60 days after March 1, 1999. Mr. Pechter
also holds an option to purchase 50,000 shares of common stock of EQ
which is exercisable within 60 days.

V-17
<PAGE>

(11) The Current Beneficial Ownership column for Mr. Robbins includes 397,724
option shares exercisable within 60 days. The Total column includes
21,334 unvested restricted stock units and 150,000 stock options that
become exercisable more than 60 days after March 1, 1999.

(12) The Current Beneficial Ownership column for Mr. Shen includes 954,536
option shares exercisable within 60 days. The Total column includes
51,202 unvested restricted stock units. Mr. Shen also holds an option to
purchase 50,000 shares of common stock of EQ which is exercisable within
60 days and 1,000 ADRs of AXA.

(13) The Current Beneficial Ownership column for Mr. Boyd includes 79,544
option shares exercisable within 60 days. The Total column includes 4,267
unvested restricted stock units.

(14) The Current Beneficial Ownership column for Mr. Bendik includes 39,772
option shares exercisable within 60 days. The Total column includes 2,134
unvested restricted stock units.

(15) Mr. de Castries also beneficially owns 13,333 shares of Common Stock of
EQ, all of which are option shares exercisable within 60 days, and 70,188
shares of common stock of AXA, including 69,188 option shares exercisable
within 60 days.

(16) Mr. Duverne also owns 10,333 shares of EQ, including 8,333 option shares
exercisable within 60 days. Of his EQ holding 2,000 shares are owned with
his wife. Mr. Duverne also beneficially owns 11,042 shares of common
stock of AXA, of which 1,000 shares are owned with his wife and 10,000
are option shares of AXA which are exercisable within 60 days.

(17) The Current Beneficial Ownership column for Mr. Harris includes 6,000
option shares exercisable within 60 days. The Total column includes
14,000 stock options that become exercisable more than 60 days after
March 1, 1999.

(18) Mr. Hegarty beneficially owns 48,228 shares of common stock of EQ,
including 48,039 option shares exercisable within 60 days.

(19) The Current Beneficial Ownership column for Mr. Hottinguer includes
10,000 option shares exercisable within 60 days. The Total column
includes 14,000 stock options that become exercisable more than 60 days
after March 1, 1999.

(20) The Current Beneficial Ownership column for Mr. Jarmain includes 10,000
option shares exercisable within 60 days. The Total column includes
14,000 option shares that become exercisable more than 60 days after
March 1, 1999. Mr. Jarmain also beneficially owns 10,545 shares of common
stock of EQ.

(21) The Current Beneficial Ownership column for Mr. Jungers includes 10,000
option shares exercisable within 60 days. The Total column includes
14,000 stock options that become exercisable more than 60 days after
March 1, 1999.

(22) Mr. Miller beneficially owns 142,745 shares of common stock of EQ, all of
which are option shares exercisable within 60 days.

(23) The 1,000 shares shown are owned with his wife. Mr. Tulin also
beneficially owns 87,437 shares of common stock of EQ, including 82,819
option shares exercisable within 60 days. Of these shares 4,000 are owned
with his wife. In addition, Mr. Tulin owns 2,000 ADRs of AXA and 2,500
option shares of AXA which are exercisable within 60 days.

(24) The Current Beneficial Ownership column for Mr. Sanders includes 10,000
option shares exercisable within 60 days. The Total column includes
14,000 stock options that become exercisable more than 60 days after
March 1, 1999.

(25) The Current Beneficial Ownership column for Mr. West includes 10,000
option shares exercisable within 60 days. The Total column includes
14,000 option shares that become exercisable more than 60 days after
March 1, 1999. Of the Common Stock beneficially owned by Mr. West, 11,000
shares are held on his behalf by a profit sharing plan. In addition, 400
shares are owned directly by his wife, as to which shares Mr. West
disclaims beneficial ownership.

(26) The Current Beneficial Ownership column includes 1,325,950 vested
restricted stock units and 6,326,380 option shares exercisable within 60
days and the Total column includes 316,458 unvested restricted stock
units and 1,404,000 stock options that become exercisable more than 60
days after March 1, 1999. All directors and executive officers as a group
also beneficially own 678,721 shares of common stock of EQ, 91,230 shares
of common stock of AXA and 9,000 ADRs of AXA.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than ten-percent of a registered class of the Company's equity
securities, to file initial statements of beneficial ownership (Form 3), and
statements of changes in beneficial ownership (Forms 4 or 5), of Common Stock
and other equity securities of the

V-18
<PAGE>

Company with the Commission and the New York Stock Exchange, Inc. Officers,
directors and greater than ten-percent shareholders are required by Commission
regulation to furnish the Company with copies of all such forms they file.

To the Company's knowledge, based solely on its review of the copies of
such forms received by it, or written representations from certain reporting
persons that no additional forms were required for those persons, the Company
believes that all filing requirements applicable to its officers, directors,
and greater than ten-percent beneficial owners were complied with during 1998,
except for Mr. Tulin whose filing was two days late in connection with a
purchase of Common Stock.

ITEM 2: APPROVAL OF SALE OF COMMON STOCK

In July 1998 the Company sold $300,000,000 of newly issued Common Stock to
Equitable Life and AXA Holdings (Belgium) for $60.00 per share, the average
closing price of the Common Stock on the New York Stock Exchange ("NYSE") for
the three-day period beginning Friday, July 17 and ending Tuesday, July 21,
1998. The Company has agreed with the NYSE to request approval of the sale by
its stockholders. Both the Company and Equitable believe this purchase was in
the best interests of the stockholders of the Company.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE SALE OF COMMON STOCK IN JULY 1998.

ITEM 3: APPROVAL OF INCREASE IN STOCK OPTION PLAN SHARES

The Company's 1996 Stock Option Plan (the "1996 Stock Option Plan") was
approved by the stockholders of the Company at the April 30, 1996 Annual
Meeting. This plan has proved to be an invaluable addition to the Company's
compensation structure and has enabled the Company to effectively compete for
qualified personnel. However, as of March 1, 1999, there were available for
grant only 2,163,533 shares under the 1996 Stock Option Plan which, based on
historical practice will not be sufficient to meet the Company's need beyond
1999. Therefore, the Company is proposing to shift 10,000,000 shares of Common
Stock previously approved by stockholders under the Company's 1996 Incentive
Compensation Plan, reducing that plan's authorized shares to 7,600,000 shares,
and also to add another 5,000,000 shares not previously approved by
shareholders. These changes will increase the authorized shares under the 1996
Stock Option Plan from approximately 17.6 million shares to approximately 32.6
million shares. In addition, the current limit on the number of incentive stock
options, 16 million shares, is being increased by 15 million to 31 million
shares.

There follows a summary of the principal provisions of the 1996 Stock
Option Plan, as proposed to be amended. The text of the amendments is attached
as Exhibit A.

Options may be granted under the 1996 Stock Option Plan during the ten
year period ending April 29, 2006.

The 1996 Stock Option Plan is administered by the Compensation and
Management Committee of the Board of Directors. The Compensation and Management
Committee is authorized to establish rules and regulations for administration
of the 1996 Stock Option Plan, to make determinations and interpretations under
the 1996 Stock Option Plan and to grant awards pursuant to the 1996 Stock
Option Plan.

V-19
<PAGE>

The 1996 Stock Option Plan provides for the granting of options to key
employees, consultants or other service providers of the Company or its
subsidiaries. As provided in the 1996 Stock Option Plan, no options were
awarded thereunder prior to January 1, 1996. It is currently estimated that
approximately 1,000 people are eligible to receive options under the 1996 Stock
Option Plan.

During 1998, no options were granted to executive officers, and options on
1,508,489 shares were granted to all employees as a group. The maximum number
of options that may be granted during the term of the 1996 Stock Option Plan is
approximately 32.6 million plus the number of shares covered by options
forfeited or surrendered under the 1995 Stock Option Plan. The total number of
options that may be granted under the 1996 Stock Option Plan may be adjusted in
the event of certain capital changes as described below. Options under the 1996
Stock Option Plan may be granted in the form of either "incentive stock
options" pursuant to the restrictions of Section 422 of the Code, or other
options. The maximum number of shares of Common Stock subject to grants to any
one individual annually under the 1996 Stock Option Plan is four million
shares, subject to adjustment as described below. The maximum number of shares
of Common Stock which may be granted as "incentive stock options" is thirty-one
million shares, subject to adjustment as described below.

The exercise price of all options granted under the 1996 Stock Option Plan
will be equal to the fair market value of Common Stock on the date of grant.
The options will not be exercisable until they vest, as described below.

The options granted under the 1996 Stock Option Plan will be exercisable
for up to ten years and will vest in four equal annual installments. In the
event of a participant's termination of employment due to death or disability
or retirement after the participant's attainment of age 65 and prior to the
final vesting date, all unvested options will vest on the last day of the month
following that in which such termination of employment occurs and will become
exercisable at the rate of 25% of the number of the options granted on each of
the first four anniversaries of the date of grant. If a participant's
employment is terminated by the Company with cause or by the recipient (other
than by reason of retirement) without the Company's consent prior to the final
vesting date, all unvested options will be forfeited. Any vested, exercisable
options held by the recipient must be exercised within 30 days of the
Compensation and Management Committee's reasonable determination that the
recipient has engaged in an activity competitive with the Company. If any such
options remain unexercised at the expiration of such 30-day period, the options
will lapse.

The exercise price of options granted under the 1996 Stock Option Plan, as
well as any amounts required to be withheld upon exercise, may be paid in cash,
stock or a combination of the two. Shares otherwise receivable upon exercise
using the stock payment method may be deferred at the prior election of the
optionee.

Shares that (i) are related to prior grants that are forfeited,
terminated, canceled, expire unexercised, settled in cash or in any other
manner are not issued as shares of Common Stock, or (ii) are used to pay the
exercise price or required withholding in connection with the exercise of other
options, shall again become eligible for grant under the 1996 Stock Option
Plan.

The total number of shares of Common Stock that may be allocated pursuant
to awards made under the 1996 Stock Option Plan or that may be allocated to any
one individual, the number of shares of Common Stock subject to outstanding
options, the exercise price for such options and other terms and

V-20
<PAGE>

conditions of options may be equitably adjusted by the Compensation and
Management Committee in the event of changes in the Company's capital structure
resulting from certain corporate transactions, including a spin-off, stock
dividend, stock split or a subdivision, recapitalization, reorganization,
combination or reclassification of shares, a merger or consolidation, change of
control or similar event.

The Board of Directors of the Company may terminate or amend the 1996
Stock Option Plan, except that any such amendment shall require stockholder
approval if such approval is necessary to comply with any regulatory exemption
or to qualify for any special status with which or for which the Board deems it
necessary or desirable to comply or qualify.

DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES

The following is a brief summary of the Federal income tax rules currently
generally applicable to stock options granted under the 1996 Stock Option Plan.

The grant of an incentive stock option will have no immediate tax
consequences to the optionee or to the Company. The exercise of an incentive
stock option by the payment of cash to the Company will generally have no
immediate tax consequences to the optionee (except to the extent it is an
adjustment in computing alternative minimum taxable income) or to the Company.
If an optionee holds the shares acquired pursuant to the exercise of an
incentive stock option for the required holding period, the optionee generally
will realize long-term capital gain or long-term capital loss upon a subsequent
sale of the shares in the amount of the difference between the amount realized
upon the sale and the purchase price of the shares (i.e., the exercise price).
In such a case, no deduction will be allowable to the Company in connection
with the grant or exercise of the incentive stock option or the sale of shares
of Common Stock acquired pursuant to such exercise.

If, however, an optionee disposes of the shares prior to the expiration of
the required holding period (a "disqualifying disposition"), the optionee will
recognize ordinary income (and the Company will generally be entitled to a
deduction) equal to the excess of the fair market value of the shares of Common
Stock on the date of exercise (or the proceeds of the disposition, if less)
over the exercise price. Special rules apply in the event all or a portion of
the exercise price is paid in the form of stock.

The grant of a stock option other than an incentive stock option (a
"non-qualified stock option") will have no immediate tax consequences to the
optionee or to the Company. Upon the exercise of a non-qualified stock option,
the optionee will generally recognize ordinary income (the Company will
generally be entitled to a deduction) in an amount equal to the excess of the
fair market value of the shares of Common Stock on the date of the exercise of
the option over the exercise price. The optionee's tax basis in the shares will
be the exercise price plus the amount of ordinary income recognized by the
optionee, and the optionee's holding period will commence on the date the
shares are transferred. Special rules apply in the event all or a portion of
the exercise price is paid in the form of stock.

Upon a subsequent sale of shares of Common Stock acquired pursuant to the
exercise of a non-qualified stock option, any difference between the optionee's
tax basis in the shares and the amount realized on the sale is treated as a
long-term or short-term capital gain or loss, depending on the holding period
of the shares.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE APPROVAL OF THE INCREASE IN AUTHORIZED SHARES UNDER THE COMPANY'S 1996
STOCK OPTION PLAN.

V-21
<PAGE>

ITEM 4: RATIFICATION OF INDEPENDENT AUDITORS

Upon recommendation of the Audit Committee, the Board of Directors has
appointed KPMG LLP to audit the accounts of the Company for the fiscal year
ending December 31, 1999. KPMG LLP has audited the consolidated financial
statements of the Company since the Company was founded. KPMG LLP
representatives will be present at the Annual Meeting with the opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions.

Stockholder ratification of the appointment of KPMG LLP as the Company's
independent auditors is not required by the Company's bylaws or otherwise. The
Board of Directors has elected to seek such ratification as a matter of good
corporate practice. Should the stockholders fail to ratify the appointment of
KPMG LLP as the Company's independent auditors for the fiscal year ending
December 31, 1999, the Board of Directors will consider whether to retain that
firm for such year.

THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

REGISTRATION RIGHTS AND INDEMNIFICATION AGREEMENT

Under a Registration Rights and Indemnification Agreement between the
Company and EQ, the Company has granted Equitable the right to require the
Company to register shares of Common Stock held by Equitable for sale in
accordance with Equitable's intended method of disposition thereof (a "demand
registration"). Equitable may require up to six such demand registrations, with
no more than one every six months. Additionally, the Company has granted to
Equitable the right subject to certain exceptions to participate in
registrations of Common Stock initiated by the Company on its own behalf or on
behalf of its stockholders (a "piggy-back registration"). The Company is
required to pay expenses (other than underwriting discounts and commissions)
incurred by Equitable in connection with the demand and piggy-back
registrations. Subject to certain limitations specified in the Registration
Rights and Indemnification Agreement, Equitable's registration rights are
assignable to third parties. The Registration Rights and Indemnification
Agreement provides for indemnification and contribution by the Company for the
benefit of Equitable and permitted assigns and their related persons relating
to the demand and piggy-back registrations. In addition, such Agreement
provides for indemnification and contribution by the Company for the benefit of
Equitable and its related persons with respect to other securities offerings by
the Company and financial and other information provided by the Company to
Equitable and in Exchange Act reports.

TAX SHARING AGREEMENTS

The Company was included in EQ's consolidated tax group for Federal income
tax purposes through December 31, 1996. In connection with the Initial Public
Offering, the Company and EQ entered into a Federal income tax sharing
agreement (the "Federal Income Tax Sharing Agreement"). Pursuant to the Federal
Income Tax Sharing Agreement, the Company and EQ generally make payments
between them such that, with respect to any period in which the Company was a
member of EQ's consolidated tax group

V-22
<PAGE>

for Federal income tax purposes (a "Pre-Deconsolidation Period"), the amount of
Federal income taxes to be paid by the Company will be determined as though the
Company were to file for such period and all prior periods separate Federal
income tax returns (generally including any amounts determined to be due as a
result of a redetermination of the Federal income tax liability of the EQ
consolidated group arising from an audit or otherwise) as the common parent of
an affiliated group of corporations filing a consolidated return rather than
being a consolidated subsidiary of EQ. The Company is also entitled to receive
certain payments from EQ in respect of carrybacks of tax assets, if any, of the
Company, determined on a separate return basis, arising in a Pre-Deconsolidation
Period beginning after the completion of the Initial Public Offering. The amount
of any such payment will generally be determined, in the case of a carryback to
a Pre-Deconsolidation Period ending on or before the completion of the Initial
Public Offering, by the actual tax benefit received by the EQ consolidated group
from such carryback, or, in the case of a carryback to any Pre-Deconsolidation
Period beginning after the completion of the Initial Public Offering, by the
benefit that the Company would have received from such carryback on a separate
return basis.

With respect to the period the Company was a part of the EQ consolidated
group, EQ continues to have all the rights of a common parent of a consolidated
group, will be the sole and exclusive agent for the Company in any and all
matters related to the Federal income tax liability of the Company and will be
responsible for the preparation and filing of consolidated Federal income tax
returns. In addition, each member of a consolidated group for Federal income
tax purposes is jointly and severally liable for the Federal income tax
liability of each other member of its consolidated group. Accordingly, under
the Federal Income Tax Sharing Agreement, EQ has agreed to indemnify the
Company against such liabilities to the extent that they relate to the Federal
income tax liability of the EQ consolidated group for periods that the Company
is included in the EQ consolidated group, except to the extent attributable to
the Company.

The Federal Income Tax Sharing Agreement also contains provisions in
respect of certain Federal income tax matters relating to a carryback of a tax
asset, if any, of the Company from a period beginning on or after the date on
which the Company ceases to be eligible for inclusion in EQ's consolidated
group (a "Post-Deconsolidation Period") to a Pre-Deconsolidation Period. Under
the Federal Income Tax Sharing Agreement, (i) the Company will agree to forego
the carryback of any net operating losses to a Pre-Deconsolidation Period
unless EQ consents to such carryback, which consent shall not be unreasonably
withheld, and (ii) the Company may be entitled to receive certain payments from
EQ in respect of any tax assets carried back to Pre-Deconsolidation Periods.

The Company also filed combined, consolidated or unitary income tax
returns with ACMC, Inc. ("ACMC"), an indirect wholly-owned subsidiary of EQ, in
certain states and localities for periods through December 31, 1996. The
Company and ACMC have entered into a tax sharing agreement (the "State Tax
Sharing Agreement"), pursuant to which the Company and ACMC have agreed that
with respect to any period in which the Company and ACMC have filed or file a
combined, consolidated or unitary income tax return in a state or local taxing
jurisdiction, the amount of combined, consolidated or unitary income taxes to
be paid by ACMC will be determined as though ACMC were to file for such period
and all prior periods separate income tax returns with respect to such state or
local taxing jurisdiction. The Company has agreed to indemnify ACMC against any
combined, consolidated or unitary income taxes for periods in which the Company
files combined, consolidated or unitary income tax returns with ACMC, except to
the extent attributable to ACMC.

V-23
<PAGE>

EMPLOYEES' SECURITIES COMPANY

Selected employees of the Company, including executive officers, are
offered the opportunity to become members of the DLJ First ESC L.P. and DLJ ESC
II L.P. (the "ESCs"), investment vehicles which qualify as "employees'
securities companies" for purposes of the Investment Company Act of 1940, as
amended. The ESCs invest in the Company's merchant banking portfolio companies,
typically acquiring between 30% and 40% of the Company's investment in such
companies. The amounts invested by members are augmented in the ratio of 4:1 by
a combination of recourse loans from the Company and preferred contributions to
the ESC by the Company which have a capped return equal to the prime rate plus
1 3/4%, each of which is repaid to the Company upon realization of the
applicable portfolio investments.

Amounts invested in the ESCs by each of the Company's executive officers
for 1998 are set forth below:

<TABLE>
<CAPTION>
YEAR ENDED
NAME DECEMBER 31, 1998
<S> <C>
Joe L. Roby ................ $337,500
John S. Chalsty ............ 275,000
Michael M. Bendik .......... 12,500
Michael A. Boyd ............ 25,000
Anthony F. Daddino ......... 137,500
Hamilton E. James .......... 480,690
Richard S. Pechter ......... 187,500
Gerald B. Rigg ............. 12,500
Theodore P. Shen ........... 125,000
</TABLE>

The amount of loans made to the Company's executive officers and preferred
contributions made in the ESCs by the Company on behalf of the Company's
executive officers for 1998, as well as the amount of such loans outstanding
for the year December 31, 1998, are set forth below:

<TABLE>
<CAPTION>
LOANS AND PREFERRED LOANS AND PREFERRED
CONTRIBUTIONS CONTRIBUTIONS OUTSTANDING
YEAR ENDED FOR THE YEAR ENDED
NAME DECEMBER 31, 1998 DECEMBER 31, 1998
<S> <C> <C>
Joe L. Roby ................ $1,311,033 $2,003,232
John S. Chalsty ............ 1,122,264 1,977,986
Michael M. Bendik .......... 49,862 81,667
Michael A. Boyd ............ 94,695 126,500
Anthony F. Daddino ......... 543,434 860,348
Hamilton E. James .......... 1,903,987 3,025,462
Richard S. Pechter ......... 736,178 1,182,625
Gerald B. Rigg ............. 49,862 81,667
Theodore P. Shen ........... 498,601 815,515
</TABLE>

V-24
<PAGE>

DLJ FUND INVESTMENT PARTNERS, L.P.

Selected employees of the Company, including certain executive officers,
are limited partners of DLJ Fund Investment Partners, L.P. ("FIP"), an
investment vehicle organized to allow these employees to invest on a leveraged
basis in funds and other investment vehicles sponsored by certain of the
Company's clients and potential clients and on a co-investment basis in
transactions in which the Company's clients also invest. Amounts invested by
the limited partners are augmented in the ratio of 2:1 by preferred
contributions to FIP by the Company which have a capped return equal to the
prime rate plus 1 3/4%.

Amounts committed to FIP by each of the Company's executive officers are set
forth below:

<TABLE>
<CAPTION>
NAME AT DECEMBER 31, 1998
<S> <C>
Joe L. Roby ................. $2,000,000
John S. Chalsty ............. 2,000,000
Michael M. Bendik ........... -0-
Michael A. Boyd ............. -0-
Anthony F. Daddino .......... 500,000
Hamilton E. James ........... 2,000,000
Richard S. Pechter .......... 750,000
Gerald B. Rigg .............. -0-
Theodore P. Shen ............ 1,000,000
</TABLE>

The amounts of preferred contributions made to FIP by the Company on
behalf of each of the Company's executive officers in 1998 as well as the loan
balances outstanding at December 31, 1998 are set forth below:

<TABLE>
<CAPTION>
PREFERRED
CONTRIBUTIONS
PREFERRED OUTSTANDING
CONTRIBUTIONSYEAR ENDED FOR YEAR ENDED
NAME DECEMBER 31, 1998 DECEMBER 31, 1998
<S> <C> <C>
Joe L. Roby ................ $929,752 $1,548,269
John S. Chalsty ............ 929,752 1,548,269
Michael M. Bendik .......... -0- -0-
Michael A. Boyd ............ -0- -0-
Anthony F. Daddino ......... 232,441 387,073
Hamilton E. James .......... 929,752 1,548,269
Richard S. Pechter ......... 348,654 580,598
Gerald B. Rigg ............. -0- -0-
Theodore P. Shen ........... 464,874 774,137
</TABLE>

DLJ FUND INVESTMENT PARTNERS II, L.P.

Selected employees of the Company, including certain executive officers,
are limited partners of DLJ Fund Investment Partners II, L.P. ("FIP II"), an
investment vehicle organized to allow these employees to invest on a leveraged
basis in funds and other investment vehicles in the alternative investment
arena. Amounts invested by the limited partners are augmented in the ratio of
1:1 by non-recourse loans to FIP II by the Company which have a capped return
equal to the prime rate plus 1 3/4%.

V-25
<PAGE>

Amounts committed to FIP II by each of the Company's executive officers are set
forth below:

<TABLE>
<CAPTION>
NAME AT DECEMBER 31, 1998
<S> <C>
Joe L. Roby ................. $1,000,000
Michael M. Bendik ........... 250,000
Michael A. Boyd ............. 250,000
Hamilton E. James ........... 2,000,000
Richard S. Pechter .......... 1,000,000
Gerald B. Rigg .............. 250,000
Theodore P. Shen ............ 1,000,000
</TABLE>

The amounts of non-recourse loans made to FIP II by the Company on behalf
of each of the Company's executive officers for 1998 as well as the loan
balances outstanding for the year ended December 31, 1998 are set forth below:

<TABLE>
<CAPTION>
NON-RECOURSE
NON-RECOURSE LOANS
LOANS OUTSTANDING
YEAR ENDED FOR YEAR ENDED
NAME DECEMBER 31, 1998 DECEMBER 31, 1998
<S> <C> <C>
Joe L. Roby ................ $ 205,232 $ 174,664
Michael M. Bendik .......... 51,308 43,666
Michael A. Boyd ............ 51,308 43,666
Hamilton E. James .......... 410,464 349,329
Richard S. Pechter ......... 205,232 174,664
Gerald B. Rigg ............. 51,308 43,666
Theodore P. Shen ........... 205,232 174,664
</TABLE>

OTHER AFFILIATED TRANSACTIONS

The Company, Equitable and their respective affiliates engage in a variety
of transactions in the ordinary course of their respective businesses. As a
general rule, the Company has not retained an independent third party to
evaluate transactions with Equitable and there has been no independent
committee of the Board of Directors to evaluate such transactions.
Notwithstanding this fact, the Company believes that each of the arrangements
described below was made on an arm's-length basis. This belief is based on the
fact that the terms and conditions of such transactions (including the fees or
other amounts paid by the Company in connection with such transactions) were
established through arm's-length negotiations which took into account (i) the
terms and conditions of transactions of the same or a similar nature entered
into by the Company with unaffiliated third parties, (ii) the terms and
conditions of transactions of the same or a similar nature entered into by
Equitable with unaffiliated third parties, and/or (iii) the terms and
conditions of market transactions of the same or a similar nature entered into
by unaffiliated third parties. Notwithstanding the foregoing, there can be no
assurance that the Company could not have obtained more favorable terms from an
unaffiliated third party. While there can be no assurance, the Company
anticipates that future transactions with Equitable will be made on an
arm's-length basis consistent with past practice.

V-26
<PAGE>

FINANCIAL SERVICES PROVIDED BY OR TO THE COMPANY

Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC") from time to
time provides investment banking and other services, including administrative
services to Equitable, AXA and their subsidiaries. The fees related to
investment banking services were $5,616,000 and the fees related to
administrative services were $4,200 in 1998. DLJSC from time to time also
provides brokerage and research services to Equitable, AXA and their
subsidiaries. Such services were provided on an arm's-length basis in the
ordinary course of business at rates comparable to those paid at the time by
unaffiliated third parties.

DLJSC and Pershing distribute certain Alliance sponsored funds and cash
management products and receive standard sales concessions and distribution
payments. In addition, Alliance and Pershing have an agreement pursuant to
which Pershing recommends to certain of its correspondent firms the use of
Alliance cash management products for which it is allocated a portion of the
revenues derived by Alliance from sales through the Pershing correspondents.
Amounts paid by Alliance to the Company in connection with the above
distribution services during 1998 totaled $31.7 million.

EQ Financial Consultants, Inc. ("EQ Financial"), a wholly-owned subsidiary
of Equitable Life formerly known as Equico Securities, Inc., has arrangements
with each of DLJSC and Wood, Struthers & Winthrop pursuant to which EQ
Financial's registered representatives are compensated for referring investment
advisory clients to DLJSC and Wood, Struthers & Winthrop. Referral amounts paid
by DLJSC and Wood, Struthers & Winthrop during 1998 totaled $1,020,000.

EQ Financial distributes Wood, Struthers & Winthrop's mutual funds for
which it receives standard sales concessions, which during 1998 totaled
$722,000.

EQ Financial and the Company are parties to a portfolio manager agreement
with respect to Equitable Classic Strategies, a wrap fee investment program
offered through EQ Financial. Amounts paid to EQ Financial by the Company were
$889,000 in 1998.

Alliance and Wood, Struthers & Winthrop share investment management
responsibility for a number of institutional accounts. The amount of advisory
fees received from such accounts that were allocated to Wood, Struthers &
Winthrop during 1998 totaled $63,000.

On May 24, 1996, DLJSC issued 15,000 additional shares of its non-voting
Adjustable Rate Cumulative Preferred Stock, for an aggregate purchase price of
$1.5 million, to WSW 1995 Exchange Fund, L.P. At December 31, 1998, 315,000
shares were issued and outstanding, of which 134,000 were held by the Company.
The General Partner of such partnership is a subsidiary of Wood, Struthers &
Winthrop. Such preferred stock will automatically be redeemed by DLJSC 15 years
from the date of issuance thereof and may be redeemed at the option of DLJSC at
any time prior to such date.

During 1998, the Company provided investment banking and underwriting
services to Advanced Micro Devices, Inc., of which Mr. Sanders is Chairman of
the Board and Chief Executive Officer, for fees totaling approximately
$4,072,000.

Certain directors, officers and employees of the Company, Equitable, AXA
and their subsidiaries maintain margin accounts with DLJSC. Margin account
transactions for such directors, officers and employees are conducted by DLJSC
in the ordinary course of business and are substantially on the same

V-27
<PAGE>

terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unaffiliated persons and did not involve more
than the normal risk of collectibility or present other unfavorable features.
In addition, certain of such directors, officers and employees had investments
or commitments to invest in various funds sponsored by subsidiaries of the
Company. Such investments or commitments have been made on the same basis as
those made by investors not affiliated with the Company and the aggregate of
such investments are less than 8% of the investments in any such fund. DLJSC
also, from time to time and in the ordinary course of business, enters into
transactions involving the purchase or sale of securities from or to such
directors, officers and employees and members of their immediate families, as
principal. Such transactions on a principal basis are effected on substantially
the same terms as similar transactions with unaffiliated third parties except
that in some instances directors, officers and employees are not charged
placement fees. DLJSC offers its employees reduced commission rates.

INSURANCE COVERAGE OBTAINED FROM EQUITABLE

The Company has purchased split-dollar life insurance policies on the
lives of Messrs. Chalsty, Roby, Daddino, James and Pechter from Equitable Life
at rates comparable to those paid at the time by unaffiliated third parties.
The aggregate amount of premiums for these policies borne by the Company in
1998 were approximately $172,000 for Mr. Chalsty and $185,000 each for Messrs.
Roby, Daddino, James and Pechter.

In addition, the Company from time to time purchases life insurance
policies from Equitable Life on the lives of several hundred employees,
including Messrs. Chalsty, Roby, Daddino, James and Bendik, who participate in
deferred compensation plans maintained by the Company. The Company believes
these purchases are at rates comparable to those that could be obtained from
unaffiliated third parties. During 1998, the aggregate premiums paid under such
policies for all participants was approximately $31.1 million.

Equitable arranges for directors and officers liability insurance coverage
for itself and its subsidiaries, including the Company under a policy written
by insurance companies unaffiliated with Equitable. Based on a review of market
rates, the Company believes that such rates are at least as favorable to the
Company as could be obtained from unaffiliated third parties.

FINANCIAL SERVICES OBTAINED FROM AFFILIATES

Alliance provides investment management services to certain of the
Company's employee benefit plans at rates comparable to those paid at the time
by unaffiliated third parties. Advisory fees from these accounts during 1998
totaled $2.5 million.

An affiliate of AXA, AXA Asset Management Partenaires ("AXA Asset
Management"), provides investment management services to the Winthrop
International Equity Fund and the Winthrop Developing Markets Fund (the
"Funds"), a set of mutual funds sponsored by Wood, Struthers & Winthrop ("WSW")
pursuant to a sub-advisory agreement between WSW and AXA Asset Management.
Advisory fees of $503,155 were paid by WSW to AXA Asset Management relating to
the Funds' fiscal year ending October 31, 1998. In addition, WSW pays for
various direct fund expenses on behalf of the Funds and AXA Asset Management
reimburses WSW for 50% of such expenses. The total amount of expenses
reimbursed was approximately $106,000.

V-28
<PAGE>

OTHER TRANSACTIONS WITH EQUITABLE

In 1993, Equitable Life purchased 200,000 shares of the Company's
Cumulative Exchangeable Preferred Stock for $20.0 million. In 1996, these
shares were exchanged, pursuant to the terms thereof, for $20.0 million
aggregate principal amount of the Company's 9.58% Subordinated Exchange Notes
due 2003. The Company paid interest on these notes to Equitable Life of $1.9
million in 1998. Such interest was paid on a pro rata basis to all holders of
9.58% Subordinated Exchange Notes, including unaffiliated third parties.

In July 1998, Equitable Life and AXA Holdings (Belgium) purchased from the
Company $300,000,000 of newly issued Common Stock for $60.00 per share, the
average closing price of the Common Stock on the NYSE for the three-day period
beginning Friday, July 17 and ending Tuesday, July 21, 1998.

Equitable has committed, subject to approval by Equitable on a
transaction-by-transaction basis, to provide $750 million of subordinated debt
financing to the DLJ Bridge Fund. Interest payments and other distributions to
Equitable Life from the DLJ Bridge Fund during 1998 totaled $13.6 million. The
Company has agreed to pay Equitable the first $25 million of aggregate
principal losses incurred by Equitable with respect to all bridge loans. 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. In addition, Equitable is entitled to one-third of any
equity securities obtained in connection with any bridge loan.

Equitable Life has invested an aggregate of $63.0 million in Sprout Growth,
L.P., Sprout Growth II, L.P., Sprout Capital V, L.P., Sprout Capital VI, L.P.,
Sprout Capital VII, L.P., and Sprout Capital VIII, L.P., (collectively, the
"Sprout Funds"), venture capital funds sponsored by the Company. Distributions
to Equitable Life from the Sprout Funds during 1998 were $3.5 million. Such
distributions were paid on a pro rata basis to all investors, including
unaffiliated third parties.

The Company currently leases certain of its office facilities from joint
ventures in which Equitable participates. Total lease payments by the Company
with respect to such facilities were approximately $1.4 million for 1998.

STOCKHOLDER PROPOSALS

Under the rules and regulations of the Commission as currently in effect,
any holder of at least $1,000 in market value of Common Stock who has held such
Common Stock for at least one year and who desires to have a proposal presented
in the Company's proxy material for use in connection with the annual meeting
of stockholders to be held in 2000 must transmit that proposal (along with his
or her name, address, the number of shares of Common Stock that he or she holds
of record or beneficially, the dates upon which the securities were acquired
and documentary support for a claim of beneficial ownership) in writing as set
forth below. Proposals of stockholders intended to be presented at the annual
meeting of stockholders to be held in 2000 must be received by Marjorie S.
White, Secretary, Donaldson, Lufkin & Jenrette, Inc., 277 Park Avenue, New
York, New York 10172, no later than January 1, 2000.

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<PAGE>

Holders of Common Stock who want to have proposals submitted for
consideration at future meetings of the stockholders should consult the
applicable rules and regulations of the Commission with respect to such
proposals, including the permissible number and length of proposals and other
matters governed by such rules and regulations.

ADDITIONAL INFORMATION

THE COMPANY WILL MAKE AVAILABLE A COPY OF ITS ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998, WHEN IT BECOMES AVAILABLE, AND ANY
QUARTERLY REPORTS ON FORM 10-Q OF THE COMPANY FILED THEREAFTER, WITHOUT CHARGE,
UPON WRITTEN REQUEST TO THE SECRETARY, DONALDSON, LUFKIN & JENRETTE, INC., 277
PARK AVENUE, NEW YORK, NEW YORK 10172. EACH SUCH REQUEST MUST SET FORTH A GOOD
FAITH REPRESENTATION THAT, AS OF THE RECORD DATE (MARCH 8, 1999), THE PERSON
MAKING THE REQUEST WAS A BENEFICIAL OWNER OF COMMON STOCK ENTITLED TO VOTE.

In order to ensure timely delivery of any such document prior to the
Annual Meeting, any request should be received by the Company promptly.

OTHER BUSINESS

The Company knows of no other matters which may come before the Annual
Meeting. However, if any such matters properly come before the Annual Meeting,
the individuals named in the proxies will vote on such matters in accordance
with their best judgment.

BY ORDER OF THE BOARD OF DIRECTORS

Marjorie S. White
Secretary

March 18, 1999

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EXHIBIT A*

SECTION 4. SHARES AVAILABLE FOR OPTIONS.

(a) SHARES AVAILABLE. Subject to adjustment as provided in Section 4(b),
the number of Shares with respect to which Options may be granted under the
Plan shall be equal to the sum of (i) the number of whole shares nearest to but
not exceeding 10% of the fully diluted shares outstanding following the initial
public offering of the Company's Shares, but assuming for this purpose that
Shares granted and to be granted with respect to restricted stock units and
options authorized for issuance under the 1995 Restricted Stock Unit Plan, the
1995 Stock Option Plan and this Plan are issued and outstanding at such time,
plus (ii) the number of shares covered by options forfeited, canceled,
exercised or surrendered without the issuance of Shares under the 1995 Stock
Option Plan, plus (iii) the number of whole shares nearest to but not exceeding
12 1/2% of the Shares related to options granted under the 1995 Stock Option
Plan as of the initial public offering of the Company's Shares plus (iv)
15,000,000. To the extent that after the effective date of the Plan, any Option
granted under the Plan or any option granted under the Company's 1995 Stock
Option Plan is forfeited, exercised or otherwise terminates or is canceled
without the delivery of Shares (including Shares withheld in payment of taxes
relating to such Options or options and Shares surrendered in payment of the
exercise price or taxes relating to such Options or options), then the Shares
covered by such Option or option, to such extent, shall again be, or shall
become, Shares with respect to which Options may be granted under this Plan.
Notwithstanding the foregoing and subject to adjustment as provided in
Section 4(b), the aggregate number of Shares in respect of which Options may be
granted under the Plan to any Employee in any calendar year shall not exceed
4,000,000 and the maximum number of Shares in respect of which Incentive Stock
Options may be granted under the Plan is 31,000,000 [16,000,000].

*New language in italics;
deleted language in brackets

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