NAVISTAR INTERNATIONAL TRANSPORTATION CORP, 10-K, 1996-01-29

NAVISTAR INTERNATIONAL TRANSPORTATION CORP
10-K, 1996-01-29
MOTOR VEHICLES & PASSENGER CAR BODIES

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UNITED STATES 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 (FEE REQUIRED)

For the fiscal year ended October 31, 1995

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from to

Commission file number 1-5236

NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
-------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 36-1264810
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

455 North Cityfront Plaza Drive, Chicago, Illinois 60611
- -------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (312) 836-2000

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------------------ ----------------------
Sinking fund debentures: 6-1/4%, due 1998 New York Stock Exchange
Sinking fund debentures: 9%, due 2004 New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None
----

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
--- ---

As of January 16, 1996, the number of shares outstanding of the
registrant's capital stock was 1,000.

Document Incorporated by Reference
----------------------------------
Navistar Financial Corporation 1995 Annual Report on Form 10-K (Part IV)

THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF NAVISTAR INTERNATIONAL
CORPORATION AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)
(a) AND (b) OF FORM 10-K AND IS, THEREFORE, FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
<PAGE 2>

NAVISTAR INTERNATIONAL TRANSPORTATION CORP.

FORM 10-K

Year Ended October 31, 1995

INDEX
10-K Page
---------
PART I

Item 1. Business ............................................. 3
Item 2. Properties ........................................... 11
Item 3. Legal Proceedings .................................... 12
Item 4. Submission of Matters to a Vote of Security Holders (A) 13

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ................................ 13
Item 6. Selected Financial Data (A)13
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition .................. 14
Item 8. Financial Statements and Supplementary Data .......... 20
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ............. 52

PART III

Item 10. Directors and Executive Officers of the Registrant (A) . 52
Item 11. Executive Compensation (A) ............................. 52
Item 12. Security Ownership of Certain Beneficial Owners
and Management (A) ................................... 52
Item 13. Certain Relationships and Related Transactions (A) ..... 52

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ......................................... 53

INDEPENDENT AUDITORS' REPORT ...................................... 50

INDEPENDENT AUDITORS' CONSENT ..................................... 51

SIGNATURES

Principal Accounting Officer .................................... 54
Directors ....................................................... 55

POWER OF ATTORNEY ................................................. 55

SCHEDULES ......................................................... F-1
EXHIBITS .......................................................... E-1

(A) Omitted or amended as the registrant is a wholly-owned subsidiary of
Navistar International Corporation and meets the conditions set forth
in General Instructions J(1) (a) and (b) of Form 10-K and is,
therefore, filing this Form with the reduced disclosure format.
<PAGE>
<PAGE 3>

PART I
ITEM 1. BUSINESS

Navistar International Transportation Corp., hereinafter referred to
as "the Company" and "Transportation," is the wholly-owned subsidiary of a
holding company, Navistar International Corporation, hereinafter referred
to as "Navistar" and the "Parent Company."

Transportation operates in one principal business segment, the
manufacture and marketing of Class 5 through 8 diesel trucks (GVW 16,001
lbs. and greater), including school buses, mid-range diesel engines and
service parts in the United States and Canada and in selected export
markets. Transportation is the industry market share leader in the combined
Class 5 through 8 truck market in the United States and Canada, offering a
full line of diesel-powered products in the common carrier, private
carrier, government/service, leasing, construction, energy/petroleum and
student transportation markets. Transportation also produces mid-range
diesel engines for use in its Class 5, 6 and 7 medium trucks and for sale
to original equipment manufacturers. Transportation markets its products
through an extensive distribution network which includes 958 dealer and
distribution outlets in the United States and Canada. Service and customer
support are also supplied at these outlets. As a further extension of its
business, Transportation provides financing and insurance for its dealers,
distributors and retail customers through its wholly-owned subsidiary,
Navistar Financial Corporation, referred to as "Navistar Financial." See
"Important Supporting Operations."

THE MEDIUM AND HEAVY TRUCK INDUSTRY

The market in which Transportation competes is subject to considerable
volatility as it moves in response to cycles in the overall business
environment and is particularly sensitive to the industrial sector which
generates a significant portion of the freight tonnage hauled. Government
regulation has impacted and will continue to impact trucking operations and
efficiency, and the specifications of equipment.

The following table shows industry retail deliveries in the combined
United States and Canadian markets for the five years ended October 31,
1995, in thousands of units:

YEARS ENDED OCTOBER 31,
-----------------------

1995 1994 1993 1992 1991
----- ----- ----- ----- -----

Class 5, 6 and 7 medium trucks
and school buses .......... 151.8 134.2 122.5 118.3 120.1
Class 8 heavy trucks ......... 228.8 205.4 166.4 125.2 109.0
----- ----- ----- ----- -----
Total ...................... 380.6 339.6 288.9 243.5 229.1
===== ===== ===== ===== =====

Source: Based upon monthly data by the American Automobile
Manufacturers Associations (AAMA) in the United States and Canada, and
other sources.

The Class 5 through 8 diesel truck market in the United States and
Canada is highly competitive. Major domestic competitors include PACCAR,
Ford and General Motors, as well as foreign-controlled manufacturers, such
as Freightliner, Mack and Volvo GM. In addition, manufacturers from Japan
(Hino, Isuzu, Nissan and Mitsubishi) are competing in the United States and
Canadian markets. The intensity of this competition results in price
discounting and margin pressures throughout the industry. In addition to
the influence of price, market position is driven by product quality,
engineering, styling, utility and distribution.
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<PAGE 4>

TRANSPORTATION MARKET SHARE

Transportation delivered 101,700 Class 5 through 8 trucks, including
school buses, in the United States and Canada in fiscal 1995, an 11%
increase from the 91,600 in 1994. Transportation's combined share of the
Class 5 through 8 truck market in 1995 was 26.7%. Transportation has been
the leader in combined market share for Class 5 through 8 trucks, including
school buses, in the United States and Canada in each of its last 15 fiscal
years.

PRODUCTS AND SERVICES

The following table illustrates the percentage of Transportation's
sales by class of product based on dollar amount:

YEARS ENDED OCTOBER 31,
-----------------------

PRODUCT CLASS 1995 1994 1993
---- ---- ----

Class 5, 6 and 7 medium trucks and
school buses ................... 32% 32% 31%
Class 8 heavy trucks ............. 42 42 44
Service parts .................... 12 14 14
Engines .......................... 14 12 11
---- ---- ----

Total .......................... 100% 100% 100%
==== ==== ====

Transportation offers a full line of Class 5 through 8 trucks, with
the objective of serving the customer by addressing requirements for
performance and value. In 1995, Transportation solidified its market
leadership position in the cabover market segment with the introduction of
the 9800 Pro Sleeper, an industry first with a totally flat floor design.
The T444E and DT466E electronically controlled diesel engines, which were
introduced in 1994, enhance Class 5, 6 and 7 medium truck operating
performance and life. In addition, new interiors and a hydraulic anti-lock
brake system were introduced in 1995 in the Company's Class 5 through 7
medium trucks.

Transportation was recognized as possessing the best overall dealer
franchise organization according to the most recent American Truck Dealers
(ATD) Dealer Attitude Survey (May 1995). In 1995, Heavy Duty Trucking
magazine recognized Transportation for two products. The "9800 Pro Sleeper
with Flat Floor" and the "International HEUI Engine" were selected as two
of the most significant 50 new truck-related products of 1995. According to
the annual survey conducted by J. D. Power and Associates on 1995 Medium-
Duty Truck Customer Satisfaction, Navistar ranked number one in customer
satisfaction in product for Class 5, 6 and 7 medium conventional trucks for
the third consecutive year.

For over two decades, Transportation has been the leading supplier of
school bus chassis in the United States. Transportation manufactures
chassis for conventional school buses, as well as for use in small capacity
buses designed to meet the needs of disabled students. Chassis are sold
through dealers and national account managers for delivery to the ultimate
customers: school districts and contractors. In addition to its
traditional chassis business, Transportation's wholly-owned subsidiary,
American Transportation Corporation (AmTran), manufactures school bus
bodies. In 1995, Transportation acquired the remaining interests in
AmTran. Through its relationship with AmTran, Transportation participates
in the trend toward the integrated design and manufacture of school buses,
which offers improved production and marketing efficiencies, and a
reduction in the school bus order cycle.
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<PAGE 5>

Transportation offers diesel-powered trucks and buses because of their
improved fuel economy, ease of serviceability and greater durability over
gasoline-powered vehicles. Transportation's Class 8 heavy trucks
generally use diesel engines purchased from outside suppliers while Class
5, 6 and 7 medium trucks are powered by a proprietary line of mid-range
diesel engines manufactured by Transportation. In 1994, Transportation
launched its all new series of V-8 and in-line six-cylinder diesel engines
for bus and Class 5 through 8 truck models. In 1995, the HEUI
(Hydraulically actuated, Electronically controlled Unit Injection) fuel
system extended Transportation's leadership position as the only truck and
engine manufacturer to offer a fully electronic mid-range diesel engine
line. Based upon information published by R.L. Polk & Company, diesel-
powered Class 5, 6 and 7 medium truck shipments represented 80% of all
medium truck shipments for fiscal year 1995 in the United States and
Canada.

Transportation's truck and bus manufacturing operations in the United
States and Canada consist principally of the assembly of components
manufactured by its suppliers, although Transportation produces its own
mid-range diesel truck engines, sheet metal components (including cabs) and
miscellaneous other parts.

The following is a summary of Transportation's truck manufacturing
capacity utilization for the five years ended October 31, 1995:

YEARS ENDED OCTOBER 31,
-----------------------

1995 1994 1993 1992 1991
------ ------ ------ ------ ------

Production units ........... 110,633 94,993 88,274 73,901 70,502
Total production capacity .. 112,952 112,966 106,032 106,088 106,762
Capacity utilization ....... 97.9% 84.1% 83.3% 69.7% 66.0%

Total production capacity varies as a result of changes in the number
of days of production during a year as well as changes in production
constraints. The capacity utilization information excludes AmTran which
was acquired during the fourth quarter of 1995.

In 1995, Transportation reached an agreement with Spartan Motors to
jointly develop, market and manufacture diesel-powered rear-engine
recreational vehicle chassis. Spartan Motors is the world's largest
engineer and manufacturer of custom chassis for recreational vehicles, fire
trucks, airport tankers and other specialty vehicles.

ENGINE AND FOUNDRY

Transportation builds diesel engines for use in its Class 5, 6 and 7
medium trucks, school buses, selected Class 8 heavy truck models and for
sale to original equipment manufacturers in the United States and Canada.
Transportation also sells engines for industrial, agricultural and marine
applications. Transportation is the leading supplier of mid-range diesel
engines in the 160-300 horsepower range according to data supplied by a
private research firm, Power Systems Research of Minneapolis, Minnesota.
Production in 1995 totalled 228,600 units, an increase of 19% from the
192,400 units produced in 1994.

Transportation has completed an engine program which began with a
major capital investment in its engine products and facilities to
manufacture a new generation of V-8 and in-line six-cylinder diesel
engines. The implementation of this program began in 1993 with the
introduction of a new in-line six-cylinder diesel engine family, equipped
with a special mechanical fuel injection system, that replaced the long-
standing DT family of engines.
<PAGE>
<PAGE 6>

In February 1994, Transportation introduced the V-8 T444E, the
industry's first full-featured electronic diesel engine designed
specifically for the medium truck market. This engine offers a 10 to 15
percent improvement in fuel economy, 30 to 40 percent enhancement in
durability, and improved power and torque when compared to the former 7.3
Liter V-8 product. In addition, this engine meets current emissions
requirements and includes such optional features as electronic cruise
control, electronically controlled power-take-off and diagnostic
capabilities.

In 1995, Transportation became the first North American truck
manufacturer to offer a complete line of fully electronic diesel engines.
All of Transportation's electronic diesel engines are equipped with HEUI,
the new fuel injection technology first introduced in 1994. All
International brand diesel truck engines are able to meet emission
standards without the use of a catalytic converter or exhaust after
treatment device, unlike Transportation's competitors. This new generation
of engines is designed to respond to customer demands for engines that have
more power, improved fuel economy, long life, and meet current emission
requirements through 1997. The engines are offered in a wider horsepower
range than previously offered, which will give Transportation an
opportunity to expand the number of applications for its engines and
broaden its customer base.

Based on U.S. registrations published by R.L. Polk & Company, the
T444E electronically controlled diesel engine is the leading engine of its
class. In addition to its strong contribution to the market position of
Transportation's medium trucks, the light truck version, marketed as the
7.3 Liter Direct Injection Diesel, has realized significant external sales.
Transportation has an agreement to supply this V-8 product to a domestic
automotive company through the year 2000 for use in all of its diesel-
powered light trucks and vans. Sales of this engine to the automotive
company currently account for approximately 87% of Transportation's T444E
sales. Shipments to all original equipment manufacturers totalled a record
156,100 units in 1995, an increase of 20% from the 130,600 units shipped in
1994.

The International 530/530E offers high horsepower and torque, as well
as a lower initial price, considerable weight savings and reduced operating
costs. The International 530 is well-suited for customers using their
trucks in "hub and spoke" freight hauling applications, such as beverage or
refrigerated delivery, and construction applications, such as material
hauling, redi-mix and roll-off refuse.

The following is a summary of Transportation's engine capacity
utilization for the five years ended October 31, 1995:

YEARS ENDED OCTOBER 31,
-----------------------

1995 1994 1993 1992 1991
------- ------- ------- ------ -------

Engine production units ... 228,638 192,446 175,464 148,991 126,103
Total production capacity . 198,000 188,000 166,260 166,260 166,720
Capacity utilization ...... 115.5% 102.4% 105.5% 89.6% 75.6%

Total production capacity varies as a result of changes in product
mix.

Transportation is exploring the development of alternative fuel
engines, including engines powered by compressed natural gas, and has an
agreement with Detroit Diesel Corporation to develop a natural gas engine
based on Transportation's new V-8 engine and Detroit Diesel's electronic
alternative fuel technology.
<PAGE>
<PAGE 7>

SERVICE PARTS

The service parts business is a significant contributor to
Transportation's sales and gross margin, and to the maintenance of its
Class 5 through 8 truck and engine customer base. In the United States and
Canada, Transportation operates 7 regional parts distribution centers,
which allows it to offer 24-hour availability and same-day shipment of the
parts most frequently requested by customers. Transportation is
undertaking initiatives to increase parts sales outside of the United
States and Canada. As customers have explored ways to reduce their costs
and improve efficiency, Transportation and its dealers have established
programs to help them manage the parts and maintenance aspects of their
businesses more efficiently. Transportation also offers a "Fleet Charge"
program, which allows participating customers to purchase parts on credit
at all of its dealer locations at consistent and competitive prices. In
1995, service parts sales increased as a result of growth in dealer and
national accounts, as well as in its export business.

MARKETING AND DISTRIBUTION

UNITED STATES AND CANADIAN OPERATIONS. Transportation's truck
products are distributed in virtually all key markets in the United States
and Canada through the largest retail organization specializing in medium
and heavy trucks. As part of its continuing program to adapt to changing
market conditions, Transportation has been assisting dealers to expand
their operations to better serve their customer base. Transportation's
truck distribution and service network in the United States and Canada was
composed of 958, 949 and 950 dealers and retail outlets at October 31,
1995, 1994 and 1993, respectively. Included in these totals were 490, 473
and 467 secondary and associate locations at October 31, 1995, 1994 and
1993, respectively.

Retail dealer activity is supported by 5 regional operations in the
United States and a general office in Canada. Transportation has a
national account sales group responsible for its 130 major national account
customers.

Transportation's 8 retail and 3 wholesale used truck centers in the
United States and Canada provide sales and trade-in benefits to its dealers
and retail customers.

INTERNATIONAL OPERATIONS. Transportation exports trucks, components
and service parts, both wholesale and retail, to more than 70 countries
around the world. In 1995, 5,000 trucks were exported while 5,100 trucks
were exported in 1994. Cumulatively, from 1986 through 1995,
Transportation was the leading North American exporter of Class 6 through 8
trucks according to data provided by the AAMA.

In 1995, the Company established new regional sales offices in
Johannesburg, South Africa, and in Dubai, United Arab Emirates, to oversee
the distribution of Class 5 through 8 diesel trucks and service parts. In
Mexico, Transportation has an agreement with DINA Camiones, S.A. (DINA) to
supply product technology, components and technical services for assembly
of DINA trucks and buses. Transportation also sells its in-line six-
cylinder family of mid-range diesel engines to Perkins Group, Ltd.
(Perkins) of Peterborough, England, for worldwide distribution and to
Detroit Diesel Corporation, the North American distributor of Perkins.
<PAGE>
<PAGE 8>

NAVISTAR FINANCIAL CORPORATION

Navistar Financial is engaged in the wholesale, retail and lease
financing of new and used trucks sold by Transportation and its dealers in
the United States. Navistar Financial also finances wholesale accounts and
selected retail accounts receivable of Transportation. Sales of new
products (including trailers) of other manufacturers are also financed
regardless of whether designed or customarily sold for use with
Transportation's truck products. During 1994 and 1995, Navistar Financial
provided wholesale financing for 93% of the new truck units sold by
Transportation to its dealers and distributors in the United States.
Navistar Financial also provided retail financing in 1995 and 1994 for
approximately 14% and 15%, respectively, of the new truck units sold by
Transportation and its dealers and distributors in the United States.

Navistar Financial's wholly-owned domestic insurance subsidiary, Harco
National Insurance Company, provides commercial physical damage and
liability insurance coverage to Transportation's dealers and retail
customers, and to the general public through an independent insurance
agency system.

IMPORTANT SUPPORTING OPERATIONS

THIRD PARTY SALES FINANCING AGREEMENTS. In the United States,
Transportation has an agreement with Associates Commercial Corporation
(Associates) to provide wholesale financing to certain of its truck dealers
and retail financing to their customers. During 1995, Associates provided
7% of the wholesale financing utilized by Transportation's dealers and
distributors, unchanged from fiscal 1994.

Navistar International Corporation Canada has an agreement with a
subsidiary of General Electric Canadian Holdings Limited to provide
financing for Canadian dealers and customers.

FOREIGN INSURANCE SUBSIDIARIES. Harbour Assurance Company of Bermuda
Limited offers a variety of programs to the Company, including general
liability insurance, ocean cargo coverage for shipments to and from foreign
distributors, and reinsurance coverage for various Transportation policies.
The company writes minimal third-party coverage and provides a variety of
insurance programs to Transportation, its dealers, distributors and
customers.

CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT

Transportation designs and manufactures its trucks and diesel engines
to meet or exceed specific industry requirements. New products are
introduced and improvements are made in accordance with operating plans and
market requirements. Research and development activities are directed
toward the introduction of new products and improvements of existing
products and processes used in their manufacture, and spending for these
activities totalled $91 million, $88 million, and $86 million for 1995,
1994 and 1993, respectively.
<PAGE>
<PAGE 9>

During 1995, 1994 and 1993, capital expenditures totalled $139
million, $87 million and $110 million, respectively. Major program
expenditures in 1995 and 1994 included continued investment in machinery
and equipment at the Melrose Park, Illinois and Indianapolis, Indiana
engine facilities to manufacture mid-range diesel engines used in trucks
and school bus chassis produced by the Company and also sold to original
equipment manufacturers. Other expenditures were made for truck product
improvements, modernization of facilities and compliance with environmental
regulations.

BACKLOG

The backlog of unfilled truck orders (subject to cancellation or
return in certain events) was as follows:

AT OCTOBER 31 MILLIONS OF DOLLARS UNITS
------------- ------------------- -------

1995 ............. $ 3,226 47,119
1994 ............. $ 4,197 64,841
1993 ............. $ 1,353 23,939

Although the backlog of unfilled orders is one of many indicators of
market demand, other factors such as changes in production rates, available
capacity, new product introductions and competitive pricing actions may
affect point-in-time comparisons.

EMPLOYEES

The following table summarizes employment levels as of the end of
fiscal years 1993 through 1995:

TOTAL
AT OCTOBER 31 EMPLOYMENT
--------------------- ----------

1995 ............. 16,078
1994 ............. 14,909
1993 ............. 13,611

LABOR RELATIONS

At October 31, 1995, the United Automobile, Aerospace and Agricultural
Implement Workers of America (UAW) represented 8,199 of the Company's
active employees in the United States, and the Canadian Auto Workers (CAW)
represented 1,968 of the Company's active employees in Canada. Other
unions represented 1,246 of the Company's active employees in the United
States and Canada. The Company entered into a collective bargaining
agreement with the UAW in 1995, which expires on October 1, 1998. The 1993
collective bargaining agreement with the CAW expires on October 24, 1996.
The new UAW contract increases the Company's pension costs but provides
greater operating flexibility.
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PATENTS AND TRADEMARKS

Transportation continuously obtains patents on its inventions and,
thus, owns a significant patent portfolio. Additionally, many of the
components which Transportation purchases for its products are protected by
patents that are owned or controlled by the component manufacturer.
Transportation has licenses under third-party patents relating to its
products and their manufacture, and Transportation grants licenses under
its patents. The royalties paid or received under these licenses are not
significant. No particular patent or group of patents is considered by
Transportation to be essential to its business as a whole.

Like all businesses which offer well-known products or services,
Transportation's primary trademarks are an important part of its worldwide
sales and marketing efforts, and provide instant identification of its
products and services in the marketplace. To support these efforts,
Transportation maintains, or has pending, registrations of its primary
trademarks in those countries in which it does business or expects to do
business.

RAW MATERIALS AND ENERGY SUPPLIES

Transportation purchases raw materials, parts and components from
numerous outside suppliers but relies upon some suppliers for a substantial
number of components for its truck products. Transportation's purchasing
strategies have been designed to improve access to the lowest cost, highest
quality sources of raw materials, parts and components, and to reduce
inventory carrying requirements. A portion of Transportation's
requirements for raw materials and supplies is filled by single-source
suppliers.

The impact of an interruption in supply will vary by commodity. Some
parts are generic to the industry while others are of a proprietary design
requiring unique tooling which would require time to recreate. However,
Transportation's exposure to a disruption in production as a result of an
interruption of raw materials and supplies is no greater than the industry
as a whole. In order to remedy any losses resulting from an interruption
in supply, Transportation maintains contingent business interruption
insurance for storms, fire and water damage. In 1995, several suppliers
experienced labor problems or capacity constraints, as a result of
industry-wide growth and demand, which created interruptions in the flow of
supplies to the Company. As the truck and automotive market demand
decrease, the strain on suppliers' production capacity will be reduced.

IMPACT OF GOVERNMENT REGULATION

Truck and engine manufacturers continue to face increasing
governmental regulation of their products, especially in the areas of
environment and safety. Transportation believes its products comply with
all applicable environmental and safety regulations.
<PAGE>
<PAGE 11>

As a diesel engine manufacturer, Transportation has incurred
significant research and tooling costs to totally redesign its engine
product lines to meet United States Environmental Protection Agency
(U.S. EPA) and California Air Resources Board (CARB) emission
standards effective in the 1994 model year. Transportation faces
significant additional outlays through 1998 to meet further
tightening of these standards. In addition to the 1998 standard,
Transportation, along with other engine manufacturers, has signed an
unprecedented voluntary agreement (Statement of Principles) with U.S.
EPA and CARB to achieve dramatic new reductions in ozone-causing
exhaust emissions by 2004. Complying with the resulting new emission
standards represents a significant engineering challenge that will
require a major outlay of resources. Transportation faces further
challenges in satisfying California's emissions standards in 1996 and
2002 for engines used in medium-size vehicles (which includes
vehicles up to 14,000 lbs. Gross Vehicle Weight Rating.
Transportation expects that its diesel engines will be able to meet
all of these standards in the required time frame.

Emissions regulations in Canada and Mexico are similar, but not
identical, to the U.S. federal regulations. Although Canada's
regulations impose standards equivalent only to the U.S. standards
for the 1990 model year, diesel engine manufacturers, including
Transportation, have voluntarily signed several memorandums of
understanding with the Canadian federal government, agreeing to sell
only engines meeting the 1994 U.S. emission standards in model years
1995 to 1997. Canada has announced its intention to conform its
heavy-duty engine emission standards to the U.S. EPA standards in
1998 and to require low-sulfur diesel fuel, as in the U.S., beginning
October 1, 1997. Mexico has adopted the U.S. heavy diesel engine
emission standards as of the 1994 model year but has conditioned
compliance on the availability of low-sulfur diesel fuel. The
Mexican government is expected to complete the conversion of diesel
fuel supplies nationwide to low-sulfur fuel no later than early 1996.

Truck manufacturers are also subject to various noise standards
imposed by federal, state and local regulations. The engine is one
of a truck's primary noise sources, and Transportation therefore,
works closely with original equipment manufacturers to develop
strategies to reduce engine noise. Transportation is also subject to
the National Traffic and Motor Vehicle Safety Act (Safety Act) and
Federal Motor Vehicle Safety Standards (Safety Standards) promulgated
by the National Highway Traffic Safety Administration.
Transportation believes it is in compliance with the Safety Act and
the Safety Standards.

Expenditures to comply with various environmental regulations
relating to the control of air, water and land pollution at
production facilities and to control noise levels and emissions from
Transportation's products have not been material except for two sites
formerly owned by the Company, Wisconsin Steel and Solar Turbine. In
1994, Transportation recorded a $20 million after-tax charge as a
loss of discontinued operations for environmental liabilities and
cleanup cost.

ITEM 2. PROPERTIES

Transportation has 8 manufacturing and assembly plants in the
United States and 1 in Canada which are owned by Transportation. The
aggregate floor space of these 9 plants is approximately 9 million
square feet.

Transportation also owns or leases other significant properties
in the United States and Canada, including a paint facility, a small
component fabrication plant, vehicle and parts distribution centers,
sales offices, engineering centers and its headquarters in Chicago.
<PAGE>
<PAGE 12>

ITEM 3. LEGAL PROCEEDINGS

In May 1993, a jury issued a verdict in favor of Vernon Klein
Truck & Equipment, Inc. (Klein Truck) and against Transportation in
the amount of $10.8 million in compensatory damages and $15 million
in punitive damages. Transportation appealed the verdict and, in
order to do so, was required to post a bond collateralized with $30
million in cash. In November 1994, the Court of Appeals of the State
of Oklahoma reversed the verdict and entered judgment in favor of
Transportation on virtually all aspects of the case. Klein Truck
appealed to the Oklahoma Supreme Court where the case is now pending.
The bond and related collateral will be released when the order of
the Oklahoma Supreme Court is filed.

Transportation and the Economic Development Administration
(EDA), a division of the U.S. Department of Commerce, reached an
agreement in the fourth quarter of 1994 in settlement of commercial
and environmental disputes related to the Wisconsin Steel property.
EDA and Transportation became 90% and 10% beneficiaries,
respectively, of a trust which was created after the party that
purchased Wisconsin Steel filed for bankruptcy. At the time of
bankruptcy, EDA had guaranteed repayment of 90% and Transportation of
10% of loans made to Wisconsin Steel. The settlement provides that
EDA transfer its interest in the trust to Transportation which, in
turn, will assume responsibility for completing the investigation of
the environmental condition at the site and for any cleanup work that
may be necessary. Transportation has agreed to pay EDA $11 million
to settle various commercial issues, as well as reimburse them for a
portion of environmental response costs spent by EDA. The Department
of Justice must approve the final settlement before the interest in
the trust or the property is transferred to Transportation.

Transportation and Solar Turbine Inc. (Solar), a wholly-owned
subsidiary of Caterpillar, Inc., executed an agreement in June 1995,
wherein Transportation agreed to pay for 65% of future costs
associated with environmental cleanup at Solar's facility in San
Diego, California. In addition, Transportation agreed to pay for a
yet undetermined portion of past environmental costs. Transportation
owned and operated this facility from 1961 to 1981 and sold it to
Caterpillar Inc. in 1981. As part of the agreement, Transportation
will control the site investigation and any cleanup work that may be
necessary.

Transportation and its subsidiaries are subject to various other
claims arising in the ordinary course of business, and are parties to
various legal proceedings which constitute ordinary routine
litigation incidental to the business of the Company and its
subsidiaries. In the opinion of Transportation's management, none of
these proceedings or claims are material to the business or the
financial condition of the Company.
<PAGE>
<PAGE 13>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Intentionally omitted. See the index page of this Report for
explanation.

PART II

Page
----

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ............................... 49

ITEM 6. SELECTED FINANCIAL DATA

Intentionally omitted. See the index page to this Report for
explanation.
<PAGE>
<PAGE 14>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Transportation manufactures and markets Class 5 through 8 trucks,
including school buses, mid-range diesel engines and service parts in the
United States and Canada. These products are also sold to distributors in
selected export markets. Transportation's financial services subsidiaries
provide wholesale, retail and lease financing, and commercial physical
damage and liability insurance coverage to Transportation's dealers and
retail customers, and to the general public through an independent
insurance agency system.

The discussion and analysis reviews separately the operating and
financial results and liquidity and capital resources of "Manufacturing"
and "Financial Services." Manufacturing includes the consolidated
financial results of Transportation's manufacturing operations with its
wholly-owned financial services subsidiaries included on a one-line basis
under the equity method of accounting. Financial Services includes
Navistar Financial Corporation (Navistar Financial) and its domestic
insurance subsidiary, as well as foreign finance and insurance companies.
See Note 1 to the Financial Statements.

Management's discussion and analysis of results of operations should
be read in conjunction with the Financial Statements and the Notes to the
Financial Statements.

RESULTS OF OPERATIONS

Consolidated

Transportation reported net income of $102 million for 1995 on
increased sales and revenues. This was a substantial improvement over the
$7 million reported in 1994, which included a $33 million charge to
discontinued operations related to environmental liabilities. See Notes 5
and 17 to the Financial Statements. The net loss of $1,625 million for
1993 included a one-time charge of $513 million for common stock of the
Parent Company contributed to an independent retiree Trust and a $1,144
million charge for the cumulative effect of accounting changes.

As a result of the strong demand for trucks and diesel engines, sales
and revenues of $6,326 million in 1995 were 19% higher than the $5,330
million reported in 1994 and 34% above the $4,715 million reported in 1993.

Manufacturing

Manufacturing, excluding Financial Services, reported income before
income taxes of $96 million in 1995, a significant improvement over the $2
million reported in 1994. The 1995 operating results reflect a second
consecutive record year of Class 8 heavy truck, mid-range diesel engine and
truck service parts sales. Sales of Class 5, 6 and 7 medium trucks also
increased. The 1995 operating results reflect the effects of improved
pricing and various cost improvement initiatives. Pretax income of $2
million in 1994 was $16 million higher than the $14 million loss reported
in 1993 before the one-time $509 million contribution to an independent
retiree Trust. The improvement of 1994 over 1993 reflects higher sales of
trucks, diesel engines and service parts, as well as a $33 million
reduction in postretirement benefits expense.
<PAGE>
<PAGE 15>

Sales and Revenues. As a result of continued favorable economic
conditions in both the United States and Canada, 1995 industry retail sales
of Class 5 through 8 trucks totalled 380,600 units, a 12% improvement over
1994 and 32% greater than the 288,900 units sold in 1993. Class 8 heavy
truck sales increased 11% from the 1994 level to 228,800 units as a result
of demand from large fleet customers. Industry sales of Class 5, 6 and 7
medium trucks, including school buses, were up 13% to 151,800 units in 1995
reflecting demand across a wide variety of vocations, including maintenance
leasing, local governments, and wholesale, retail and service-related
businesses. Industry sales of school buses, which accounted for 20% of
the medium truck market, increased slightly over 1994 to 30,400 units.

Manufacturing's sales of trucks, diesel engines and service parts for
1995 totalled $6,125 million, 19% over the $5,153 million reported for 1994
and 36% higher than the $4,510 million recorded in 1993. Truck shipments
totalled 110,200 units in 1995, increases of 16% and 26% from 1994 and
1993, respectively. Transportation maintained its position as sales leader
in the combined United States and Canadian Class 5 through 8 truck market
in 1995 with a 26.7% market share, a slight decline from the 27.0% share in
1994. This change reflects a decrease in Transportation's Class 8 heavy
truck market share as Transportation was unable to produce sufficient
quantities of those models most in demand by its customers as a result of
capacity limitations at its assembly facilities.

Shipments of mid-range diesel engines by Transportation to original
equipment manufacturers during 1995 were a record 156,100 units, a 20%
increase from 1994 and a 32% improvement over 1993. Higher shipments to a
domestic automotive manufacturer to meet consumer demand for the light
trucks and vans which use this engine were the primary reason for the
increase.

Service parts sales of $730 million in 1995 were slightly higher than
the $714 million in 1994 and 16% higher than the $632 million reported in
1993 as a result of dealer and national account volume growth.

Other income increased to $27 million in 1995 from $18 million in 1994
and $10 million in 1993 as a result of increased income on higher cash,
cash equivalents and marketable securities balances.

Operating Costs and Expenses. Manufacturing gross margin was 13.8% of
sales in 1995 compared with 12.8% in 1994 and 13.1% in 1993. The increase
in gross margin is primarily the result of higher sales volumes, improved
pricing and an increase in operating efficiency. These improvements were
partially offset by higher material costs, overtime costs to meet demand
for Transportation's products and a $62 million provision for payment to
employees as required by Transportation's profit sharing agreements, an
increase of $38 million. Factors which contributed to the change in gross
margin between 1994 and 1993 included higher sales volumes offset by an
increase in the provision for profit sharing, additional costs to meet
customer delivery commitments and additional costs incurred with the
introduction of new truck and engine products.

Engineering and research expense increased to $113 million in 1995
from $97 million in 1994 and $94 million in 1993, reflecting investment in
the next generation of trucks and diesel engines, as well as improvements
to existing products.

Marketing and administrative expense of $277 million was 4% of sales
in 1995, down from 5% in 1994 and 1993. This expense was $237 million and
$230 million, respectively, in those years. The $40 million increase in
the expense between 1994 and 1995 reflects higher sales and distribution
expense, an increase in the provision for payment to employees as provided
by Transportation's performance based incentive programs, and an investment
in the development of systems and processes which support the Company's
business strategy.
<PAGE>
<PAGE 16>

Finance service charges on sold receivables increased to $84 million,
a 27% increase over 1994 and 50% higher than 1993, as a result of higher
truck sales and increased interest rates.

Financial Services

Financial Services, which consists of Navistar Financial, its domestic
insurance subsidiary, and the Company's foreign finance and insurance
subsidiaries, had income before income taxes of $62 million, $60 million
and $61 million in 1995, 1994 and 1993, respectively.

Navistar Financial's pretax income in 1995 was $59 million, a 6%
increase from $55 million in 1994. The change is a result of higher income
from an increased volume of wholesale financing to support the demand for
trucks, and improvement in Navistar Financial's interest cost over market
interest rates. The increase was offset by a reduction in margins on
retail financing as a result of increased competition in the commercial
financing markets and rising interest costs which could not be fully offset
by increased retail note pricing.

Navistar Financial's pretax income increased $6 million in 1994 from
the $49 million reported in 1993. The improvement reflects higher income
from Navistar Financial's insurance subsidiary and an increased volume of
wholesale financing partially offset by lower margins on retail financing.
In addition, 1993 pretax income included a one-time $4 million charge for
the contribution to an independent retiree Trust.

Earnings from the foreign finance and insurance subsidiaries were $3
million and $5 million in 1995 and 1994, respectively. Earnings in 1993 of
$12 million included a one-time benefit of $6 million resulting from lower
loss reserve requirements.

Navistar Financial's revenue for 1995 was $228 million, 8% higher than
the $211 million reported in 1994. The change reflects an increased volume
of wholesale and retail financing to support the demand for trucks, and
higher average yields on wholesale notes and accounts as a result of a
higher prime interest rate. The increase was partially offset by lower
revenues from Navistar Financial's insurance subsidiary reflecting a
reduction in written premiums of truck liability lines as a result of
adverse loss experience in those lines. Navistar Financial's revenues
declined 9% between 1993 and 1994 following a decline in retail note and
lease revenue.

Interest expense for Navistar Financial increased to $84 million in
1995 from $70 million in 1994 and $79 million in 1993. The change between
1995 and 1994 was the result of higher debt balances required to finance
the increased wholesale note and account balances and higher market
interest rates. The decrease between 1994 and 1993 was the result of
reduced debt required to finance the lower level of owned retail
receivables, offset in part by higher interest rates.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated

Consolidated cash flow is generated from the manufacture, sale and
financing of trucks, diesel engines and service parts. Total cash, cash
equivalents and marketable securities of Transportation amounted to $668
million at October 31, 1995 and $624 million at October 31, 1994. At
October 31, 1995 and 1994, approximately $140 million and $138 million in
marketable securities, respectively, were held by the Company's insurance
subsidiaries and not available for general corporate purposes.
<PAGE>
<PAGE 17>

Manufacturing

Manufacturing's cash, cash equivalents and marketable securities
amounted to $504 million at October 31, 1995 and $428 million at October
31, 1994. This included cash and cash equivalents of $418 million at
October 31, 1995 and $396 million at October 31, 1994.

Cash generated by operations during 1995 totalled $273 million
primarily from net income of $102 million, a net change in operating assets
and liabilities of $192 million and $51 million of other non-cash items,
principally depreciation. These amounts were partially offset by a $72
million pension contribution in excess of normal funding.

The net change in operating assets and liabilities of $192 million
includes a $71 million increase in accounts payable as a result of higher
production schedules at the Company's assembly facilities, the $137 million
increase in other liabilities attributed principally to the provision for
payment to employees as required by Transportation's profit sharing and
performance incentive programs, and to the timing of such payments. These
changes were partially offset by a $60 million increase in outstanding
receivables primarily reflecting the timing of payments from Navistar
Financial.

The cash generated by operations was used to fund Manufacturing's
investment and financing activities. Investment programs used $139 million
in cash to fund capital expenditures for truck product improvements, to
increase diesel engine production capacity and for programs to improve cost
performance. In addition, purchases of marketable securities exceeded
proceeds from sales by $51 million. Financing programs used cash of $21
million for principal payments on debt and $46 million for payments on a
loan due the Parent Company.

Financial Services

The Financial Services' subsidiaries provide product financing and
insurance coverage to Transportation's dealers and retail customers.
During 1995 and 1994, Navistar Financial supplied 93% of the wholesale
financing of new trucks to Transportation's dealers, up from 90% in 1993.
Navistar Financial's share of the retail financing of new trucks sold in
the United States was 14% in 1995 compared with 15% in 1994 and 1993. The
reduced share of retail financing is a result of competition and high
levels of liquidity in the commercial financing markets.

Historically, funds to finance Transportation's products come from a
combination of commercial paper, short and long-term bank borrowings,
medium and long-term debt issues, sales of finance receivables and equity
capital. Navistar Financial's current debt ratings have made bank
borrowings and sales of finance receivables the most economic sources of
cash. Insurance operations are funded from premiums and income from
investments.

Operations provided $115 million in cash in 1995 primarily from net
income of $40 million and an increase in accounts payable of $68 million
reflecting the timing of payments to Manufacturing. Investment programs
used $349 million during this period principally as a result of a net
increase of $335 million in retail and wholesale finance receivables.
Financing activities provided $200 million reflecting a net increase in
debt of $212 million and the payment of $12 million in dividends to
Transportation.
<PAGE>
<PAGE 18>

Receivable sales were a significant source of funding in 1995 and
1994. During 1995, Navistar Financial sold $740 million of retail notes,
net of unearned finance income, through Navistar Financial Retail
Receivables Corporation (NFRRC), a wholly-owned subsidiary, to two owner
trusts which, in turn, sold $714 million of notes and $26 million of
certificates to investors. The net proceeds from these sales were $693
million. During 1994, Navistar Financial sold $1,033 million of retail
notes receivable. Net proceeds from these sales were $952 million. In
both years, the net proceeds were used for general working capital
purposes. At October 31, 1995, the remaining shelf registration available
to NFRRC for issuance of asset-backed securities was $1,430 million. On
November 14, 1995, NFRRC filed an additional registration statement with
the Securities and Exchange Commission providing for the issuance from time
to time of an additional $2,000 million of asset-backed securities. See
also Note 13 to the Financial Statements.

Navistar Financial utilizes a revolving wholesale note sales trust
which provides for the continuous sale of eligible wholesale notes on a
daily basis. In June 1995, the Navistar Financial Dealer Note Master Trust
issued an additional $200 million of certificates increasing the revolving
wholesale note sales trusts from $300 million to $500 million. These sales
trusts are comprised of three $100 million pools of notes maturing serially
from 1997 to 1999 and the $200 million pool maturing in 2004.

Management's discussion of the future liquidity of Manufacturing and
Financial Services operations is included in Business Environment of
Management's Discussion and Analysis.

Environmental Matters

As disclosed in Notes 5 and 17 to the Financial Statements,
Transportation recorded a $33 million charge in the fourth quarter of 1994
as a loss of discontinued operations for environmental liabilities at
production facilities of two formerly owned businesses: Wisconsin Steel
located in Chicago, Illinois and Solar Turbine, Inc. located in San Diego,
California. The charge consisted of an $11 million payment to be made to
the Economic Development Administration and a $22 million charge for
potential cleanup costs for the Wisconsin Steel and Solar sites.

In addition, Transportation has been named a potentially responsible
party (PRP), in conjunction with other parties, in a number of cases
arising under an environmental protection law commonly known as the
Superfund law. These cases involve sites which allegedly have received
wastes from current or former Company locations.

Based on information available to Transportation, a reasonable
estimate is calculated of Transportation's share, if any, of the costs for
the investigation and cleanup of these sites and is provided for in the
Financial Statements. Transportation believes that, based on these
calculations, its share of the potential additional costs for each site,
other than the Wisconsin Steel and Solar sites, is not material. The
anticipated cleanup costs of current PRP actions at October 31, 1995,
including the environmental cleanup costs of the Wisconsin Steel and Solar
sites, are reflected in Transportation's $25 million environmental
liability. Transportation reviews its environmental liability on a regular
basis.

Derivative Financial Instruments

As disclosed in Notes 1 and 14 to the Financial Statements,
Transportation uses derivative financial instruments to transfer or reduce
the risks of foreign exchange and interest rate volatility, and potentially
increase the return on invested funds. Transportation's policy does not
allow the use of derivatives for speculative purposes.
<PAGE>
<PAGE 19>

Manufacturing, as conditions warrant, has hedged its foreign exchange
exposure on the purchase of parts and materials from foreign countries and
its exposure from sales of manufactured products in other countries.
Contracted purchases of commodities for manufacturing may be hedged up to
one year. During 1995, Manufacturing entered into forward contracts to
hedge its forward exchange exposure to the Canadian dollar on firm
commitments. These foreign currency contracts generally mature within
three months of origination.

Navistar Financial uses interest rate caps, interest rate swaps and
forward interest rate contracts when needed to convert floating rate funds
to fixed and vice versa to match its asset portfolio. Navistar Financial
also uses forward interest rate contracts to manage its exposure to
fluctuations in funding costs from the anticipated securitization and sale
of retail notes.

Both Manufacturing and Navistar Financial purchase collateralized
mortgage obligations that have relatively stable cash flow patterns in
relation to interest rate changes.

Business Environment

Sales of Class 5 through 8 trucks are cyclical, with demand affected
by such economic factors as industrial production, construction, demand for
consumer durable goods, interest rates and the earnings and cash flow of
dealers and customers. As a result of a general slowdown in economic
activity in the United States, the Class 5 through 8 truck market has
experienced a significant decline in the rate of new truck orders. During
the latter half of 1995, this slowdown has also been responsible for an
increase in the cancellation of some existing orders which were originally
placed during 1994 and early 1995 in anticipation of continued growth in
the economy. The decline in the number of new orders, in combination with
high retail delivery rates throughout 1995, has reduced Transportation's
backlog of unfilled truck orders by 27% to 47,100 units at October 31, 1995
from 64,800 units at October 31, 1994. Accordingly, retail deliveries in
1996 will be highly dependent on the rate at which new truck orders are
received. Transportation will evaluate order receipts and backlog
throughout the year and will balance production with demand as appropriate.

Transportation currently projects 1996 United States and Canadian
Class 8 heavy truck demand to be 175,000 units, a 24% decrease from 1995.
Class 5, 6 and 7 medium truck demand is forecast at 115,000 units, a
decline from 1995. Demand for school buses is expected to increase 7% in
1996 to 32,500 units. These demand levels, while consistent with other
industry forecasts, will require a significant increase in new order
receipts over the levels experienced during the second half of 1995 in
order to be achieved. Diesel engine shipments by Transportation to
original equipment manufacturers in 1996 are expected to be approximately
156,000 units, unchanged from 1995. Transportation's service parts sales
are projected to grow 3% to $755 million.

It is the opinion of management that current cash, cash equivalents
and marketable securities and forecasted cash flow will provide a basis for
financing operating requirements and capital expenditures. In addition,
management believes that collections on the outstanding receivables
portfolios as well as funds available from various funding sources will
permit the Financial Services subsidiaries to meet the financing
requirements of Transportation's dealers and customers.
<PAGE>
<PAGE 20>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index To Financial Statements

Page
----

Navistar International Transportation Corp.:

Statement of Income ......................................... 21
Statement of Financial Condition ............................ 22
Statement of Cash Flow ...................................... 23
Notes to Financial Statements ............................... 25
Independent Auditors' Report ................................ 50

Finance and Insurance Subsidiaries:

The financial statements of Navistar Financial Corporation for the
years ended October 31, 1995, 1994 and 1993 appearing on pages 10 through
39 in the Annual Report on Form 10-K for Navistar Financial Corporation for
the fiscal year ended October 31, 1995, Commission File No. 1-4146-1, are
incorporated herein by reference and filed as Exhibit 28.1 to this
Form 10-K.

Financial information regarding all Transportation subsidiaries
engaged in finance and insurance operations, including Navistar Financial
Corporation, appears as supplemental information to the Financial
Statements of Navistar International Transportation Corp. which follow.
<PAGE>
<PAGE 21>
<TABLE>
<CAPTION>
STATEMENT OF INCOME
- --------------------------------------------------------------------------
For the Years Ended October 31 (Millions of dollars)

Navistar International
Transportation Corp. and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- ------------------------ ------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and revenues
Sales of manufactured product .... $6,125 $5,153 $4,510 $6,125 $5,153 $4,510 $ - $ - $ -
Finance and insurance revenue .... 167 152 181 - - - 222 202 223
Other income ..................... 34 25 24 27 18 10 13 12 14
------ ------ ------ ------ ------ ------ ------ ------ ------
Total sales and revenues ..... 6,326 5,330 4,715 6,152 5,171 4,520 235 214 237
------ ------ ------ ------ ------ ------ ------ ------ ------
Costs and expenses
Cost of products and services sold 5,289 4,496 3,923 5,281 4,494 3,917 8 2 6
Postretirement benefits .......... 206 176 209 205 175 208 1 1 1
Supplemental Trust contribution .. - - 513 - - 509 - - 4
Engineering and research expense.. 113 97 94 113 97 94 - - -
Marketing and
administrative expense ......... 307 264 257 277 237 230 30 27 27
Interest expense ................. 173 165 108 96 100 29 84 70 79
Financing charges
on sold receivables ............ 30 16 14 84 66 56 - - -
Insurance claims
and underwriting expense ....... 50 54 59 - - - 50 54 59
------ ------ ------ ------ ------ ------ ------ ------ ------
Total costs and expenses ....... 6,168 5,268 5,177 6,056 5,169 5,043 173 154 176
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes
Manufacturing .................. - - - 96 2 (523) - - -
Financial Services ............. - - - 62 60 61 - - -
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss)
before income taxes ........ 158 62 (462) 158 62 (462) 62 60 61
Income tax expense ........... (56) (22) (19) (56) (22) (19) (22) (22) (22)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) of continuing
operations ..................... 102 40 (481) 102 40 (481) 40 38 39

Loss of discontinued operations .. - (33) - - (33) - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
cumulative effect of changes
in accounting policy ........... 102 7 (481) 102 7 (481) 40 38 39
Cumulative effect of changes
in accounting policy ........... - - (1,144) - - (1,144) - - (9)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) ................ $ 102 $ 7 $(1,625) $ 102 $ 7 $(1,625) $ 40 $ 38 $ 30
====== ====== ====== ====== ====== ====== ====== ====== ======
<FN>
See Notes to Financial Statements. * "Manufacturing" includes the consolidated
financial results of Transportation's
manufacturing operations with its wholly-owned
financial services subsidiaries included under
the equity method of accounting. "Financial
Services" includes Transportation's wholly-owned
subsidiary, Navistar Financial Corporation, and
other wholly-owned finance and insurance
subsidiaries. Transactions between Manufacturing
and Financial Services have been eliminated from
the "Navistar International Transportation Corp.
and Consolidated Subsidiaries" columns. The
basis of consolidation is described in Note 1.
</TABLE>
<PAGE>
<PAGE 22>
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION
- ------------------------------------------------------------------------------
As of October 31 (Millions of dollars)
- ------------------------------------------------------------------------------

LIABILITIES AND SHAREOWNER'S EQUITY
- -----------------------------------

Liabilities
Accounts payable ........................ $ 933 $ 836 $ 876 $ 779 $ 146 $ 70
Other liabilities ....................... 949 854 795 686 157 165
Debt due Parent Company ................. 923 968 923 968 - -
Debt .................................... 1,457 1,218 127 127 1,330 1,091
Postretirement benefits liability ....... 1,341 1,299 1,334 1,292 7 7
------ ------ ------ ------ ------ ------
Total liabilities ................... 5,603 5,175 4,055 3,852 1,640 1,333
------ ------ ------ ------ ------ ------
Shareowner's equity
Capital stock (1,000 shares issued) ..... 785 785 785 785 178 178
Retained earnings (deficit) ............. (2,307) (2,282 (2,307) (2,282) 104 71
------ ------ ------ ------ ------ ------
Total shareowner's equity ............... (1,522) (1,497) (1,522) (1,497) 282 249
------ ------ ------ ------ ------ ------

Total liabilities and shareowner's equity $4,081 $3,678 $2,533 $2,355 $1,922 $1,582
====== ====== ====== ====== ====== ======
<FN>
See Notes to Financial Statements. * "Manufacturing" includes the consolidated
financial results of Transportation's
manufacturing operations with its
wholly-owned financial services
subsidiaries included under the equity
method of accounting. "Financial
Services" includes Transportation's
wholly-owned subsidiary, Navistar
Financial Corporation, and other
wholly-owned finance and insurance
subsidiaries. Transactions between
Manufacturing and Financial Services
have been eliminated from the "Navistar
International Transportation Corp. and
Consolidated Subsidiaries" columns.
The basis of consolidation is described
in Note 1.
</TABLE>
<PAGE>
<PAGE 23>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOW
Navistar International Transportation Corp.
and Consolidated Subsidiaries
----------------------------------
For the Years Ended October 31
(Millions of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operations
Net income (loss) ............................... $ 102 $ 7 $(1,625)
Adjustments to reconcile net income (loss) to cash
provided by operations:
Depreciation and amortization ................. 81 72 75
Supplemental Trust contribution ............... - - 513
Equity in earnings of Financial Services,
net of dividends received ................... - - -
Additional pension funding .................... (72) - -
Provision for loss of discontinued operations . - 33 -
Cumulative effect of changes
in accounting policy ........................ - - 1,144
Other, net .................................... (6) (24) -
Change in operating assets and liabilities:
Receivables ................................. (65) (176) (170)
Inventories ................................. 35 (19) (51)
Prepaid and other current assets ............ 10 (4) (10)
Accounts payable ............................ 63 83 123
Other liabilities ........................... 142 52 10
-------- -------- --------
Cash provided by operations ................... 290 24 9
-------- -------- --------
Cash flow from investment programs
Purchase of retail notes and lease receivables .. (1,099) (916) (770)
Collections/sales of retail notes
and lease receivables ......................... 850 1,176 895
Acquisitions in excess of cash collections
of wholesale notes and accounts receivable .... - - -
Purchase of marketable securities ............... (272) (468) (265)
Sales or maturities of marketable securities .... 226 483 230
Proceeds from property sold under sale/leaseback. - 87 -
Capital expenditures ............................ (139) (87) (110)
Base Program Trust pre-funding .................. - - (300)
Other investment programs, net .................. (14) 31 (62)
-------- -------- --------
Cash provided by (used in) investment programs. (448) 306 (382)
-------- -------- --------
Cash flow from financing activities
Principal payments on debt ...................... (121) (222) (117)
Issuance of debt ................................ - 100 -
Net increase (decrease)in notes and debt
outstanding under bank revolving credit
facility and asset-backed and other
commercial paper programs ..................... 312 (28) 75
Net increase (decrease) in loan from
Navistar International Corporation............. - (32) 493
Dividends paid .................................. (45) - -
-------- -------- --------
Cash provided by (used in) financing activities 146 (182) 451
-------- -------- --------
Cash and cash equivalents
Increase (decrease) during the year ........... (12) 148 78
At beginning of the year ...................... 454 306 228
-------- -------- --------
Cash and cash equivalents at end of the year .... $ 442 $ 454 $ 306
======== ======== ========

- --------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 24>
<TABLE>
<CAPTION>

Manufacturing* Financial Services*
---------------------------------- ----------------------------------

1995 1994 1993 1995 1994 1993
----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 102 $ 7 $ (1,625) $ 40 $ 38 $ 30

75 68 69 6 4 6
- - 509 - - 4

(28) (10) (10) - - -
(72) - - - - -
- 33 - - - -

- - 1,144 - - 9
4 (10) 5 (10) (14) (5)

(60) (51) 1 1 (1) 2
35 (19) (51) - - -
10 (4) (10) - - -
71 86 122 68 (7) 19
136 50 12 10 - (2)
-------- -------- -------- -------- -------- --------
273 150 166 115 20 63
-------- -------- -------- -------- -------- --------

- - - (1,099) (916) (770)

- - - 850 1,176 895

- - - (86) (118) (187)
(196) (409) (190) (76) (59) (75)
145 431 144 81 52 86
- 87 - - - -
(139) (87) (110) - - -
- - (300) - - -
5 36 (48) (19) (5) (14)
-------- -------- -------- -------- -------- --------
(185) 58 (504) (349) 130 (65)
-------- -------- -------- -------- -------- --------

(21) (42) (18) (100) (180) (99)
- - - - 100 -

- - - 312 (28) 75
(45) (32) 493 - - -
- - - (12) (28) (33)
-------- -------- -------- -------- -------- --------
(66) (74) 475 200 (136) (57)
-------- -------- -------- -------- -------- --------

22 134 137 (34) 14 (59)
396 262 125 58 44 103
-------- -------- -------- -------- -------- --------
$ 418 $ 396 $ 262 $ 24 $ 58 $ 44
======== ======== ======== ======== ======== ========

-----------------------------------------------------------------------------
<FN>
* "Manufacturing" includes the consolidated financial results of
Transportation's manufacturing operations with its wholly-owned
financial services subsidiaries included under the equity method
of accounting. "Financial Services" includes Transportation's
wholly-owned subsidiary, Navistar Financial Corporation, and
other wholly-owned finance and insurance subsidiaries.
Transactions between Manufacturing and Financial Services have
been eliminated from the "Navistar International Transportation
Corp. and Consolidated Subsidiaries" columns on the preceding
page. The basis of consolidation is described in Note 1.
</TABLE>
<PAGE>
<PAGE 25>

NAVISTAR INTERNATIONAL TRANSPORTATION CORP. AND SUBSIDIARIES
==========

NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1995

1. SUMMARY OF ACCOUNTING POLICIES

Basis of Consolidation

Navistar International Transportation Corp., hereafter referred to as
"the Company" and "Transportation" is the wholly-owned subsidiary of
Navistar International Corporation hereafter referred to as "Parent
Company." Transportation operates in one principal industry segment, the
manufacture and marketing of medium and heavy trucks, including school
buses, mid-range diesel engines and service parts in the United States and
Canada and selected export markets.

In addition to the consolidated financial statements, Transportation
has elected to provide financial information in a format that presents the
operating results, financial condition and cash flow designated as
"Manufacturing" and "Financial Services." Manufacturing includes the
consolidated financial results of Transportation's manufacturing operations
with its wholly-owned financial services subsidiaries included on a one-
line basis under the equity method of accounting. Financial Services
includes the consolidated financial results of Navistar Financial
Corporation (Navistar Financial), its domestic insurance subsidiary and
foreign finance and insurance companies. Navistar Financial's primary
business is the retail and wholesale financing of products sold by
Transportation and its dealers within the United States and the providing
of commercial physical damage and liability insurance to Transportation's
dealers and retail customers and to the general public through an
independent insurance agency system.

The effects of transactions between Manufacturing and Financial
Services have been eliminated to arrive at the consolidated totals. The
distinction between current and long-term assets and liabilities in the
Statement of Financial Condition is not meaningful when finance, insurance
and manufacturing subsidiaries are combined; therefore, Transportation has
adopted an unclassified presentation. Certain 1994 and 1993 amounts have
been reclassified to conform with the presentation used in the 1995
financial statements.

Revenue Recognition

Manufacturing recognizes shipments of new trucks and service parts to
independent dealers and retail customers as sales. Price allowances,
expected in the normal course of business, and the cost of special
incentive programs are recorded at the time of sale. Engine sales are
recognized at the time of shipment to original equipment manufacturers. An
allowance for losses on receivables is maintained at an amount that
management considers appropriate in relation to the outstanding receivables
portfolio and it is charged when receivables are determined to be
uncollectible.

Financial Services recognizes finance charges on retail notes and
finance leases as income over the term of the receivables on the accrual
basis utilizing the interest method. Interest due from interest bearing
notes and accounts is recognized on the accrual basis. Selected
receivables are sold and securitized to public and private investors with
limited recourse. Gains or losses on sales of receivables are credited or
charged to revenue in the period in which the sale occurs. Financial
Services continues to service the sold receivables and receives a fee for
such services from the investor. An allowance for losses is maintained at
a level deemed appropriate based on loss experience and other factors and
it is charged when receivables are determined to be uncollectible.
<PAGE>
<PAGE 26>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

1. SUMMARY OF ACCOUNTING POLICIES (continued)

Revenue Recognition (continued)

Insurance premiums are earned on a pro rata basis over the terms of
the policies. Underwriting losses and outstanding loss reserve balances
are based on individual case estimates of the ultimate cost of settlement,
including actual losses, and determinations of amounts required for losses
incurred but not reported.

Cash and Cash Equivalents

All highly liquid financial instruments with maturities of three
months or less from date of purchase, consisting primarily of bankers'
acceptances, commercial paper, U.S. government securities and floating rate
notes, are classified as cash equivalents in the Statement of Financial
Condition and Statement of Cash Flow.

Marketable Securities

Marketable securities are classified as available-for-sale securities
and are reported at fair value.

Inventories

Inventories are valued at the lower of average cost or market.

Property and Other Long-Lived Assets

Significant expenditures for replacement of equipment, tooling and
pattern equipment, and major rebuilding of machine tools are capitalized.
Depreciation and amortization are generally provided on the straight-line
basis over the estimated useful lives of the assets which average 35 years
for buildings and improvements and 8 years for machinery and equipment.
Gains and losses on property disposals are included in other income and
expense. The carrying amount of all long-lived assets is evaluated
annually to determine if adjustment to the depreciation and amortization
period or to the unamortized balance is warranted.

Engineering and Research Expense

Engineering and research expense includes routine ongoing costs
associated with improving existing products and manufacturing processes.
Included are expenditures for research, manufacturing and product
engineering and development activities for the introduction of new truck
and diesel engine products and major improvements to existing products and
processes. These costs are expensed as incurred and are classified as
research and development expenses. Research and development expenditures
totalled $91 million, $88 million and $86 million in 1995, 1994 and 1993,
respectively.

Product Related Costs

Transportation accrues warranty expense at the time of end product
sale. Product liability expense is accrued based on the estimate of total
future payments to settle all product liability claims.
<PAGE>
<PAGE 27>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

1. SUMMARY OF ACCOUNTING POLICIES (continued)

Income Taxes

The Parent Company files a consolidated U.S. federal income tax return
which includes Transportation and its U.S. subsidiaries. Transportation
has a tax allocation agreement (Tax Agreement) with the Parent Company
which requires Transportation to compute its separate federal income tax
expense based on its adjusted book income. Any resulting tax liability is
paid to the Parent company. In addition, under the Tax Agreement,
Transportation is required to pay to the Parent Company any tax payments
received from its subsidiaries. The effect of the Tax Agreement is to
allow the Parent Company rather than Transportation to utilize U.S
operating losses and loss carryforwards generated in earlier years.

Derivative Financial Instruments

Transportation uses derivatives to transfer or reduce risks of foreign
exchange and interest rate volatility and to potentially increase the
return on invested funds. Navistar Financial uses a variety of contracts
to manage its exposure to fluctuations in funding costs from the
anticipated securitization and sale of retail notes. All derivatives are
held for purposes other than trading and Transportation's policy does not
allow the use of derivatives for speculative purposes. Gains and losses on
hedges of existing assets or liabilities, firm commitments or anticipated
transactions are included in the carrying amounts of the related asset or
liability and recognized in income when the hedged event occurs. Gains or
losses related to qualifying hedges of anticipated sales of receivables are
deferred and are recognized in income when the receivables are sold.

2. SUPPLEMENTAL CASH FLOW INFORMATION

On the Statement of Cash Flow, "Acquisitions in excess of cash
collections" relating to Financial Services' wholesale notes and accounts
receivable are included on a consolidated basis as a change in operating
assets and liabilities under cash flow from operations and in Financial
Services as cash flow from investment programs.

Consolidated interest payments were $169 million, $181 million and $93
million in 1995, 1994 and 1993, respectively. Pursuant to a Tax Allocation
Agreement, all U.S. income taxes are paid by the Parent Company to the
federal tax authorities. Transportation's consolidated tax payments to
certain state and local governments were $2 million each year during 1995,
1994 and 1993, respectively.
<PAGE>
<PAGE 28>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

3. POSTRETIREMENT BENEFITS

Transportation provides postretirement benefits to substantially all
of its employees. Costs associated with postretirement benefits include
pension expense for employees, retirees and surviving spouses, and
postretirement health care and life insurance expense for employees,
retirees, surviving spouses and dependents. In addition, as part of the
1993 restructured retiree health care and life insurance plans, profit
sharing payments to an independent retiree Trust are required. The cost of
postretirement benefits is segregated as a separate component in the
Statement of Income and is as follows:

Millions of dollars 1995 1994 1993
- ------------------------------------------------------------------------
Pension expense ........................ $ 110 $ 108 $ 107
Health/life insurance .................. 70 64 102
Profit sharing provision to Trust ...... 26 4 -
------ ------ ------

Total postretirement benefits expense .. $ 206 $ 176 $ 209
====== ====== ======

In the Statement of Financial Condition, the postretirement benefits
liability of $1,341 million in 1995 and $1,299 million in 1994 includes
$587 million and $549 million, respectively, for pension and $754 million
and $750 million, respectively, for postretirement health care and life
insurance benefits.

Pension Benefits

Generally, the pension plans are non-contributory with benefits
related to an employee's length of service and compensation rate.
Transportation's policy is to fund its pension plans in accordance with
applicable United States and Canadian government regulations and to make
additional payments as funds are available to achieve full funding of the
vested accumulated benefit obligation. The pension plans vary in the
extent to which they are funded, but for plan years which ended during the
current year, all legal funding requirements have been met. During 1995,
Transportation contributed $72 million in excess of its normal funding
requirement. Plan assets are invested primarily in dedicated portfolios of
long-term fixed income securities with more recent contributions invested
in equity securities.

Pension Expense

Net pension expense included in the Statement of Income is composed of
the following:

Millions of dollars 1995 1994 1993
- ------------------------------------------------------------------------
Service cost for benefits
earned during the period ............. $ 24 $ 34 $ 27
Interest on projected benefit obligation 232 211 220
Other pension costs .................... 57 50 43
Less expected return on assets ......... (203) (187) (183)
------ ------ ------

Net pension expense .................... $ 110 $ 108 $ 107
====== ======= ======

Actual return on assets ................ $ 398 $ (127) $ 427
====== ====== ======

"Other pension costs" in the above table include principally the
amortization of the net transition obligation and amortization of the cost
of plan amendments.
<PAGE>
<PAGE 29>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

3. POSTRETIREMENT BENEFITS (continued)

Pension Assets and Liabilities

Included in the Statement of Financial Condition is the minimum
pension liability for certain unfunded pension obligations. The unfunded
liability in excess of the unamortized prior service cost and net
transition obligation was recorded as a reduction in shareowner's equity of
$343 million as of October 31, 1995 and $213 million as of October 31,
1994. The change in the minimum pension liability at October 31, 1995
resulted primarily from settlement rate changes, offset partially by
investment gains.

The funded status of Transportation's plans as of October 31, 1995 and
1994 and a reconciliation with amounts recognized in the Statement of
Financial Condition are provided below:

Plans in Which Plans in Which
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
-------------------- --------------------
Millions of dollars 1995 1994 1995 1994
- ------------------------------------------------------------------------

Actuarial present value of:
Vested benefits ......... $ (51) $ (81) $(2,612) $(2,282)
Non-vested benefits ..... (5) (5) (270) (223)
------ ------ ------ ------
Accumulated benefit
obligation .......... (56) (86) (2,882) (2,505)
Effect of projected future
compensation levels ... (4) (2) (27) (21)
------ ------ ------ ------
Projected benefit obligation (60) (88) (2,909) (2,526)
Plan assets at fair value . 87 118 2,295 1,968
------ ------ ------ ------
Funded status at October 31 27 30 (614) (558)
Unamortized pension costs:
Net losses ............ 9 7 372 235
Prior service costs ... 1 14 50 43
(Asset) liability at
date of transition .. (1) (1) 233 266
Adjustment for the minimum
liability ............... - - (628) (522)
------ ------ ------ ------
Net asset (liability) ..... $ 36 $ 50 $ (587) $ (536)
====== ====== ======= ======

The weighted average rate assumptions used in determining pension
costs and the projected benefit obligation were:

Millions of dollars 1995 1994 1993
- ----------------------------------------------------------------------
Discount rate used to determine
present value of projected
benefit obligation at end of the year .... 7.8% 9.3% 7.3%
Expected long-term rate of
return on plan assets for the year ....... 9.9% 8.1% 8.8%
Expected rate of increase in
future compensation levels ............... 3.5% 3.5% 3.5%
<PAGE>
<PAGE 30>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

3. POSTRETIREMENT BENEFITS (continued)

Other Postretirement Benefits

In addition to providing pension benefits, Transportation provides
health care and life insurance for a majority of its retired employees,
spouses and certain dependents in the United States and Canada. Under the
terms of an agreement between Transportation and its employees, retirees
and collective bargaining organizations, a Plan was implemented in fiscal
1993 which provided for cost sharing between Transportation and
participants in the form of premiums, co-payments and deductibles. A Trust
was established to provide a vehicle for funding the health care liability
through Transportation's contributions and retiree premiums. In October
1993, Transportation pre-funded $300 million of this liability from
proceeds lent to Transportation by the Parent Company as a result of a
public offering of Common Stock. The funds in this Trust are invested
primarily in equity securities. Transportation is required to make an
additional pre-funding contribution of $200 million on or prior to June 30,
1998.

Transportation adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," for its United States and
Canadian plans in 1993 and recognized the transition obligation as a
one-time non-cash charge to earnings. The cumulative effect of this change
in accounting policy was $1,149 million. The $1,144 million cumulative
charge for the changes in accounting policy reported in the Statement of
Income for 1993 includes the $1,149 million charge from the adoption of
SFAS 106 offset by the $5 million benefit from the adoption of SFAS 109,
"Accounting for Income Taxes," as discussed in Note 4.

The components of expense for other Postretirement benefits included
in the Statement of Income are as follows:

Millions of dollars 1995 1994 1993
- -----------------------------------------------------------------------
Service cost for benefits
earned during the year ................... $ 10 $ 10 $ 12
Interest cost on the accumulated
benefit obligation ...................... 90 81 91
Expected return on assets .................. (30) (27) (1)
------ ------ ------

Net other Postretirement benefits expense .. $ 70 $ 64 $ 102
====== ====== ======

Actual return on assets .................... $ 65 $ 12 $ -
====== ====== ======

The funded status of other Postretirement benefits as of October 31 is
as follows:

Millions of dollars 1995 1994
- -----------------------------------------------------------------------
Accumulated other postretirement
benefit obligation (APBO):
Retirees and their dependents .......... $ (729) $ (662)
Active employees eligible to retire .... (201) (198)
Other active participants .............. (227) (178)
------ ------
Total APBO ............................. (1,157) (1,038)
Plan assets at fair value .............. 364 308
------ ------
APBO in excess of plan assets .......... (793) (730)
Unrecognized net (gain) loss ........... 39 (20)
------ ------
Net liability .......................... $ (754) $ (750)
====== ======
<PAGE>
<PAGE 31>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

3. POSTRETIREMENT BENEFITS (continued)

Other Postretirement Benefits (continued)

The expected return on plan assets was 10% for 1995 and 9% for 1994
and 1993. The weighted average of discount rates used to determine the
accumulated postretirement benefit obligation was 7.8% and 9.0% at October
31, 1995 and 1994, respectively. For 1996, the weighted average rate of
increase in the per capita cost of covered health care benefits is
projected to be 9.8%. The rate is projected to decrease to 5.0% by the
year 2003 and remain at that level each year thereafter. If the cost trend
rate assumptions were increased by one percentage point for each year, the
accumulated postretirement benefit obligation would increase by
approximately $150 million and the associated expense recognized for the
year ended October 31, 1995 would increase by an estimated $13 million.
<PAGE>
<PAGE 32>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

4. INCOME TAXES

Transportation adopted SFAS 109, "Accounting for Income Taxes," in
1993. The adoption of SFAS 109 did not have a material impact on
Transportation as a result of a tax agreement with the Parent Company. The
Parent Company files a consolidated U.S. federal income tax return which
includes Transportation and its U.S. subsidiaries. Under the tax
allocation agreement with the Parent Company (Tax Agreement), if
Transportation records income, it is required to compute its federal income
tax expense based on such income and report it in the Statement of Income;
if a loss is recorded, the federal income tax benefit from such loss is
recorded by the Parent Company. Any resulting tax liability is paid to the
Parent Company. In addition, under the Tax Agreement, Transportation is
required to pay to the Parent Company any tax payments received from its
subsidiaries. The effect of the Tax Agreement is to allow the Parent
Company, rather than Transportation, to utilize U.S. operating losses and
net operating loss carryforwards (NOLs) generated in earlier years. As of
October 31, 1995, Transportation had $46 million of domestic NOLs available
to offset future taxable income generated by its subsidiaries.

Taxes on income (loss) of continuing operations are analyzed by
categories as follows:

Millions of dollars 1995 1994 1993
- ------------------------------------------------------------------------
Current:
Federal ................................. $ (46) $ (15) $ (12)
State and local ......................... (9) (4) (3)
------ ------ ------

Total current (expense) ............... (55) (19) (15)
Deferred tax (expense) .................... (1) (3) (4)
------ ------ ------
Total income tax (expense)
of continuing operations ................ $ (56) $ (22) $ (19)
====== ====== ======

The domestic and foreign components of income (loss) from continuing
operations before income taxes and the cumulative effect of changes in
accounting policy consist of the following:

Millions of dollars 1995 1994 1993
- -----------------------------------------------------------------------
Domestic .................................. $ 147 $ 49 $ (474)
Foreign ................................... 11 13 12
------ ------ ------

Total income (loss) ....................... $ 158 $ 62 $ (462)
====== ====== ======
<PAGE>
<PAGE 33>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

4. INCOME TAXES (continued)

The difference between the provision for income taxes and income taxes
computed using the U.S. federal statutory rate is as follows:

Millions of dollars 1995 1994 1993
- -------------------------------------------------------------------------
Amount computed using the
U.S. federal statutory rate ............. $ (55) $ (22) $ 161
(Increase) decrease in taxes
resulting from:
State income taxes, net ............... (9) (4) (3)
Difference between U.S.
and foreign tax rates ............... 4 5 4
Current year losses for which
no benefit is available ................. - - (182)
Other ..................................... 4 (1) 1
------ ------ -------
Provision for income taxes
of continuing operations ........ $ (56) $ (22) $ (19)
====== ====== ======

The components of the deferred tax asset (liability), in millions of
dollars at October 31 are as follows:

Millions of dollars 1995 1994
- ------------------------------------------------------------------------
United States
- -------------

Deferred tax asset
- net operating loss carryforwards $ 18 $ 8
Less valuation allowance .................. (18) (8)
------ ------

Net deferred tax assets ............... $ - $ -
====== ======
Foreign
- -------

Deferred tax assets:
Net operating loss carryforwards ......... $ - $ 3
Postretirement benefits ................... 19 16
------ ------
Total deferred tax assets ............... 19 19
Less valuation allowance ................... (19) (19)
------ ------
Net deferred tax assets .................. - -

Deferred tax liabilities
- prepaid pension assets ................. (16) (16)
------ ------
Net deferred tax liabilities .............. $ (16) $ (16)
====== ======
<PAGE>
<PAGE 34>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

4. INCOME TAXES (continued)

A valuation allowance has been provided for those net operating loss
carryforwards and temporary differences which are estimated to expire
before they are utilized. Because the foreign tax carryforward period is
relatively short, a full allowance has been provided against the total
deferred tax assets. The valuation allowance increased $10 million during
1995 resulting from tax benefits associated with a stock acquisition which
are not expected to be realized.

SFAS 109 requires that individual tax paying entities of
Transportation offset all deferred tax assets and liabilities within each
tax jurisdiction and present them in a single amount in the Statement of
Financial Condition. Amounts in different tax jurisdictions cannot be
offset against each other.

5. DISCONTINUED OPERATIONS

In the fourth quarter of 1994, Transportation recorded a $33 charge as
a loss of discontinued operations for environmental liabilities at
production facilities of two formerly owned businesses, Wisconsin Steel and
Solar Turbine, Inc. This charge, which included an $11 million settlement
for various environmental related commercial issues and a $22 million
charge for cleanup costs for these sites, was included in Other
Liabilities. See also Note 17.
<PAGE>
<PAGE 35>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

6. MARKETABLE SECURITIES

Information related to Transportation's marketable securities at
October 31 is as follows:

1995 1994
----------------- -------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- -------------------------------------------------------------------------
MANUFACTURING
U.S. government securities .. $ 86 $ 86 $ 32 $ 32
------ ------ ------ ------

FINANCIAL SERVICES
Corporate securities ........ 33 33 28 28
U.S. government securities .. 53 54 67 65
Mortgage and
asset-backed securities ... 32 33 28 28
Foreign government securities 9 9 9 8
------ ------ ------ ------

Financial Services
debt securities ........... 127 129 132 129
Financial Services
equity securities 10 11 9 9
------ ------ ------ ------

Financial Services
marketable securities ..... 137 140 141 138
------ ------ ------ ------

Total marketable securities ... $ 273 $ 226 $ 173 $ 170
====== ====== ====== ======

Gross unrealized gains and losses on marketable securities at October
31, 1995 and 1994 are not material.
<PAGE>
<PAGE 36>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

6. MARKETABLE SECURITIES (Continued)

Contractual maturities of marketable debt securities at October 31 are
as follows:
1995 1994
----------------- -------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- -------------------------------------------------------------------------
MANUFACTURING
Due in one year or less ...... $ 83 $ 83 $ - $ -
Due after one year
through five years ......... 3 3 32 32

Manufacturing debt
securities ............. 86 86 32 32
------ ------ ------ ------

FINANCIAL SERVICES
Due in one year or less ..... 22 22 17 17
Due after one year
through five years ......... 35 36 61 60
Due after five years
through ten years .......... 27 27 17 16
Due after ten years .......... 11 11 9 8
------ ------ ------ ------
95 96 104 101
Mortgage and
asset-backed securities .... 32 33 28 28
------ ------ ------ ------

Financial Services
debt securities ........ 127 129 132 129
------ ------ ------ ------

Total debt securities ........ $ 213 $ 215 $ 164 $ 161
====== ====== ====== ======

Proceeds from sales or maturities of investments in securities were
$226 million during 1995 and $483 million during 1994. Gross gains and
losses realized on such sales or maturities were not material for each of
the two years. Shareowner's equity includes an unrealized holding gain of
$3 million, at October 31, 1995 and a loss of $3 million at October 31,
1994. At October 31, 1995 and 1994, Financial Services' domestic
insurance subsidiary had $23 million and $30 million, respectively, of
marketable securities on deposit with various state departments of
insurance or otherwise not available. These securities are included in
total marketable securities balances at October 31, 1995 and 1994.
<PAGE>
<PAGE 37>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

7. RECEIVABLES

Receivables at October 31 are summarized by major classification as
follows:

Millions of dollars 1995 1994
- ------------------------------------------------------------------------
MANUFACTURING
Customers ............................... $ 177 $ 184
Financial Services ..................... 92 13
Allowance for losses .................... (18) (17)
------ ------
Manufacturing receivables, net ........ 251 180
------ ------

FINANCIAL SERVICES
Retail notes and lease financing ........ 747 514
Wholesale notes ......................... 268 231
Accounts receivable ..................... 388 370
Amounts due from
sales of receivables .................. 248 193
Reinsurance balance receivables ......... 31 42
Allowance for losses .................... (10) (8)
------ ------
Financial Services
receivables, net ................... 1,672 1,342
------ ------

Eliminations .......................... (92) (10)
------ ------

Total receivables, net .................... $1,831 $1,512
====== ======

The allowance for losses of Manufacturing includes amounts associated
with receivables financed by Navistar Financial and receivables on
products sold to distributors in export markets.

Reflecting higher consumer demand for light trucks and vans, sales of
mid-range diesel engines to a domestic automobile manufacturer have
increased from 9% of consolidated sales and revenues in 1993 to 10% in 1994
and 12% in 1995.
<PAGE>
<PAGE 38>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

7. RECEIVABLES (continued)

Financial Services

Navistar Financial purchases the majority of the wholesale notes
receivable and some retail notes and accounts receivable arising from
Transportation's operations in the United States.

A portion of Navistar Financial's funding for retail and wholesale
notes comes from sales of receivables by Navistar Financial to third
parties with limited recourse. Proceeds from sales of retail notes
receivable were $727 million in 1995, $995 million in 1994 and $558 million
in 1993. Uncollected sold retail and wholesale receivable balances
totalled $1,673 million and $1,347 million as of October 31, 1995 and
1994, respectively. Navistar Financial's maximum exposure under all
receivable sale recourse provisions at October 31, 1995 is $210 million
which includes holdback reserves of $44 million, subordinated retained
interest in securitized receivable sales of $99 million and $67 million of
certain cash deposits established as a result of the securitized
receivables recourse provisions.

Contractual maturities of finance receivables including unearned
finance income at October 31, 1995 are summarized below. Prepayments may
cause the average actual life to be shorter.

Retail Notes and Wholesale Accounts
Millions of dollars Lease Financing Notes Receivable
- -------------------------------------------------------------------------
Gross finance receivables
due in:

1996 ...................... $ 239 $ 181 $ 388
1997 ...................... 203 87 -
1998 ...................... 184 - -
1999 ...................... 140 - -
2000 ...................... 92 - -
2001 and thereafter ....... 8 - -
------ ------ ------
Gross finance receivables 866 268 388
Unearned finance charges .... 119 - -
------ ------ ------

Total finance receivables ... $ 747 $ 268 $ 388
====== ====== ======
<PAGE>
<PAGE 39>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

8. PROPERTY

At October 31, property includes the following:

Millions of dollars 1995 1994
- ------------------------------------------------------------------------
MANUFACTURING
Land ......................................... $ 11 $ 8
------ ------

Buildings, machinery and equipment at cost:
Plants ..................................... 1,223 1,070
Distribution ............................... 75 71
Other ...................................... 90 78
------ ------

Subtotal ................................. 1,388 1,219
------ ------

Total property ............................... 1,399 1,227
Less accumulated depreciation and amortization (757) (678)
------ ------
Manufacturing property, net ................ 642 549
------ ------

FINANCIAL SERVICES
Total property ............................... 48 35
Less accumulated depreciation and amortization (7) (6)
------ ------
Financial Services property, net ........... 41 29
------ ------

Total property and equipment, net .............. $ 683 $ 578
====== ======

Included in the gross property of Manufacturing is property under
capitalized lease obligations of $24 million at October 31, 1995 and $27
million at October 31, 1994.

9. INVENTORIES

Inventories at October 31 are as follows:

Millions of dollars 1995 1994
- ------------------------------------------------------------------------
Finished products ............................. $ 167 $ 169
Work in process ............................... 91 103
Raw materials and supplies .................... 158 157
------ ------

Total inventories ............................. $ 416 $ 429
====== ======
<PAGE>
<PAGE 40>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

10. LEASES

Transportation has long-term noncancellable leases for use of various
equipment and facilities. Lease terms are generally for 5 to 25 years and
in many cases provide for renewal options. Transportation is generally
obligated for the cost of property taxes, insurance and maintenance.

Transportation leases office buildings, distribution centers,
furniture and equipment, machinery and equipment and computer equipment.
Total operating lease expense was $37 million in 1995, $34 million in 1994
and $30 million in 1993. Income received from sublease rentals was $6
million in 1995, 1994 and 1993.

At October 31, 1995, consolidated future minimum lease payments
required under capital and noncancellable operating leases having lease
terms in excess of one year are as follows:

Capital Operating
Millions of dollars Leases Leases
- ------------------------------------------------------------------------

1996 .......................................... $ 3 $ 32
1997 .......................................... 3 29
1998 .......................................... 3 28
1999 .......................................... 3 27
2000 .......................................... 3 26
Thereafter .................................... 5 38
------ -------

Total minimum payments ........................ 20 $ 180
=======
Less imputed interest ......................... (7)
------

Present value of minimum lease payments ..... $ 13
======

Future income from subleases ................ $ 26
=======
<PAGE>
<PAGE 41>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

11. ACCOUNTS PAYABLE

Major classifications of accounts payable at October 31 are as
follows:

Millions of dollars 1995 1994
- ------------------------------------------------------------------------
MANUFACTURING
Trade ....................................... $ 857 $ 776
Other ....................................... 19 3
------ ------
Manufacturing accounts payable ............ 876 779
------ ------

FINANCIAL SERVICES
Other ....................................... 57 57
Manufacturing ............................... 89 13
------ ------
Financial Services accounts payable ......... 146 70
------ ------

Eliminations .................................. (89) (13)
------ ------

Total accounts payable ........................ $ 933 $ 836
====== ======

12. OTHER LIABILITIES

Major classifications of other liabilities at October 31 are as
follows:

Millions of dollars 1995 1994
- ------------------------------------------------------------------------
MANUFACTURING
Product liability and warranty ............. $ 294 $ 288
Employee incentive programs ................ 104 35
Payroll, commissions and
employee related benefits ................ 91 94
Long-term disability ....................... 55 46
Taxes ...................................... 42 41
Environmental .............................. 25 31
Other ...................................... 184 151
------ ------
Manufacturing other liabilities .......... 795 686
------ ------

FINANCIAL SERVICES
Loss reserves and unearned premiums ........ 118 136
Interest ................................... 12 11
Other ...................................... 27 18
------ ------
Financial Services other liabilities ..... 157 165
------ ------

Eliminations ................................. (3) 3
------ ------

Total other liabilities ...................... $ 949 $ 854
====== ======
<PAGE>
<PAGE 42>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

13. DEBT

Debt Due Parent Company
Millions of dollars 1995 1994
- ------------------------------------------------------------------------
MANUFACTURING
Current maturities of
debt due Parent Company .................. $ 38 $ 36
Subordinated Parent Company Note
9.05% Stock Purchase Agreement
(Class B Common), due 2003 ........... 392 439
9.0% Loan Agreement, due 2013 .......... 493 493
------ ------
Long-term debt due Parent Company ........ 885 932
------ ------
Total debt due Parent Company ................ $ 923 $ 968
====== ======
------------------------------

Debt
Millions of dollars 1995 1994
- ------------------------------------------------------------------------
MANUFACTURING
Notes payable
and current maturities
of long-term debt ........................ $ 10 $ 3
------ ------

6 1/4% Sinking Fund Debentures, due 1998 ... 6 7
9% Sinking Fund Debentures, due 2004 ....... 60 65
8% Secured Note, due 2002
secured by plant assets .................. 31 37
Capitalized leases/other ................... 20 15
------ ------
Total long-term debt ..................... 117 124
------ ------
Manufacturing debt ........................... 127 127
------ ------
FINANCIAL SERVICES
Commercial paper ........................... 50 19
Bank borrowings ............................ - 400
Current maturities of long-term debt ....... 118 100
------ ------
Total short-term debt .................... 168 519
------ ------

Senior Debentures and Notes
9.5% medium-term, due 1996 ............... - 117
Asset-backed commercial paper program,
variable rate, due October 1998 .......... 302 -
Bank revolver, variable rate,
due October 1998 ......................... 760 355
------ ------
Total senior debt ........................ 1,062 472
------ ------

Subordinated Term Debt
- Senior notes, 8 7/8%, due November 1998. 100 100
------ ------
Total long-term debt ..................... 1,162 572
------ ------
Financial Services debt .................... 1,330 1,091
------ ------

Total debt ................................... $1,457 $1,218
====== ======
<PAGE>
<PAGE 43>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

13. DEBT (continued)

Navistar Financial issues commercial paper with varying terms and has
short-term borrowings with various banks on a non-committed basis.
Compensating cash balances and commitment fees are not required under these
borrowings.

The aggregate annual maturities and sinking fund requirements for debt
for the years ended October 31 are as follows:

Financial
Millions of dollars Manufacturing Services Total
- -----------------------------------------------------------------------
1996 ............................ $ 48 $ 168 $ 216
1997 ............................ 62 - 62
1998 ............................ 66 1,062 1,128
1999 ............................ 67 100 167
2000 ............................ 71 - 71
Thereafter ...................... 736 - 736

Weighted average interest rate
on debt including the effect of
discounts and related amortization:
1995 ....................... 9.1% 7.4% 8.3%
1994 ....................... 8.7% 7.1% 7.3%

In conjunction with the implementation of a restructured health care
and life insurance plan in 1993, Transportation entered into a Stock
Purchase Agreement with the Parent Company at 9.05% due 2003, for the
purchase of Class B common stock. Transportation contributed the stock,
which was originally valued at $513 million, to the independent retiree
Trust. In 1993, the Parent Company also completed a public offering of
common shares. The proceeds were loaned to Transportation at 9%, due 2013
and were used to pre-fund health care and life insurance benefit
liabilities and for working capital purposes.

In November 1994, Navistar Financial amended and restated its $727
million bank revolving credit agreement extending the scheduled maturities
for 1996 to October 31, 1998 and expanding the commitment to $900 million.
In addition, the commitments to sell retail notes under the $600 million
retail notes purchase facility agreement were terminated and Navistar
Financial established a $300 million asset-backed commercial paper (ABCP)
program backed by a $300 million bank liquidity facility which terminates
October 31, 1998. The amended revolving credit facility removes dividend
restrictions, provides that Navistar Financial maintain certain covenant
requirements and grants security interests in substantially all of its
assets consistent with the previous credit agreement. Facility fees will
be paid quarterly regardless of usage.

Under the terms of the ABCP program, a special purpose wholly-owned
subsidiary of Navistar Financial will purchase retail notes and lease
receivables. All assets of the subsidiary will be pledged or sold to a
trust that will fund the receivables with investment grade commercial
paper. Navistar Financial will pay a commitment fee on the unused portion
of the $300 million ABCP liquidity facility.
<PAGE>
<PAGE 44>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

13. DEBT (continued)

Available funding under the amended and restated credit agreement and
ABCP program was $148 million, of which $50 million was used to back short-
term debt at October 31, 1995. The remaining $98 million when combined
with unrestricted cash and cash equivalents made $101 million available to
fund the general business purposes of Navistar Financial at October 31,
1995.

Navistar Financial's wholly-owned subsidiaries, Navistar Financial
Retail Receivables Corporation (NFRRC) and Navistar Financial Securities
Corporation (NFSC), have a limited purpose of purchasing retail and
wholesale receivables, respectively, and transferring an undivided
ownership interest in such notes to investors in exchange for pass-through
notes and certificates. The subsidiaries have limited recourse on the
sold receivables and their assets are available to satisfy the claims of
their creditors prior to such assets becoming available to Navistar
Financial or affiliated companies.

NFSC utilizes a revolving wholesale note sales trust providing for the
continuous sale of wholesale notes on a daily basis. In June 1995, the
Navistar Financial Dealer Note Master Trust issued an additional $200
million of 9.3 year asset-backed certificates to the public increasing the
sales trust from $300 million to $500 million. The net proceeds of $195
million were used by Navistar Financial for general working capital
purposes. Under the terms of the sale, the amount subordinated to the
investors' interest increased from $47 million to $87 million. These sales
trusts comprise three $100 million pools of notes maturing serially from
1997 to 1999 and a $200 million pool maturing in 2004.

During 1995, Navistar Financial sold $740 million of retail notes,
net of unearned finance income, through NFRRC in two separate sales to two
individual owner trusts which, in turn, sold $714 million of notes and $26
million of certificates to investors. The net proceeds of $738 million
were used by Navistar Financial for general working capital purposes and to
establish a $45 million reserve account with the trust. At October 31,
1995, the remaining shelf registration available to NFRRC for issuance of
asset-backed securities was $1,430 million.

In November 1995, Navistar Financial sold $525 million of retail notes
through NFRRC. The net proceeds of $524 million were used for general
working capital purposes and to establish a $25 million reserve account
with the trust. On November 14, 1995, NFRRC filed an additional
registration with the Securities and Exchange Commission providing for the
issuance from time to time of an additional $2,000 million of asset-backed
securities.
<PAGE>
<PAGE 45>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

14. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

The carrying amounts of financial instruments, as reported in the
Statement of Financial Condition and described in various Notes to the
Financial Statements, and their fair values at October 31, are as follows:

1995 1994
---------------- -----------------
Carrying Fair Carrying Fair
Millions of dollars Amount Value Amount Value
- -----------------------------------------------------------------------
Receivables, net ........... $1,851 $1,844 $1,512 $1,508
Investments and other assets 163 163 163 185
Debt ....................... 2,380 2,532 2,186 2,183

Cash and cash equivalents approximate fair value. The cost and fair
value of marketable securities are disclosed in Note 6.

Manufacturing's customer receivables and Navistar Financial's
wholesale notes and retail and wholesale accounts and other variable-rate
retail notes approximate fair value as a result of the short-term
maturities of the financial instruments. The fair value of Navistar
Financial's truck retail notes is estimated based on quoted market prices
of similar sold receivables. The fair value of amounts due from sales of
receivables is estimated by discounting expected cash flows at estimated
current market rates.

The fair value of investments and other assets is estimated based on
quoted market prices or by discounting future cash flows.

The short-term debt and variable-rate borrowings under Navistar
Financial's bank revolving credit agreement, which is repriced frequently,
approximate fair value. The fair value of long-term debt is estimated
based on quoted market prices, when available. If a quoted market price is
not available, fair value is estimated using quoted market prices for
similar financial instruments or discounting future cash flows.
<PAGE>
<PAGE 46>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

14. FINANCIAL INSTRUMENTS (continued)

Derivatives Held or Issued for Purposes Other Than Trading

Derivatives are used by Transportation to transfer or reduce risks in
foreign exchange and purchase transactions, reduce interest rate risks and
potentially increase the return on invested funds.

During the fourth quarter of 1995, Manufacturing entered into three
forward contracts to hedge its foreign exchange exposure to the Canadian
dollar on firm commitments. These foreign currency contracts were valued
at $33 million as of October 31, 1995 and mature within three months of
origination. Gains or losses on these contracts are recognized at the
completion of the related contract. At October 31, 1995, the unrecognized
loss on the three forward contracts and the CMOs was not material.

Navistar Financial manages its exposure to fluctuations in interest
rates by limiting the amount of fixed rate assets funded with variable rate
debt, by selling fixed rate retail receivables on a fixed rate basis and,
to a lesser extent, by utilizing financial derivative instruments. These
instruments may include interest rate swaps, interest rate caps and forward
interest rate contracts. Navistar Financial enters into forward interest
rate contracts to manage its exposure to fluctuations in funding costs from
the anticipated securitization and sale of retail notes.

During 1995, there were no swap agreements outstanding and only one
interest rate cap purchased in 1985 for a notional amount of $50 million
which serves to hedge the interest cost of variable rate debt. The premium
paid for this interest rate cap agreement has been fully amortized to
interest expense. The effect of this cap on Navistar Financial's interest
expense was not material.

Between June and October 1995, Navistar Financial entered into $325
million of forward interest rate lock agreements on a Treasury note
maturing in 1997 related to the anticipated November 1995 sale of retail
receivables. These hedge agreements were closed on October 18, 1995, and
the loss, which was not material, was deferred and included in the gain
recognized on the sale of receivables in November 1995.

Financial Services' insurance companies use CMOs and foreign exchange
future contracts to increase the yield on their investment portfolio.
These instruments totalled $37 million at October 31, 1995. At October 31,
1995, the unrecognized gain on the CMOs and the foreign exchange future
contracts was not material.
<PAGE>
<PAGE 47>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

15. COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS ON ASSETS

At October 31, 1995, commitments for capital expenditures in progress
were approximately $56 million.

At October 31, 1995, the Canadian operating subsidiary was
contingently liable for retail customers' contracts and leases financed by
a third party. The Company is subject to maximum recourse of $150 million
on retail contracts and $11 million on retail leases. In addition, as of
October 31, 1995, Transportation is contingently liable for approximately
$47 million for various guarantees, buyback programs and performance bonds;
however, based on historical loss trends, Transportation's exposure is not
considered material.

The Canadian operating subsidiary and certain subsidiaries included in
Financial Services are parties to agreements which restrict the amounts
which can be distributed to Transportation in the form of dividends or
loans and advances which can be made. As of October 31, 1995, these
subsidiaries had $410 million of net assets of which $212 million was
restricted as to distribution.

The Parent Company and Transportation are obligated under certain
agreements with public and private lenders of Navistar Financial to
maintain the subsidiary's income before interest expense and income taxes
at not less than 125% of its total interest expense. No income maintenance
payments were required for the three years ended October 31, 1995.

16. LEGAL PROCEEDINGS

In May 1993, a jury issued a verdict in favor of Vernon Klein Truck &
Equipment, Inc. (Klein Truck) and against Transportation in the amount of
$11 million in compensatory damages and $15 million in punitive damages.
Transportation appealed the verdict and in order to do so was required to
post a bond collateralized with $30 million in cash. In November 1994, the
Court of Appeals of the State of Oklahoma reversed the verdict and entered
judgment in favor of Transportation on virtually all aspects of the case.
Klein Truck appealed to the Oklahoma Supreme Court where the case is now
pending. The bond and the related collateral will be released when the
order of the Oklahoma Supreme Court is filed.

Transportation and its subsidiaries are subject to various other
claims arising in the ordinary course of business, and are parties to
various legal proceedings which constitute ordinary routine litigation
incidental to its business and that of its subsidiaries. In the opinion of
Transportation's management, none of these proceedings or claims is
material to the business or the financial condition of Transportation.
<PAGE>
<PAGE 48>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

17. ENVIRONMENTAL MATTERS

In the fourth quarter of 1994, Transportation recorded a $33 million
charge as a loss of discontinued operations. The charge consists of an $11
million payment to be made to the Economic Development Administration (EDA)
and a $22 million charge for cleanup costs at production facilities of two
formerly owned businesses: Wisconsin Steel and Solar Turbine, Inc.

Transportation and the EDA, a division of the U.S. Department of
Commerce, reached an agreement in the fourth quarter of 1994 in settlement
of commercial and environmental disputes related to the Wisconsin Steel
property. EDA and Transportation became 90% and 10% beneficiaries,
respectively, of a trust which was created after the party that purchased
Wisconsin Steel filed for bankruptcy. At the time of bankruptcy, EDA had
guaranteed repayment of 90% and Transportation of 10% of loans made to
Wisconsin Steel. The settlement provides that EDA transfer its interest in
the trust to Transportation, which in turn will assume responsibility for
completing the investigation of the environmental condition at the site and
for any cleanup work that may be necessary. Transportation has agreed to
pay EDA $11 million to settle various commercial issues as well as
reimburse them for a portion of environmental response costs spent by EDA.
The U.S. Department of Justice must approve the final settlement before the
interest in the trust, or the property, is transferred to Transportation.
At October 31, 1995, a final consent decree remained subject to approval by
the U.S. Department of Justice and by Transportation.

An agreement with Solar was signed during the third quarter of 1995.

Transportation has been named a potentially responsible party (PRP),
in conjunction with other parties, in a number of cases arising under an
environmental protection law known as the Superfund law. These cases
involve sites which allegedly have received wastes from current or former
Company locations. Based on information available to Transportation, which
in most cases consists of data related to quantities and characteristics of
material generated at or shipped to each site as well as cost estimates
from PRPs and/or Federal or State regulatory agencies for the cleanup of
these sites, a reasonable estimate is calculated of Transportation's share,
if any, of the costs and is provided for in the financial statements.
Transportation believes that, based on these calculations, its share of the
potential additional costs for the cleanup of each site, other than the
Wisconsin Steel and Solar sites, will not have a material effect
Transportation's financial results. Transportation reviews its accruals on
a regular basis.
<PAGE>
<PAGE 49>

==========
NOTES TO FINANCIAL STATEMENTS--(Continued)

18. SHAREOWNER'S EQUITY

The number of authorized shares of Transportation's capital stock at
October 31, 1995 was 100,000 with a par value of $1.00 per share and the
number of issued and outstanding shares was 1,000. All the issued and
outstanding stock is owned by Navistar International Corporation and no
shares are reserved for officers and employees or for options, warrants,
conversions and other rights.

Shareowner's equity at October 31, 1995 is as follows:

Millions of dollars 1995 1994 1993
- ------------------------------------------------------------------------
Common Stock .............................. $ 785 $ 785 $ 785
------ ------ ------

Retained earnings (deficit)
Balance at beginning of the year .......... (2,282) (2,303) (551)
Net income (loss) ......................... 102 7 (1,625)
Minimum pension liability adjustment/other. (127) 14 (127)

Balance at end of the year ................ (2,307) (2,282) (2,303)
------ ------ ------

Total shareowner's equity ................. $(1,522) $(1,497) $(1,518)
======= ======= =======

19. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------ ------------ ----------- ------------

(Millions of dollars) 1995 1994 1995 1994 1995 1994 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales
and revenues .... $1,413 $1,139 $1,635 $1,393 $1,510 $1,251 $1,768 $1,547

Manufacturing gross
margin .......... 12.4% 13.1% 14.0% 11.9% 14.0% 12.7% 14.4% 13.5%
===== ===== ===== ===== ===== ===== ===== ======

Net income (loss) .. $ 7 $ (6) $ 37 $ 7 $ 18 $ 2 $ 40 $ 4
===== ===== ===== ===== ===== ===== ===== ======

<FN>

Transactions between Manufacturing and Financial Services operations have been
eliminated from the consolidated financial results. See also Note 1.
</TABLE>
<PAGE>
<PAGE 50>

NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
AND SUBSIDIARIES
-------------------------------------------

INDEPENDENT AUDITORS' REPORT
----------------------------

Navistar International Transportation Corp.:

We have audited the financial statements and financial statement
schedule of Navistar International Transportation Corp. and Consolidated
Subsidiaries listed in Item 8 and Item 14. These consolidated financial
statements and financial statement schedule are the responsibility of
Transportation'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 consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 accompanying consolidated financial statements
present fairly, in all material respects, the financial position of
Navistar International Transportation Corp. and Consolidated Subsidiaries
at October 31, 1995 and 1994, and the results of their operations and their
cash flow for each of the three years in the period ended October 31, 1995,
in conformity with generally accepted accounting principles. Also, in our
opinion, the 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.

As discussed in Notes 3 and 4 to the Financial Statements, effective
November 1, 1992, Transportation changed its methods of accounting for
postretirement benefits other than pensions and for income taxes.

Deloitte & Touche LLP
December 18, 1995
Chicago, Illinois
<PAGE>
<PAGE 51>
Exhibit 23

NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
AND SUBSIDIARIES
-------------------------------------------

INDEPENDENT AUDITORS' CONSENT
-----------------------------

Navistar International Transportation Corp.:

We consent to the incorporation by reference in Post-Effective
Amendment No. 1 to Registration No. 2-70979 of Navistar International
Transportation Corp. on Form S-8 of our reports on Navistar International
Transportation Corp. and Navistar Financial Corporation dated December 18,
1995, appearing and incorporated by reference in this Annual Report on Form
10-K of Navistar International Transportation Corp. for the year ended
October 31, 1995.

Deloitte & Touche LLP
January 26, 1996
Chicago, Illinois
<PAGE>
<PAGE 52>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None
PART III

ITEMS 10, 11, 12 AND 13

Intentionally omitted. See the index page to this Report for
explanation.
<PAGE>
<PAGE 53>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K

Financial Statements
- --------------------

See Index to Financial Statements in Item 8.

Schedule
- --------
Page
----

II - Valuation and Qualifying Accounts and Reserves .... F-1

All other schedules are omitted because of the
absence of the conditions under which they are required
or because information called for is shown in the
financial statements and notes thereto.

Exhibits, Including those Incorporated by Reference
- ---------------------------------------------------
Page
----

(3) Articles of Incorporation and By-Laws ............. E-1
(4) Instruments Defining the Rights
of Security Holders, including Indenture ........ E-2
(10) Material Contracts E-3
(23) Independent Auditors' Consent ..................... 51
(24) Power of Attorney ................................. 55
(27) Financial Data Schedule ........................... N/A
(28.1) Navistar Financial Corporation Annual Report
on Form 10-K for the fiscal year ended
October 31, 1995 ................................ N/A

All exhibits other than those indicated above are
omitted because of the absence of the condition under which
they are required or because information called for is shown
in the financial statements and notes thereto.

Reports on Form 8-K
- -------------------

No reports on Form 8-K were filed for the three months ended October
31, 1995.
<PAGE>
<PAGE 54>
SIGNATURE

NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
AND SUBSIDIARIES
-------------------------------------------

SIGNATURE

Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
- -------------------------------------------
(Registrant)

/s/ J. Steven Keate
- -----------------------------------
J. Steven Keate January 26, 1996
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
<PAGE 55>
SIGNATURE

NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
AND SUBSIDIARIES
-------------------------------------------
POWER OF ATTORNEY

Each person whose signature appears below does hereby make, constitute
and appoint John R. Horne, J. Steven Keate and Robert A. Boardman and each
of them acting individually, true and lawful attorneys-in-fact and agents
with power to act without the other and with full power of substitution, to
execute, deliver and file, for and on such person's behalf, and in such
person's name and capacity or capacities as stated below, any amendment,
exhibit or supplement to the Form 10-K Report making such changes in the
report as such attorney-in-fact deems appropriate.

SIGNATURES

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

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

/s/ John R. Horne
- ---------------------
John R. Horne Chairman, President January 26, 1996
and Chief Executive Officer
and Director

/s/ Robert C. Lannert
- ---------------------
Robert C. Lannert Executive Vice President January 26, 1996
and Chief Financial Officer
and Director
<PAGE>
<PAGE 56>
SCHEDULE II

NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
AND SUBSIDIARIES
============
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
(MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------

BALANCE DEDUCTIONS FROM
DESCRIPTION AT RESERVES BALANCE
DESCRIPTION BEGINNING ADDITIONS CHARGED AT END
OF RESERVES DEDUCTED FROM OF YEAR TO INCOME DESCRIPTION AMOUNT OF YEAR
----------- ------------- --------- ----------------- ----------- ------ -------
<S> <S> <C> <C> <S> <C> <C>
Reserves deducted from
assets to which they
apply:

1995
----
Uncollectible notes
and accounts
Allowance for written off and
losses on Notes and accounts reserve adjustments,
receivables .... receivable .... $ 25 $ 4 less recoveries ... $ 1 $ 28
===== ===== ===== =====

1994
----
Uncollectible notes
and accounts
Allowance for written off and
losses on Notes and accounts reserve adjustments,
receivables .... receivable .... $ 36 $ 2 less recoveries ... $ 13 $ 25
===== ===== ===== =====

1993
----
Uncollectible notes
and accounts
Allowance for written off and
losses on Notes and accounts reserve adjustments,
receivables .... receivable .... $ 34 $ 6 less recoveries ... $ 4 $ 36
===== ===== ===== =====
</TABLE>

F-1

EXHIBIT 3

NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
AND SUBSIDIARIES
-------------------------------------------

ARTICLES OF INCORPORATION AND BY-LAWS

The following documents of Navistar International Transportation Corp.
are incorporated herein in those executed and conformed copies of this report
provided to the Securities and Exchange Commission, the New York Stock
Exchange, the Chicago Stock Exchange and the Pacific Stock Exchange.

3.1 Restated Certificate of Incorporation of Navistar International
Transportation Corp. effective October 27, 1995, filed as
Exhibit 3.1 on Annual Report on Form 10-K dated October 31, 1995,
which was filed on January 26, 1996, Commission File No. 1-5236.

3.2 The By-Laws of Navistar International Transportation Corp. effective
February 14, 1995, filed as Exhibit 3.2 on Annual Report on Form 10-K
dated October 31, 1995 which was filed on January 26, 1996, on
Commission File No. 1-5236.

E-1

- ---------------------------------------------------------------------------
EXHIBIT 3.1

RESTATED CERTIFICATE OF INCORPORATION

NAVISTAR INTERNATIONAL

TRANSPORTATION CORP.

(As amended and in effect on October 27, 1995)

- ---------------------------------------------------------------------------
<PAGE>
<PAGE 2>
Restated Certificate of Incorporation
of
Navistar International Transportation Corp.

(As amended and in effect on October 27, 1995)

(Originally incorporated as International Harvester Company
on December 22, 1965)

First: The name of the corporation (hereinafter called the Company) is

Navistar International Transportation Corp.

Second: The respective names of the county and of the city within the
county in which the registered office of the Company is to be located in the
State of Delaware are the County of New Castle and the City of Wilmington.
The name of the registered agent of the Company is The Corporate Trust
Company. The street and number of said registered office and the address by
street and number of said registered agent is Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware 19801.

Third: The nature of the business of the Company and the objects or
purposes to be transacted, or promoted is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, as amended.

Fourth: The total number of shares of stock which the Company shall
have authority to issue is 100,000 shares, with a par value of $1.00 per
share, of a class designated Common Stock.

I. Common Stock. Subject to the provisions of any applicable law, or of
the By-laws of the Company as from time to time amended, with respect to the
closing of the transfer books or the fixing of a record date for the
determination of stockholders entitled to vote and except as otherwise
provided by law or by the resolution or resolutions providing for the issue
of any series of Preferred Stock or Preference Stock, the holders of
outstanding shares of Common Stock shall exclusively possess voting power
for the election of directors and for all other purposes, each holder of
record of shares of Common Stock being entitled to one vote for each share
of Common Stock standing in his name on the books of the Company. Except as
otherwise provided by the resolution or resolutions providing for the issue
of any series of Preferred Stock or Preference Stock, the holders of Common
Stock shall be entitled, to the exclusion of the holders of Preferred Stock
and Preference Stock of any and all series, to receive such dividends as
from time to time may be declared by the Board of Directors. In the event
of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, after payment shall have been made to the holders
of Preferred Stock and Preference Stock of the full amount for which they
shall be entitled pursuant to the resolution or resolutions providing for
the issue of any series of Preferred Stock or Preference Stock, the holders
of Common Stock shall be entitled, to the exclusion of the holders of
Preferred Stock or Preference Stock of any and all series, to share, ratably
according to the number of shares of Common Stock held by them, in all
remaining assets of the Company available for distribution to its
stockholders.

Subject to the provisions of this Certificate of Incorporation and
except as otherwise provided by law, the shares of stock of the Company,
regardless of class, may be issued for such consideration and for such
corporate purposes as the Board of Directors may from time to time
determine.

No holder of stock of the Company shall have any pre-emptive right with
respect to stock of the Company.

Fifth: The Company is to have perpetual existence.

Sixth: The private property of the stockholders of the Company shall
not be subject to the payment of corporate debts to any extent whatsoever.
<PAGE>
<PAGE 3>

Seventh: The directors of the Company shall be elected annually by the
stockholders and shall hold office until the next annual meeting of
stockholders and until their respective successors are duly elected.

The number of directors of the Company shall be fixed from time to time
by, or in the manner provided in, its By-laws and may be increased or
decreased as therein provided; but the number thereof shall not be less than
one (1).

The Board of Directors shall have power to hold its meetings outside
the State of Delaware at such place as from time to time may be designated
by the By-laws or by resolution of the Board of Directors. The By-laws may
prescribe the number of directors necessary to constitute a quorum.

The capital of the Company may be increased from time to time by
resolution of the Board of Directors directing that a portion of the net
assets of the Company in excess of the amount theretofore determined to be
capital be transferred to capital account. Any and all shares of the Common
Stock may be issued by the Company from time to time for such consideration
as may be fixed from time to time by the Board of Directors.

Eighth: The Board of Directors shall have power, without stockholder
action:

I. To make By-laws for the Company, and to amend, alter or repeal
any By-laws; but any By-laws made by the directors may be altered, amended
or repealed by the stockholders at any meeting, provided notice of such
proposed alteration, amendment or repeal be included in the notice of such
meeting.

II. To remove at any time any officer, agent or employee of the
Company, provided, however, that such power of removal may be conferred by
the By-laws or by the Board of Directors on any committee or officer.

III. To fix and determine, and to vary the amount of, the working
capital of the Company, and to determine the use or investment of any assets
of the Company; to set apart out of any of the funds of the Company
available for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve or reserves; and to declare and authorize payment
of such dividends as it shall determine advisable and proper, subject to
such restrictions as may be imposed by law.

IV. To authorize the purchase or other acquisition of shares of
stock of the Company or any of its bonds, debentures, notes, scrip or other
securities or evidences of indebtedness.

V. To determine whether and to what extent, at what times and
places, and under what conditions and regulations, the accounts, books and
documents of the Company, or any of them, shall be open to the inspection of
the stockholders; and no stockholder shall have any right to inspect any
account, book or document of the Company, except as conferred by the laws of
the State of Delaware or as authorized by resolution adopted by the Board of
Directors or by the stockholders of the Company entitled to vote in respect
thereof.

VI. Except as otherwise provided by law, to determine the places
within or without the State of Delaware where any or all of the books of the
Company shall be kept.

VII. To authorize the sale, lease or other disposition of any
part or parts of the properties of the Company and to cease to conduct the
business connected therewith or again to resume the same, as it may deem
best.

VIII. To authorize the borrowing of money; the issuance of bonds,
notes debentures and other obligations or evidences of indebtedness of the
Company, secured or unsecured, and the inclusion of provisions as to
redeemability and convertibility into shares of stock of the Company or
otherwise; and the mortgaging or pledging, as security for money borrowed or
bonds, notes, debentures or other obligations issued by the Company, of any
property of the company, real or personal, then owned or thereafter acquired
by the Company.
<PAGE>
<PAGE 4>

The powers and authorities herein conferred upon the Board of Directors
are in furtherance and not in limitation of those conferred by the laws of
the State of Delaware. In addition to the powers and authorities herein or
by statute expressly conferred upon it, the Board of Directors may exercise
all such powers and do all such acts and things as may be exercised or done
by the Company, subject, nevertheless, to the provisions of the laws of the
State of Delaware, of this Certificate of Incorporation and of the By-laws
of the Company.

The Board of Directors may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of
one (1) or more of the directors of the Company, which to the extent
provided and said resolution or resolutions or in the By-laws, shall have
any may exercise the powers of the Board of Directors in the management of
the business and affairs of the Company, and may authorize the seal of the
Company to be affixed to all papers which may require it.

Subject to any limitation in the By-laws, the members of the Board of
Directors shall be entitled to reasonable fees, salaries or other
compensation for their services, as determined from time to time by the
Board of Directors, and to reimbursement for their expenses as such members.
Nothing herein contained shall preclude any director from serving the
Company or its subsidiaries or affiliates in any other capacity and
receiving compensation therefore.

To the fullest extent permitted by the General Corporate Law of the
State of Delaware as it now exists or may hereafter be amended, no director
of the Company shall be liable to the Company or its stockholders for
monetary damages arising from a breach of fiduciary duty owed to the Company
or its stockholders. Any repeal or modification of this provision by the
stockholders of the Company shall not adversely affect any right or
protection of a director of the Company existing at the time of such repeal
or modification.

Ninth: The Company reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in the
Certificate of Incorporation, and other provisions authorized by the laws of
the State of Delaware a the time in force may be added or inserted, in the
manner now or hereafter prescribed by law; and all rights, preference and
privileges of whatsoever nature conferred upon stockholders, directors or
any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted
subject to the right reserved in this Article Ninth.

<PAGE 1>
EXHIBIT 3.2
BY-LAWS

NAVISTAR INTERNATIONAL
TRANSPORTATION CORP.

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

Incorporated Under the Laws

of the State of Delaware

(As amended effective April 11, 1995)
<PAGE>
<PAGE 2>

BY-LAWS
OF
NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
- ----------------------------------------------------------------------------

ARTICLE I.
----------
Meetings of Stockholders
------------------------
Section 1. ANNUAL MEETINGS. The annual meeting of the stockholders
for the election of directors and for the transaction of such other business
as may properly come before the meeting shall be held in the first three (3)
months of each calendar year.

Section 2. SPECIAL MEETINGS. A special meeting of the stockholders
for any purpose or purposes, unless otherwise prescribed by statute, may be
called at any time by the Chairman, President and Chief Executive Officer or
the Board of Directors.

Section 3. TIME AND PLACE OF MEETINGS. All meetings of the
stockholders shall be held at such times and places, within or without the
State of Delaware, as may from time to time be fixed by the Board of
Directors, or as shall be specified or fixed in the respective notices or
waivers of notice thereof.

Section 4. NOTICE OF MEETINGS. Except as otherwise expressly
required by law or by the Certificate of Incorporation of Navistar
International Transportation Corp. ("Company"), notice of each meeting of
the stockholders shall be given, at least fifteen (15) days in the case of
an annual meeting, and ten (10) days in the case of a special meeting,
before the day on which the meeting is to be held, to each stockholder of
record entitled to vote at such meeting by mailing such notice in a postage
prepaid envelope addressed to the stockholder at the stockholder's last
post-office address appearing on the stock records of the Company. Except as
otherwise expressly required by law, no publication of any notice of a
meeting of the stockholders shall be required. At special meetings of
stockholders no business other than that specified in the notice of the
meeting or germane thereto shall be transacted at such meeting. Except as
otherwise expressly required by law, notice of any adjourned meeting of the
stockholders need not be given. Notice of any meeting of stockholders may be
waived in writing by a majority of the stockholders entitled to vote
thereat.

Section 5. QUORUM. At each meeting of the stockholders, except as
otherwise expressly required by law, stockholders holding a majority of the
shares of stock of the Company, issued and outstanding, and entitled to be
voted thereat, shall be present in person or by proxy to constitute a quorum
for the transaction of business. In the absence of a quorum at any such
meeting or any adjournment or adjournments thereof, a majority in voting
interest of those present in person or by proxy and entitled to vote
thereat, or in the absence therefrom of all the stockholders, any officer
entitled to preside at, or to act as secretary of, such meeting may adjourn
such meeting from time to time until stockholders holding the amount of
stock requisite for a quorum shall be present or represented. At any such
adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally
called.

Section 6. ORGANIZATION. At each meeting of the stockholders, one
of the following shall act as chairman of the meeting and preside thereat,
in the following order of precedence:

(a) the Chairman, President and Chief Executive Officer;

(b) an Executive Officer designated by the Board of
Directors to act as chairman of said meetings and to
preside thereat;

(c) a stockholder of record of the Company who shall be
chosen chairman of such meeting by a majority in voting
interest of the stockholders present in person or by
proxy and entitled to vote thereat.
<PAGE>
<PAGE 3>

The Secretary, or, if he or she shall be absent from such meeting, the
person (who shall be an Assistant Secretary, if an Assistant Secretary shall
be present thereat) whom the chairman of such meeting shall appoint, shall
act as secretary of such meeting and keep the minutes thereof.

Section 7. ORDER OF BUSINESS. The order of business at each
meeting of the stockholders shall be determined by the chairman of such
meeting, but such order of business at any meeting at which a quorum is
present may be changed by the vote of a majority in voting interest of those
present in person or by proxy at such meeting and entitled to vote thereat.

Section 8. NOTICE OF STOCKHOLDER NOMINATION AND STOCKHOLDER
BUSINESS. At a meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting.
Nominations for the election of directors may be made by the Board of
Directors or by any stockholder entitled to vote for the election of
directors. Other matters to be properly brought before the meeting must be:
(a) specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the Board of Directors, including matters covered by
rule 14a-8 of the United States Securities and Exchange Commission; (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors; or (c) otherwise properly brought before the meeting by
a stockholder.

A notice of the intent of a stockholder to make a nomination or to
bring any other matter before the meeting shall be made in writing and
received by the Secretary of the Corporation not more than 180 days and not
less than 120 days in advance of the annual meeting or, in the event of a
special meeting of stockholders, such notice shall be received by the
Secretary of the Corporation not later than the earlier of (i) the close of
the fifteenth day following the day on which notice of the meeting is first
mailed to stockholders, or (ii) the close of the day next preceding the
meeting.

Every such notice by a stockholder shall set forth:

(a) the name and residence address of the stockholder of the
Corporation who intends to make a nomination or bring up any other
matter;

(b) a representation that the stockholder is a holder of the
Corporation's voting stock and intends to appear in person or by proxy
at the meeting to make the nomination or bring up the matter specified
in the notice;

(c) with respect to notice of an intent to make a nomination, a
description of all arrangements or understandings among the stockholder
and each nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made
by the stockholder;

(d) with respect to notice of an intent to make a nomination,
such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had each nominee been nominated by the Board of
Directors of the Corporation; and

(e) with respect to notice of an intent to bring up any other
matter, a description of the matter, and any material interest of the
stockholder in the matter.

Notice of intent to make a nomination shall be accompanied by the
written consent of each nominee to serve as director of the Corporation if
so elected.

At the meeting of stockholders, the chair shall declare out of order
and disregard any nomination or other matter not presented in accordance
with this section.
<PAGE>
<PAGE 4>

Section 9. VOTING. Each stockholder shall, at each meeting of the
stockholders, be entitled to one vote in person or by proxy for each share
of stock of the Company held by the stockholder and registered in the
stockholder's name on the books of the Company on the date fixed or
determined pursuant to the provisions of Section 5 of Article VI of these
By-laws as the record date for the determination of stockholders who shall
be entitled to receive notice of and to vote at such meeting.

Shares of its own stock belonging to the Company shall not be voted
directly or indirectly. Any vote on stock of the Company may be given at
any meeting of the stockholders by the stockholder entitled thereto in
person or by the stockholder's proxy appointed by an instrument in writing
delivered to the Secretary or an Assistant Secretary of the Company or to
the secretary of the meeting. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect
of revoking the same unless the stockholder shall in writing so notify the
secretary of the meeting prior to the voting of the proxy. At all meetings
of the stockholders all matters, except as otherwise provided in these By-
laws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to
vote thereat, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by
the chairman of the meeting. On a vote by ballot each ballot shall be signed
by the stockholder voting, or by the stockholder's proxy, if there be such
proxy.

Section 10. LIST OF STOCKHOLDERS. It shall be the duty of the
Secretary or other officer of the Company who shall have charge of its stock
ledger to prepare and make, at least ten (10) days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote
thereat, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for
a period of at least ten (10) days prior to said meeting either at a place
within the city where said meeting is to be held and which place shall be
specified in the notice of said meeting, or, if not so specified, at the
place where said meeting is to be held, and such list shall be produced and
kept at the time and place of said meeting during the whole time thereof,
and may be inspected by any stockholder who is present. The stock ledger
shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger or such list or the books of the Company, or to
vote in person or by proxy at any meeting of stockholders.

Section 11. INSPECTORS OR JUDGES. The Board of Directors, in
advance of any meeting of stockholders, may appoint one or more inspectors
or judges to act at such meeting or any adjournment thereof. If the
inspectors or judges shall not be so appointed, or if any of them shall fail
to appear or act, the chairman of such meeting shall appoint the inspectors
or judges, or such replacement or replacements therefor, as the case may be.
Such inspectors or judges, before entering on the discharge of their duties,
shall take and sign an oath or affirmation faithfully to execute the duties
of inspectors or judges at meetings for which they are appointed. At such
meeting, the inspectors or judges shall receive and take in charge the
proxies and ballots and decide all questions touching the qualification of
voters and the validity of proxies and the acceptance or rejection of votes.
An inspector or judge need not be a stockholder of the Company, and any
officer of the Company may be an inspector or judge on any question other
than a vote for or against his election to any position with the Company.
<PAGE>
<PAGE 5>

Section 12. ACTION WITHOUT A MEETING. Any action which may be
taken at any annual or special meeting of stockholders may be without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented
in writing.

ARTICLE II.
-----------

Board of Directors

Section 1. GENERAL POWERS. The business and affairs of the Company
shall be managed by the Board of Directors.

Section 2. NUMBER AND TIME OF HOLDING OFFICE. Subject to the
requirements of the laws of the State of Delaware, the Board may from time
to time by the vote of the majority of the whole Board determine the number
of directors. Until the Board shall otherwise so determine, the number of
directors shall not exceed two (2). Each of the directors of the Company
shall hold office until the expiration of his or her term and until his or
her successor shall be elected. Directors need not be stockholders.

Section 3. ELECTION OF DIRECTORS. At each meeting of the
stockholders for the election of directors, at which a quorum is present,
the persons receiving the greatest number of votes, up to the number of
directors to be elected, shall be the directors. Such election shall be by
ballot; provided, however, a nomination shall be accepted and votes cast for
a nominee shall be counted by the inspectors or judges of the election, only
if the Secretary of the Company has received at least 24 hours prior to the
meeting a statement over the signature of the nominee that he or she
consents to being a nominee and, if elected, intends to serve as a director.

Section 4. ORGANIZATION AND ORDER OF BUSINESS. At each meeting of
the Board, one of the following shall act as chairman of the meeting and
preside thereat, in the following order of precedence:

(a) the Chairman, President and Chief Executive Officer

(b) any director chosen by a majority of the directors
present thereat.

The Secretary, or in case of his or her absence the person whom the chairman
of such meeting shall appoint, shall act as secretary of such meeting and
keep the minutes thereof. The order of business at each meeting of the Board
of Directors shall be determined by the chairman of such meeting.

Section 5. RESIGNATIONS. Any director may resign at any time by
giving written notice of his or her resignation to the Chairman, President
and Chief Executive Officer or the Secretary of the Company. Any such
resignation shall take effect at the time specified therein, or, if the time
when it shall become effective shall not be specified therein, then it shall
take effect when accepted by action of the Board of Directors. Except as
aforesaid, the acceptance of such resignation shall not be necessary to make
it effective.

Section 6. VACANCIES, ETC. In case of any vacancy on the Board, or
in case of any newly created directorship, a director to fill the vacancy or
the newly created directorship for the unexpired portion of the term being
filled may be elected by the holders of shares of stock of the Company
entitled to vote in respect thereof at an annual or special meeting of said
holders or by a majority of the directors of the Company then in office
though less than a quorum.
<PAGE>
<PAGE 6>

Section 7. PLACE OF MEETING. The Board may hold its meetings at
such place or places within or without the State of Delaware as the Board
may from time to time by resolution determine or as shall be specified or
fixed in the respective notices or waivers of notice thereof; provided, that
all meetings, regular or special, shall be held at the chief executive
office of the Company in Chicago, Illinois, unless otherwise ordered or
approved by a majority of the whole Board.

Section 8. FIRST MEETING. As soon as practicable after each annual
election of directors, the Board shall meet for the purpose of organization,
the election of officers and the transaction of other business. Such meeting
shall be held at the time and place theretofore fixed by the Board for the
next regular meeting of the Board and no notice thereof need be given;
provided, however, that the Board may determine that such meeting shall be
held at a different place and time but notice thereof shall be given in the
manner hereinafter provided for special meetings of the Board.

Section 9. REGULAR MEETINGS. Regular meetings of the Board shall
be held at such times as the Board shall from time to time determine.
Notices of regular meetings need not be given. If any day fixed for a
regular meeting shall be a legal holiday at the place where the meeting is
to be held, then the meeting which would otherwise be held on that day shall
be postponed until the same hour on the same day of the next succeeding week
in which such day shall not be a legal holiday at such place, or at such
other time and place as the Board shall determine in which event notice
thereof shall be given.

Section 10. SPECIAL MEETINGS; NOTICE. Special meetings of the
Board shall be held whenever called by the Chairman, President and Chief
Executive Officer or one-third (1/3) of the directors at the time in office.
The Secretary shall give notice to each director as hereinafter in this
Section provided of each such special meeting, in which shall be stated the
time and place of such meeting. Notice of each such meeting shall be mailed
to each director, addressed to the director at his or her residence or usual
place of business, at least two (2) days before the day on which such
meeting is to be held; or shall be sent addressed to him or her at such
place by telegraph, cable, wireless or other form of recorded communication,
or be delivered personally or by telephone not later than the day before the
day on which such meeting is to be held. Notice of any meeting of the Board
need not, however, be given to any director, if waived by him or her in
writing or by telegraph, cable, wireless or other form of recorded
communication, before, during or after such meeting, or if he or she shall
be present at such meeting; and any meeting of the Board shall be a legal
meeting without any notice thereof having been given if all the directors of
the Company then in office shall be present thereat.

Dividends may be declared upon the stock of the Company at any special
meeting of the Board of Directors; provided, that the notice of said special
meeting states specifically the fact that dividend action is to be
considered. Any and all other business may be transacted at a special
meeting unless notice of the meeting specifically states that action will be
taken only upon the matters listed in the notice.

Section 11. QUORUM AND MANNER OF ACTING. Except as otherwise
provided in these By-laws or by law, a majority of directors at the time in
office shall be present in person at any meeting of the Board of Directors
in order to constitute a quorum for the transaction of business at such
meeting, and the affirmative vote of at least a majority of the directors
present at any such meeting, at which a quorum is present, shall be
necessary for the passage of any resolution or act of the Board. In the
absence of a quorum from any such meeting, a majority of the directors
present thereat may adjourn such meeting from time to time until a quorum
shall be present thereat. Notice of any adjourned meeting need not be given.
The directors shall act only as a board and the individual directors shall
have no power as such.
<PAGE>
<PAGE 7>

Section 12. ACTION BY CONSENT. Unless otherwise restricted by the
Certificate of Incorporation, any action required or permitted to be taken
at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting, if prior to such action a written consent
thereto is signed by all members of the Board or of such committee as the
case may be, and such written consent is filed with the minutes of
proceedings of the Board or committee.

Section 13. COMMITTEES. The Board of Directors may appoint
standing committees of its members. Such committees shall have such powers
as are conferred by the By-laws or authorized by the Board of Directors. The
members of all standing committees shall be appointed annually at the first
meeting of the Board of Directors after the annual meeting of the
stockholders and shall continue as members until their successors are
appointed, subject to the power of the Board to remove any member of a
committee at any time and to appoint a successor.

Section 14. MEETING BY COMMUNICATIONS EQUIPMENT. Members of the
Board of Directors or any committee appointed by the Board of Directors, may
participate in a meeting of the Board of Directors or of such committee by
means of conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and
such participation in a meeting shall constitute presence in person at such
meeting.

ARTICLE III.

Officers
--------

Section 1. ELECTION, APPOINTMENT, TERM OF OFFICE. The Executive
Officers of the Company shall consist of a Chairman, President and Chief
Executive Officer, and such number of other Executive Officers as the Board
of Directors may determine from time to time. There shall also be a General
Counsel, a Treasurer, a Controller and a Secretary, any of whom may also be
an Executive Officer.

The Board of Directors may also appoint such other officers and agents
as it may deem necessary, who shall have such authority and perform such
duties as may be prescribed by the Board.

All Executive Officers and other officers of the Company shall be
regularly elected or appointed by the majority vote of the whole Board of
Directors at its first meeting after the annual meeting of the stockholders
and shall hold office until the first meeting of the Board after the next
annual meeting of the stockholders, and until their successors are elected
or appointed.

If additional officers are elected or appointed during the year, they
shall hold office until the next annual meeting of the Board of Directors at
which officers are regularly elected or appointed and until their successors
are elected or appointed.

A vacancy in any office may be filled for the unexpired portion of the
term in the same manner as provided for election or appointment to such
office.

All officers and agents elected or appointed by the Board of Directors
shall be subject to removal at any time by the Board of Directors.
<PAGE>
<PAGE 8>

Section 2. CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER. The
Chairman, President and Chief Executive Officer shall be the chief executive
officer of the Company, and shall have the powers and perform the duties
incident to that position. Subject to the Board of Directors, he or she
shall be in general and active charge of the entire business and all the
affairs of the Company, and shall be its chief policy-making officer shall
have general charge of the business operations. He or she shall have such
other powers and perform such other duties as may be prescribed by the Board
of Directors or provided in the By-laws.

Section 3. EXECUTIVE OFFICERS. Each Executive Officer shall have
such powers and duties and titles prescribed by the Board of Directors at
the time of his or her election and such other powers and duties as may be
assigned to him or her from time to time by the Chairman, President and the
Chief Executive Officer, or the Board of Directors.

Section 4. GENERAL COUNSEL. The General Counsel shall have charge
of all matters of legal import concerning the Company and of the department
relating to such matters. He or she shall have such other powers and duties
as may be assigned to him or her by the Chairman, President and Chief
Executive Officer, or the Board of Directors.

Section 5. TREASURER. The Treasurer shall be responsible for
safeguarding the cash and securities of the Company and the formulation of
the investment and financial policies of the Company. He or she shall have
such other powers and duties as may be assigned to him or her by the
Chairman, President and Chief Executive Officer, the President and Chief
Operating Officer or the Board of Directors.

Section 6. CONTROLLER. The Controller shall be in charge of the
accounts of the Company and the maintenance of adequate accounting procedure
and records of the Company. He or she shall have such other powers and
duties as may be assigned to him or her by the Chairman, President and Chief
Executive Officer, or the Board of Directors.

Section 7. SECRETARY. The Secretary shall keep the records of all
meetings of the stockholders and of the Board of Directors and of the
Executive Committee. He or she shall affix the seal of the Company to all
deeds, contracts, bonds or other instruments requiring the corporate seal
when the same have been signed on behalf of the Company by a duly authorized
officer. He or she shall perform such other duties as may be assigned to
him or her from time to time by the Chairman, President and Chief Executive
Officer, or the Board of Directors.

ARTICLE IV.
-----------

Contracts, Checks, Drafts, Bank Accounts, Etc.
----------------------------------------------

Section 1. EXECUTION OF DOCUMENTS BY OFFICERS. All of the
Executive Officers of the Company elected as provided in Section 1 of
Article III of the By-laws, shall have power to execute and deliver any
deeds, contracts, mortgages, bonds, debentures and other documents for and
in the name of the Company.

All appointed officers shall have such powers with respect to execution
and delivery of deeds, contracts, mortgages, bonds, debentures and other
documents as may be assigned to them by the Board of Directors.

Section 2. DEPOSITS. All funds of the Company not otherwise
employed shall be deposited from time to time to the credit of the Company
or otherwise as the Board of Directors, the Chairman, President and Chief
Executive Officer, or the Treasurer shall direct in such banks, trust
companies or other depositories as the Board of Directors may select or as
may be selected by any officer or officers or agent or agents of the Company
to whom power in that respect shall have been delegated by the Board of
Directors. For the purpose of deposit and for the purpose of collection for
the account of the Company, checks, drafts and other orders for the payment
of money which are payable to the order of the Company may be endorsed,
assigned and delivered by any officer or agent of the Company.
<PAGE>
<PAGE 9>

Section 3. PROXIES IN RESPECT OF STOCK OR OTHER SECURITIES OF OTHER
CORPORATIONS. Unless otherwise provided by resolution adopted by the Board,
each of the Executive Officers of the Company elected as provided in Section
1 of Article III of the By-laws may from time to time appoint an attorney or
attorneys or agent or agents of the Company to exercise in the name and on
behalf of the Company the powers and rights which the Company may have as
the holder of stock or other securities in any other corporation to vote or
consent in respect of such stock or other securities, may instruct the
person or persons so appointed as to the manner of exercising such powers
and rights, and may execute or cause to be executed in the name and on
behalf of the Company and under its corporate seal, or otherwise, all such
written proxies, powers of attorney or other instruments as such Executive
Officer may deem necessary or proper in order that the Company may exercise
its said powers and rights.

ARTICLE V.
----------

Shares and Their Transfer
-------------------------

Examination of Books
--------------------

Section 1. CERTIFICATES FOR STOCK. Every holder of stock of the
Company shall be entitled to have a certificate or certificates, in such
form as the Board shall prescribe, certifying the number of shares of stock
of the Company owned by the stockholder. The certificates representing
shares of such stock shall be numbered in the order in which they shall be
issued and shall be signed in the name of the Company by the person who was
at the time of signing the Chairman, President and Chief Executive Officer,
or an Executive Officer and by the person who was at the time of signing the
Treasurer or an Assistant Treasurer and its seal may be affixed thereto;
provided, however, that the signature of such Executive Officer of the
Company and of such Treasurer or Assistant Treasurer and the seal of the
Company may be facsimile. In case any officer or officers of the Company who
shall have signed, or whose facsimile signature or signatures shall have
been used on, any such certificate or certificates shall cease to be such
officer or officers, whether because of death, resignation or otherwise,
before such certificate or certificates shall have been delivered by the
Company such certificate or certificates may nevertheless be adopted by the
Company and be issued and delivered as though the person or persons who
signed such certificate or certificates, or whose facsimile signature or
signatures shall have been used thereon, had not ceased to be such officer
or officers. A record shall be kept of the respective names of the persons,
firms or corporations owning the stock represented by certificates for stock
of the Company, the number of shares represented by such certificates,
respectively. and the respective dates thereof, and in case of cancellation,
the respective dates of cancellation. Every certificate surrendered to the
Company for exchange or transfer shall be canceled and a new certificate or
certificates shall not be issued in exchange for any existing certificate
until such existing certificate shall have been so canceled except in cases
provided for in Section 4 of this Article V.

Section 2. TRANSFERS OF STOCK. Transfers of shares of the stock of
the Company shall be made only on the books of the Company by the registered
holder thereof, or by his or her attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Company, or with
a transfer clerk or a transfer agent appointed as in Section 3 of this
Article V provided, and upon surrender of the certificate or certificates
for such shares properly endorsed and payment of all taxes thereon. The
person in whose name shares of stock stand on the books of the Company shall
be deemed the owner thereof for all purposes as regards the Company.
<PAGE>
<PAGE 10>

Section 3. REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates for stock of
the Company. The Board may appoint or authorize any officer or officers to
appoint one or more transfer clerks, any of whom may be employees of the
Company, or one or more transfer agents and one or more registrars, and may
require all certificates for stock to bear the signature or signatures of
any of them; provided, however, that the signature of any transfer clerk,
transfer agent, or registrar may be facsimile. In case any transfer clerk,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such transfer clerk,
transfer agent, or registrar before such certificate is issued, it may be
issued by the Company with the same effect as if he were such transfer
clerk, transfer agent, or registrar at the date of issue.

Section 4. LOST, DESTROYED AND MUTILATED CERTIFICATES. The owner
of any stock of the Company shall immediately notify the Company of any
loss, destruction or mutilation of the certificate therefor, and the Company
may issue a new certificate of stock in the place of any certificate
theretofore issued by it, alleged to have been lost or destroyed, and the
Board may, in its discretion, require the owner of the lost or destroyed
certificate, or his or her legal representatives. to give the Company a bond
in such sum, limited or unlimited, and in such form and with such surety or
sureties, as the Board shall in its uncontrolled discretion determine, to
indemnify the Company against any claim that may be made against it on
account of the alleged loss or destruction of any such certificate, or the
issuance of such new certificate.

Section 5. RECORD DATE. To determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to
any other action. If no record date is fixed by the Board of Directors:

(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding
the day on which notice is given.

(b) The record date for determining stockholders for any
other purpose shall be at the close of business on the
day on which the Board of Directors adopts the
resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the Board of Directors shall fix a new record date for the adjourned
meeting.

Section 6. EXAMINATION OF BOOKS BY STOCKHOLDERS. The Board may
determine, from time to time, whether and to what extent, at what times and
places, and under what conditions and regulations, the accounts and books of
the Company, or any of them, shall be open to the inspection of the
stockholders, and no stockholder shall have any right to inspect any account
or book or document of the Company, except as conferred by the laws of the
State of Delaware or as authorized by resolution adopted by the Board or by
the stockholders of the Company entitled to vote in respect thereof.
<PAGE>
<PAGE 11>
ARTICLE VI.
-----------

Offices, Etc.
-------------

Section 1. REGISTERED OFFICE. The registered office of the Company
in the State of Delaware shall be in the City of Wilmington, County of New
Castle, and the name of the resident agent in charge thereof shall be The
Corporation Trust Company.

Section 2. OTHER OFFICES. The Company also may have an office or
offices other than said principal office at such place or places, either
within or without the State of Delaware, as provided in these By-laws or as
the Board may from time to time appoint or as the business of the Company
may require.

Section 3. BOOKS AND RECORDS. Except as otherwise required by law,
the Certificate of Incorporation or these By-laws, the Company may keep the
books and records of the Company in such place or places within or without
the State of Delaware as the Board may from time to time by resolution
determine or the business of the Company may require; provided, however, the
principal accounting books and records of the Company, including the records
of meetings of the Board of Directors, shall be kept at the chief executive
office of the Company in Chicago, Illinois, unless otherwise determined by
resolution of the Board of Directors.

ARTICLE VII.
------------

Dividends
---------

Subject to the provisions of law, of the Certificate of Incorporation
of the Company and of these By-laws, the Board may declare and pay dividends
upon the shares of the stock of the Company either (a) out of its net assets
in excess of its capital as computed in accordance with the provisions of
the laws of the State of Delaware or (b) in case there shall be no such
excess, out of its net profits for the fiscal year then current and/or the
preceding fiscal year, whenever and in such amounts as, in the opinion of
the Board, the condition of the affairs of the Company shall render it
advisable. Dividends upon the shares of stock of the Company may be declared
at any regular meeting of the Board of Directors and also at a special
meeting, if notice of such proposed action is given as provided in Section
10 of Article II of these By-laws.

ARTICLE VIII.
-------------

Seal
----

The Board shall provide a corporate seal, which shall be in the form of
a circle and shall bear the full name of the Company and the words and
figures "Incorporated 1987 Delaware", or words and figures of similar
import. The seal or a facsimile thereof may be impressed or affixed or
reproduced or other use made thereof by the Secretary or any Assistant
Secretary or any other officer authorized by the Board.

ARTICLE IX.
-----------

Fiscal Years
------------

The fiscal year of the Company shall end on the thirty-first day of
October in each year.
<PAGE>
<PAGE 12>
ARTICLE X.
----------

Waiver of Notices
-----------------

Whenever any notice whatever is required to be given by these By-laws
or by the Certificate of Incorporation of the Company or by the General
Corporation Law of the State of Delaware, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.

ARTICLE XI.
-----------

Indemnification
---------------

Section 1. COVERAGE. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she is or was a director or
officer of the Company (which term shall include any predecessor corporation
of the Company) or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans ("indemnitee"), whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless
by the Company to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits
the Company to provide broader indemnification rights than said law
permitted the Company to provide prior to such amendment), against all
expenses, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided however, that,
except as provided in Section 2 of this Article XI with respect to
proceedings to enforce rights to indemnification, the Company shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors. The right to
indemnification conferred in this Article XI shall be a contract right and
shall include the right to be paid by the Company the expenses incurred in
defending any such proceeding in advance of its final disposition; provided
however, that, if the Delaware General Corporation Law requires, the payment
of such expenses incurred by a director or officer in his or her capacity as
a director or officer (and not in any other capacity in which service was or
is rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Company of an undertaking, by or on
behalf of such indemnitee, to repay all amounts so advanced if it ultimately
be determined by final judicial decision from which there is no further
right to appeal that such indemnitee is not entitled to be indemnified for
such expenses under this Article XI or otherwise.
<PAGE>
<PAGE 13>

Section 2. CLAIMS. If a claim under Section 1 of this Article XI
is not paid in full by the Company within sixty (60) days after a written
claim has been received by the Company, except in the case of a claim for
expenses incurred in defending a proceeding in advance of its final
disposition, in which case the applicable period shall be twenty (20) days,
the indemnitee may at any time thereafter bring suit against the Company to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit or in a suit brought by the Company to recover payments by the
Company of expenses incurred by an indemnitee in defending in his or her
capacity as a director or officer, a proceeding in advance of its final
disposition, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such claim. In any action brought by the indemnitee
to enforce a right to indemnification hereunder (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding
in advance of its final disposition where the required undertaking, if any,
has been tendered to the Company) or by the Company to recover payments by
the Company of expenses incurred by an indemnitee in defending, in his or
her capacity as a director or officer, a proceeding in advance of its final
disposition, the burden of proving that the indemnitee is not entitled to be
indemnified under this Article XI or otherwise shall be on the Company.
Neither the failure of the Company (including the Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Company (including the Board of
Directors, independent legal counsel or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall be a
presumption that the indemnitee has not met the applicable standard of
conduct, or in the case of such an action brought by the indemnitee, be a
defense to the action.

Section 3. RIGHTS NOT EXCLUSIVE. The rights conferred on any
person by Sections 1 and 2 of this Article XI shall not be exclusive of any
other right which such person may have or hereafter acquire under any
statute, this certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.

Section 4. INSURANCE. The Company may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of
the Company or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Company would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.

Section 5. EMPLOYEES. Persons who are not included as indemnities
under Section 1 of this Article XI but are employees of the Company or any
subsidiary may be indemnified to the extent authorized at any time or from
time to time by the Board of Directors.

ARTICLE XII.
------------

Amendments
----------

These By-laws as they shall be at any time may be amended, altered or
repealed by the Board of Directors at any regular meeting of the Board of
Directors or at any special meeting if the proposed amendment, alteration or
repeal is stated in the notice of the special meeting; but any by-laws made
by the Board may be altered, amended or repealed by the stockholders in the
manner provided in the Certificate of Incorporation of the Company.
<PAGE>
<PAGE 14>
ARTICLE XIII.
-------------

National Emergency
------------------

Section 1. DEFINITION AND APPLICATION. For the purposes of this
Article XIII the term "national emergency" is defined as an emergency
situation resulting from an attack upon the United States, a nuclear
disaster within the United States, a catastrophe, or other emergency
condition, as a result of which attack, disaster, catastrophe or emergency
condition a quorum of the Board of Directors cannot readily be convened for
action. Persons not directors of the Company may conclusively rely upon the
determination by the Board of Directors of the Company, at a meeting held or
purporting to be held pursuant to this Article XIII that a national
emergency as hereinabove defined exists regardless of the correctness of
such determination made or purporting to be made as hereinafter provided.
During the existence of a national emergency the provisions of this Article
XIII shall become operative, but, to the extent not inconsistent with such
provisions, the other provisions of these By-laws shall remain in effect
during any national emergency and upon its termination the provisions of
this Article XIII shall cease to be operative.

Section 2. MEETINGS, ETC. When it is determined in good faith by
any director that a national emergency exists, special meetings of the Board
of Directors may be called by such director. The director calling any such
special meeting shall make a reasonable effort to notify all other directors
of the time and place of such special meeting, and such effort shall be
deemed to constitute the giving of notice of such special meeting, and every
director shall be deemed to have waived any requirement, of law or
otherwise, that any other notice of such special meeting be given. At any
such special meeting two directors shall constitute a quorum for the
transaction of business including without limiting the generality hereof the
filling of vacancies among directors and officers of the Company and the
election of additional Executive Officers, Assistant Controllers, Assistant
Secretaries and Assistant Treasurers. The act of a majority of the directors
present thereat shall be the act of the Board of Directors. If at any such
special meeting of the Board of Director there shall be only one director
present, such director present may adjourn the meeting from time to time
until a quorum is obtained, and no further notice thereof need be given of
any such adjournment.

The directors present at any such special meeting shall make reasonable
effort to notify all absent directors of any action taken thereat, but
failure to give such notice shall not affect the validity of the action
taken at any such meeting. All directors, officers, employees and agents of,
and all persons dealing with, the Company, if acting in good faith, may
conclusively rely upon any action taken at any such special meeting.

Section 3. AMENDMENT. The Board of Directors shall have the power
to alter, amend, or repeal any of these By-laws by the affirmative vote of
at least two-thirds (2/3) of the directors present at any special meeting
attended by two (2) or more directors and held in the manner prescribed in
Section 2 of this Article XIII, if it is determined in good faith by said
two- thirds (2/3) that such alteration, amendment or repeal would be
conducive to the proper direction of the Company's affairs.

Section 4. SUBSTITUTE DIRECTORS. To the extent required to
constitute a quorum at any meeting of the Board of Directors during a
national emergency, the officers of the Company who are present shall be
deemed, in order of rank of office and within the same rank in order of
election or appointment of such offices, directors for such meeting.

EXHIBIT 4

NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
AND SUBSIDIARIES
-------------------------------------------

INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
INCLUDING INDENTURES

The following instruments of Navistar International Transportation Corp.
and its principal subsidiary Navistar Financial Corporation defining the
rights of security holders are incorporated herein by reference.

4.1 Indenture, dated as of March 1, 1968, between Navistar
International Transportation Corp. and Manufacturers Hanover
Trust Company, as Trustee, and succeeded by FIDATA Trust
Company of New York, as successor Trustee, for 6 1/4% Sinking
Fund Debentures due 1998 for $50,000,000. Filed on
Registration No. 2-28150.

4.2 Indenture, dated as of June 15, 1974, between Navistar
International Transportation Corp. and Harris Trust and Savings
Bank, as Trustee, and succeeded by Commerce Union Bank, now known
as Sovran Bank/Central South, as successor Trustee, for 9% Sinking
Fund Debentures due 2004 for $150,000,000. Filed on Registration
No. 2-51111.

4.3 Indenture, dated as of September 22, 1989, between Navistar
Financial Corporation, the First National Bank of Chicago, as
Trustee, succeeded by Bank One, Columbus, N.A., as successor
Trustee, for $400,000,000 of debt securities on terms to be
determined at time of sale. Filed on Registration No. 33-31003.

4.4 Indenture, dated as of November 15, 1993, between Navistar
Financial Corporation and Bank of America, Illinois formerly
known as Continental Bank, National Association, as Trustee,
for 8 7/8% Senior Subordinated Notes due 1998 for $100,000,000.
Filed on Registration No. 33-50541

======

Instruments defining the rights of holders of other unregistered
long-term debt of Navistar and its subsidiaries have been omitted from
this exhibit index because the amount of debt authorized under any
such instrument does not exceed 10% of the total assets of the Registrant
and its consolidated subsidiaries. The Registrant agrees to furnish
a copy of any such instrument to the Commission upon request.

E-2

EXHIBIT 10

NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
AND SUBSIDIARIES
-------------------------------------------

MATERIAL CONTRACTS

The following documents of Navistar International Transportation Corp.
and its principal subsidiary Navistar Financial Corporation are incorporated
herein by reference.

10.1 Pooling and Servicing Agreement dated as of December 1, 1990,
between Navistar Financial Corporation as Servicer, Navistar
Financial Securities Corporation as Purchaser, with respect
to Dealer Note Trust 1990. Filed on Registration No. 33-36767.

10.2 Form of Executive Severance Agreement which is executed with all
executive officers dated September 14, 1992. Commission File
No. 1-5236.

10.3 Security, Pledge and Trust Agreement between Navistar Financial
Corporation and Bankers Trust Company, Trustee, dated as of
April 26, 1993. Filed on Form 8-K dated April 30, 1993.
Commission File No. 1-4146-1.

10.4 Amended and Restated Purchase Agreement among Truck Retail
Instalment Paper Corp., as Seller, Navistar Financial
Corporation, certain purchasers, Chemical Bank and Bank of
America, Illinois formerly known as Continental Bank N.A.
as Co-Agents, and J. P. Morgan Delaware as Administrative
Agent, dated as of April 26, 1993. Filed on Form 8-K dated
April 30, 1993. Commission File No. 1-4146-1.

10.5 Indenture dated as of November 10, 1993 between Navistar
Financial 1993-A Owner Trust and The Bank of New York, as
Indenture Trustee, with respect to Navistar Financial
1993-A Owner Trust. Filed on Registration No. 33-50291.

10.6 Navistar 1994 Performance Incentive Plan. Filed as Appendix
to Proxy Statement dated January 27, 1994. Commission
File No. 1-9618.

10.7 Indenture dated as of May 3, 1994 between Navistar Financial
1994-A Owner Trust and The Bank of New York, as Indenture
Trustee, with respect to Navistar Financial 1994-A Owner Trust.
Filed on Registration No. 33-50291.

10.8 Indenture dated as of August 3, 1994 between Navistar Financial
1994-B Owner Trust and The Bank of New York, as Indenture
Trustee, with respect to Navistar Financial 1994-B Owner Trust.
Filed on Registration No. 33-50291.

10.9 Amended and Restated Credit Agreement dated as of November 4,
1994 among Navistar Financial Corporation, certain banks,
certain Co-Arranger banks, and Morgan Guaranty Trust Company of
New York, as Administrative Agent. Filed on Form 8-K dated
November 4, 1994. Commission File No. 1-4146-1.

E-3
<PAGE>
<PAGE 2>

EXHIBIT 10 (CONTINUED)

NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
AND SUBSIDIARIES
-------------------------------------------

MATERIAL CONTRACTS

10.10 Liquidity Agreement dated as of November 7, 1994 among
NFC Asset Trust, as Borrower, Chemical Bank, Bank of America
Illinois, The Bank of Nova Scotia, and Morgan Guaranty Trust
Company of New York, as Co-Arrangers, and Chemical Bank, as
Administrative Agent. Filed on Form 8-K dated November 4, 1994.
Commission File No. 1-4146-1.

10.11 Indenture dated as of December 15, 1994 between Navistar
Financial 1994-C Owner Trust and the Bank of New York, as
Indenture Trustee, with respect to Navistar Financial 1994-C
Owner Trust. Filed on Registration No. 33-55865.

10.12 Indenture dated as of May 25, 1995, between Navistar Financial
1995-A Owner Trust and The Bank of New York, as Indenture
Trustee, with respect to Navistar Financial 1995-A Owner Trust.
Filed on Registration 33-55865.

10.13 Indenture dated as of November 1, 1995, between Navistar
Financial 1995-B Owner Trust and The Bank of New York, as
Indenture Trustee, with respect to Navistar Financial 1995-B
Owner Trust. Filed on Registration 33-55825.

E-4

<ARTICLE> 5
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<CASH> 442
<SECURITIES> 226
<RECEIVABLES> 1,859
<ALLOWANCES> (28)
<INVENTORY> 416
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,447
<DEPRECIATION> (764)
<TOTAL-ASSETS> 4,081
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,380
<COMMON> 785
0
0
<OTHER-SE> (2,307)
<TOTAL-LIABILITY-AND-EQUITY> 4,081
<SALES> 6,125
<TOTAL-REVENUES> 6,326
<CGS> 5,289
<TOTAL-COSTS> 5,784
<OTHER-EXPENSES> 206
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 173
<INCOME-PRETAX> 158
<INCOME-TAX> (56)
<INCOME-CONTINUING> 102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Transportation has adopted an unclassified presentation in the Statement of
Financial Condition.
</FN>

</TABLE>

Exhibit 28.1

UNITED STATES 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 October 31, 1995

[ ] 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 1-4146-1
-----------------

NAVISTAR FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware 36-2472404
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

2850 West Golf Road
Rolling Meadows, Illinois 60008
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code 847-734-4275

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days. Yes X No__

As of December 31, 1995, the number of shares outstanding of the
registrant's common stock was 1,600,000.

THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF NAVISTAR
INTERNATIONAL TRANSPORTATION CORP. AND MEETS THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTION J(1) (a) AND (b) OF FORM 10-K AND IS
THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES

FORM 10-K

Year Ended October 31, 1995
<TABLE>
<CAPTION>
INDEX
10-K Page
PART I
<S> <C> <C>
Item 1. Business (A) 1
Item 2. Properties (A) 1
Item 3. Legal Proceedings 1
Item 4. Submission of Matters to a Vote of
Security Holders (A) 1

PART II

Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 2
Item 6. Selected Financial Data (A) 2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (A) 3
Item 8. Financial Statements and Supplementary Data 9
Independent Auditors' Report 39
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 40

PART III

Item 10. Directors and Executive Officers of the
Registrant (A) 40
Item 11. Executive Compensation (A) 40
Item 12. Security Ownership of Certain Beneficial Owners
and Management (A) 40
Item 13. Certain Relationships and Related
Transactions (A) 40
PART IV

Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 40

SIGNATURES - Principal Accounting Officer 41
- Directors 42

POWER OF ATTORNEY 42

EXHIBITS E-1

(A) - Omitted or amended as the registrant is a wholly-owned
subsidiary of Navistar International Transportation Corp. and
meets the conditions set forth in General Instructions J(1) (a)
and (b) of Form 10-K and is, therefore, filing this Form with
reduced disclosure format.
</TABLE>
<PAGE>
PART I

Item 1. Business

The registrant, Navistar Financial Corporation ("NFC"), was
incorporated in Delaware in 1949 and is a wholly-owned subsidiary
of Navistar International Transportation Corp.
("Transportation"), which is wholly-owned by Navistar
International Corporation ("Navistar"). As used herein, the
"Corporation" refers to Navistar Financial Corporation and its
wholly-owned subsidiaries unless the context otherwise requires.

The Corporation provides wholesale, retail, and to a lesser
extent, lease financing in the United States for sales of new and
used trucks sold by Transportation and Transportation's dealers.
The Corporation also finances wholesale accounts and selected
retail accounts receivable of Transportation. Sales of new
products (including trailers) of other manufacturers are also
financed regardless of whether designed or customarily sold for
use with Transportation's truck products. Harco National
Insurance Company, NFC's wholly-owned insurance subsidiary,
provides commercial physical damage and liability insurance
coverage to Transportation's dealers and retail customers, and to
the general public through the independent insurance agency
system.

Item 2. Properties

The Corporation uses leased facilities to carry out most of the
administrative and finance sales activities.

Item 3. Legal Proceedings

During 1992, auditors of the Illinois Department of Revenue
("Department") began an income tax audit of NFC for the fiscal
years ended October 31, 1989, 1990 and 1991. On February 1,
1994, the Department issued a Notice of Deficiency to NFC for
approximately $11.9 million. The Department has taken the
position that nearly 100% of NFC's income during these years
should be attributed to and taxed by Illinois. NFC maintains
that the Department's interpretation and application of the law
is incorrect and improper, and that the Department's intended
result is constitutionally prohibited. NFC's outside counsel is
of the opinion that it is more likely than not that NFC's
position will prevail such that the Department's action will not
have a material impact on NFC's earnings and financial position.

In May 1993, a jury issued a verdict in favor of Vernon Klein
Truck & Equipment, Inc. ("Klein Truck") and against
Transportation and the Corporation in the amount of $10.8 million
in compensatory damages and $15 million in punitive damages.
Transportation appealed the verdict and, in November 1994, the
Court of Appeals of the State of Oklahoma reversed the verdict
and entered judgment in favor of Transportation on virtually all
aspects of the case. Klein Truck appealed to the Oklahoma
Supreme Court where the case is now pending.

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

Intentionally omitted. See the index page of this Report
for explanation.
<PAGE>
PART II
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 29
</TABLE>

Item 6. Selected Financial Data

Intentionally omitted. See the index page to this Report for
explanation.
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations

Customer demand for Class 5 through 8 trucks remained high
in 1995, as the strength in the U.S. economy experienced during
fiscal 1994 continued during fiscal 1995. As a result of the
strong truck industry and economy, the financial strength and
cash flows of many NFC customers continued to improve and NFC's
delinquencies and losses remained low. The strong economy also
contributed to high liquidity in the commercial financing markets
during 1995. As a result, many financial institutions have
increased their loan activity which gives NFC's customers more
financing alternatives than normal. This competition has caused
NFC to increase marketing efforts of its retail financing
products and services and to reduce finance rates during the
fiscal year.

Financing Volume

The Corporation's serviced receivables portfolio, which
includes sold receivables, totaled $3.2 billion at October 31,
1995, up from $2.5 billion and $2.2 billion at October 31, 1994
and 1993, respectively. The increases year over year reflect the
continued growth in the truck industry. During 1995, the
Corporation supplied 93% of the wholesale financing of new trucks
sold to Transportation's dealers, unchanged from 1994 and up from
90% in 1993. Acquisitions of wholesale notes increased $672
million, 29%, to $2,979 million in 1995 after a 17% increase to
$2,307 million in 1994 from 1993. Serviced wholesale note
balances were $854 million at October 31, 1995, up from $577
million and $559 million at October 31, 1994 and 1993,
respectively.

Acquisitions of retail notes and leases, net of unearned
finance income, increased 20% to $1.1 billion in 1995 after a 19%
increase to $.9 billion in 1994 from $.8 billion in 1993. The
higher level of financing activity reflects increased sales by
Transportation, especially of heavy trucks. The Corporation's
share of the retail financing of new trucks manufactured by
Transportation and sold in the United States was 14.4% in 1995
compared with 15.3% in 1994 and 1993. The Corporation's reduced
penetration level of retail financing of Transportation's sales
in 1995 was a result of competition and liquidity in the
commercial financing markets. Serviced retail notes and lease
financing balances were $1.9 billion at October 31, 1995,
compared with $1.6 billion and $1.4 billion at October 31, 1994
and 1993, respectively.

Owned net finance receivables balances, including
subordinated interests in retail and wholesale receivables,
increased to $1.5 billion at October 31, 1995, from $1.2 billion
at October 31, 1994, and $1.3 billion at October 31, 1993. The
increase in owned receivable balances resulted from higher
financing volumes, partially offset by increases in sold note
balances. Sold retail receivables balances increased to $1.2
billion at October 31, 1995, from $1.0 billion and $.5 billion at
October 31, 1994 and 1993, respectively. Sold wholesale note
balances were $500 million at October 31, 1995, a $200 million
increase over 1994 and 1993.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)

Results of Operations

The components of net income for the three years ended
October 31 are as follows:
<TABLE>
<CAPTION>
($ Millions) 1995 1994 1993
<S> <C> <C> <C>
Income before income taxes:
Finance operations $53.1 $49.9 $51.6
Insurance operations 5.6 5.3 1.1
Supplemental Trust contribution - - (3.7)
Income before taxes
and cumulative effect 58.7 55.2 49.0
Taxes on income 22.5 21.2 17.7
Cumulative effect of changes in
accounting policy - - 8.8
Net income $36.2 $34.0 $22.5
</TABLE>

Income before taxes in 1995 was $58.7 million, a 6% increase
from $55.2 million in 1994. Finance operations' income in 1995
was $3.2 million higher than 1994 as a result of higher finance
receivables to support the demand for Transportation truck
products and improvement in the Corporation's borrowing spread
over market interest rates. This increase was partially offset
by lower gains on sales of retail notes. Gains on sales of
retail note receivables during 1995 were $5.2 million on sales of
$740 million compared with gains of $11.8 million on sales of
$1,033 million in 1994. Lower gains on sales resulted from
reduced sales volumes and lower margins on retail note
acquisitions from the second half of fiscal 1994 through the
first quarter of fiscal 1995, as rising interest costs to fund
retail note acquisitions could not be offset fully by increased
retail note pricing. In a rising interest rate environment, this
margin contraction is a typical occurrence for NFC as retail
truck customers generally require finance rate commitments on
purchases of trucks 30 to 90 days in advance of delivery. In
addition, the Corporation funds the majority of its retail notes
by selling the notes in the public market and the effective
interest rate for each sale is based on a market interest rate at
the time of sale which may be up to six months after the truck
delivery date. The gains on sales in fiscal 1994 were primarily
on sales in November and December, prior to the increase in
market interest rates. During the last half of fiscal 1995,
margins on retail note acquisitions have improved as market
interest rates have declined; however, margins remain below
historical levels due to increased competition in the commercial
financing markets.

Income before taxes of $55.2 million in 1994 increased 13%
from $49.0 million in 1993, which included a $3.7 million pretax
charge for the Corporation's portion of the Supplemental Trust
contribution. See note 10 to the Consolidated Financial
Statements. Finance operations' income in 1994 was $1.7 million
lower than 1993 as a result of lower margins on retail financing
and gains of $2.4 million less than those on 1993 sales of retail
receivables offset in part by the increased volume of wholesale
financing to support the increased demand for trucks. The
Corporation's insurance subsidiary's 1994 income increased $4.2
million over 1993 as a result of improved
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)

Results of Operations (Continued)

underwriting results on truck liability insurance. The more
significant elements of revenue and expense impacting net income
for these years are discussed in the following paragraphs.

Total revenue for 1995 was $228 million compared with $211
million and $232 million in 1994 and 1993, respectively. Retail
note and lease financing revenue was $73 million in 1995 compared
with $71 million and $102 million in 1994 and 1993, respectively.
The 1995 improvement over 1994 is due to higher financing volume
offset in part by lower gains on sold notes. Revenue in 1994 was
30% below 1993 as a higher proportion of retail notes was
financed through the sale of receivables as the Corporation
gained access to the asset-backed securitized market. When
receivables are sold only the net gains on the sales, rather than
the individual components of revenue and expense, are reported in
the Statement of Consolidated Income.

Wholesale note revenue increased 38% in 1995 to $54 million
and increased 22% in 1994 from 1993 as a result of higher average
outstanding note balances in support of increased demand for
Transportation truck products. In addition, revenue in 1995
increased from higher average yields relating to a higher prime
interest rate.

Revenue from accounts increased in 1995 to $29 million from
$22 million and $18 million in 1994 and 1993, respectively. The
increase in 1995 and 1994 resulted from higher average
outstanding balances in support of increased demand for
Transportation truck products. In addition, revenue in 1995
increased from higher average yields relating to a higher prime
interest rate.

Servicing fee income increased to $18 million in 1995 from
$17 million in 1994 and $11 million in 1993 as a result of higher
levels of sold note receivable balances which the Corporation
continues to service.

Insurance premiums earned by Harco decreased 12% to $45
million in 1995 from $51 million in 1994 and 11% in 1994 from
1993. The decreases in 1995 and 1994 reflect reductions in
written premiums of truck liability lines in response to adverse
loss experience in those lines and to increased competition.

Borrowing costs increased 20% in 1995 to $84 million from
$70 million and $79 million in 1994 and 1993, respectively. The
increase in 1995 from 1994 is primarily the result of higher debt
balances to support increased wholesale note and account balances
and higher market interest rates. These increased borrowing
costs were offset by an improvement in the Corporation's
borrowing spread over market interest rates as a result of the
amended revolving debt agreement and the asset-backed commercial
paper ("ABCP") program. See note 9 to the Consolidated Financial
Statements. The decrease between 1994 and 1993 was the result of
reduced debt required to finance the lower level of owned retail
receivables, offset in part by higher interest rates. The ratio
of debt to equity was 5.2:1, 4.8:1 and 5.5:1 at October 31, 1995,
1994 and 1993, respectively.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)

Results of Operations (Continued)

On July 1, 1993, Navistar implemented a restructured retiree
health care and life insurance plan (the "Plan"), as discussed in
note 10 to the Consolidated Financial Statements. As part of the
Plan, Navistar contributed $300 million to pre-fund Plan benefit
liabilities and common stock valued at $513 million to a
Supplemental Benefit Trust to help pay for Plan benefits in the
future. The Corporation recognized $3.7 million of expense as
its portion of the Supplemental Benefit Trust contribution.

Credit, collection and administrative expenses of $28
million were $2 million higher than 1994 primarily as a result of
the provision for payments to employees as provided by
Transportation's profit sharing agreement and the Corporation's
management incentive programs. In addition, costs were higher
due to increased retail note marketing efforts.

The provision for losses on receivables totaled $2.6 million
in 1995 compared with $2.3 million in 1994 and $1.5 million in
1993. Truck note and account write-offs (recoveries), including
those on sold notes, totaled $(.8) million in 1995, $.9 million
in 1994, and $.7 million in 1993. The provision amount exceeded
the write-offs (recoveries) due to growth of receivables
financed. At October 31, 1995, the Corporation's allowance for
losses equaled .62% of net financing receivables, including sold
receivables, compared with .65% and .69% as of October 31, 1994
and 1993, respectively.

Insurance claims and underwriting expenses decreased to $47
million in 1995 from $54 million and $65 million in 1994 and
1993, respectively. The decline resulted from decreases in
losses incurred in Harco's truck liability insurance lines.
Additionally, insurance operating expenses were lower as a result
of decreased commission costs associated with lower volumes of
premiums written through general agents.

Liquidity and Funds Management

The Corporation's operations are substantially dependent
upon the production and sale of Transportation's truck products.
Navistar Financial has traditionally obtained the funds to
provide financing to Transportation's dealers and retail
customers from commercial paper, short- and long-term bank
borrowings, medium- and long-term debt issues, sales of
receivables and equity capital. The current debt ratings of the
Corporation, detailed below, have made bank borrowings and sales
of finance receivables the most economical sources of cash. The
Corporation's insurance operations generate their funds through
internal operations and have no external borrowings.

Receivable sales were a significant source of funding in
1995 and 1994. Through the asset-backed public market, the
Corporation has been able to fund fixed rate retail note
receivables at rates offered to companies with investment grade
ratings. During fiscal 1995, the Corporation sold $740 million
of retail notes, net of unearned finance income, through Navistar
Financial Retail Receivables Corporation ("NFRRC"), a wholly-
owned subsidiary,
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)

Liquidity and Funds Management (Continued)

to two owner trusts. The owner trusts, in turn, sold $714
million of notes and $26 million of certificates to investors.
Net proceeds from these sales were $693 million, after deducting
$2 million for underwriting fees and $45 million to establish
reserve accounts with the trusts as credit enhancement for the
public sales. During 1994, the Corporation sold $1,033 million
of retail notes receivable, $203 million through its bank
receivable purchase facility and $830 million through NFRRC and
owner trusts to public investors. Net proceeds from these sales
were $952 million after the reduction of holdback reserves and
credit enhancement. The net proceeds were used by the
Corporation for general working capital purposes. At October 31,
1995, the remaining shelf registration available to NFRRC for
issuance of asset-backed securities was $1,430 million. On
November 14, 1995, NFRRC filed an additional registration with
the Securities and Exchange Commission providing for the issuance
from time to time of an additional $2,000 million of asset-backed
securities.

Since December 1990, the Corporation has utilized a $300
million revolving wholesale note sales trust providing for the
continuous sale of eligible wholesale notes on a daily basis. On
June 8, 1995, a new Navistar Financial Dealer Note Master Trust
issued $200 million of 9.3 year asset-backed certificates to the
public. The proceeds of $195 million, net of $2 million of
expenses and underwriting fees and $3 million to fund a reserve
account, were used by the Corporation for general working capital
purposes. This issuance of $200 million of certificates during
fiscal 1995 increased NFSC's revolving wholesale note sales
trusts to $500 million. The sales trusts are comprised of three
$100 million pools of notes maturing serially from 1997 to 1999
and the $200 million pool maturing in 2004.

See note 9 to the Consolidated Financial Statements for a
discussion of the Corporation's revolving credit agreement and
asset-backed commercial paper program.

In March 1995, ratings on the Corporation's debt were
upgraded by Moody's Investors Service, Inc. ("Moody's").
Moody's raised its ratings for the Corporation's debt from Ba3 to
Ba2 for senior debt and from B2 to B1 for subordinated debt. In
March 1995, Duff & Phelps confirmed its debt ratings of BB+ for
senior debt and BB for subordinated debt. In October 1993,
ratings on the Corporation's debt were reviewed by Standard and
Poor's Corporation ("Standard and Poor's"). Standard and Poor's
raised its ratings for the Corporation's debt from B- to BB for
senior debt and from CCC to B+ for subordinated debt. The
Corporation's commercial paper is rated "not prime" by Moody's.
<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)

Liquidity and Funds Management (Continued)

In November 1995, the Corporation sold $525 million of
retail notes, net of unearned finance income, through NFRRC to an
owner trust which, in turn, sold $507 million of notes and $18
million of certificates to investors. The proceeds of $499
million, after deducting $1 million for underwriting fees and $25
million to establish a reserve account with the trust as credit
enhancement, were used by the Corporation for general working
capital purposes.

The Corporation manages sensitivity to interest rate changes
by funding floating rate assets with floating rate debt,
primarily borrowings under the bank revolving credit agreement,
and fixed rate assets with fixed rate debt, equity and floating
rate debt. Management has limited the amount of fixed rate
assets funded with floating rate debt by selling retail
receivables on a fixed rate basis and, to a lesser extent, by
utilizing derivative financial instruments. See notes 1 and 13
to the Consolidated Financial Statements. Corporate policy does
not allow the use of derivatives for speculative purposes.

Business Outlook

The demand for heavy trucks is forecast to soften during
fiscal 1996 and correspondingly NFC's wholesale and retail
financing activity is anticipated to be lower in 1996. The
decline in the heavy truck industry may impact the financial
strength of dealers and customers and NFC's ability to maintain
the current level of portfolio quality. Competition will
continue to put pressure on the Corporation's retail note
acquisition activity and retail note margins.

Management believes that collections on the outstanding
receivables portfolio plus cash available from the Corporation's
various funding sources will permit Navistar Financial to meet
the financing requirements of Transportation's dealers and retail
customers through 1996 and beyond.
<PAGE>
Page
Item 8. Financial Statements and Supplementary Data

Navistar Financial Corporation and Subsidiaries:

Statement of Consolidated Income and Retained Earnings
for the years ended October 31, 1995, 1994 and 1993 10
Statement of Consolidated Financial Condition as of
October 31, 1995 and 1994 11
Statement of Consolidated Cash Flow for the years ended
October 31, 1995, 1994 and 1993 12
Notes to Consolidated Financial Statements 13
Supplementary Financial Data 34
Independent Auditors' Report 39
<PAGE>
Navistar Financial Corporation and Subsidiaries

Statement of Consolidated Income and Retained Earnings
Millions of dollars
<TABLE>
<CAPTION>
Note
For the years ended October 31 1995 1994 1993 Reference

<S> <C> <C> <C> <C>
Revenues
Retail notes and lease financing $ 73.3 $ 71.4 $101.9
Wholesale notes 54.1 39.2 32.0
Accounts 29.2 22.2 17.5
Servicing fee income 18.3 17.3 10.6
Insurance premiums earned 44.6 51.1 57.4
Marketable securities 8.7 9.6 12.5
Total 228.2 210.8 231.9

Expenses
Cost of borrowing:
Interest expense 75.1 62.7 74.6 8, 9
Other 9.1 7.1 4.7
Total 84.2 69.8 79.3
Supplemental Trust expense - - 3.7 10
Credit, collection and administrative 27.9 25.9 26.1
Provision for losses on receivables 2.6 2.3 1.5 6
Insurance claims and underwriting 46.7 54.0 65.2
Other expense, net 8.1 3.6 7.1
Total 169.5 155.6 182.9

Income Before Taxes on Income and
Cumulative
Effect of Changes in Accounting Policy 58.7 55.2 49.0

Taxes on Income 22.5 21.2 17.7 7

Income Before Cumulative Effect of Changes
in Accounting Policy 36.2 34.0 31.3

Cumulative Effect of Changes in Accounting - - 8.8 10
Policy

Net Income 36.2 34.0 22.5

Retained Earnings
Beginning of year 56.8 48.4 48.5
Dividends paid (9.0) (25.6) (22.6)
End of year $ 84.0 $ 56.8 $ 48.4 12
</TABLE>

See Notes to Consolidated Financial Statements.
<PAGE>
Navistar Financial Corporation and Subsidiaries

Statement of Consolidated Financial Condition
Millions of dollars
<TABLE>
<CAPTION>
Note
As of October 31 1995 1994 Reference

<S> <C> <C> <C>
ASSETS

Cash and Cash Equivalents $ 2.9 $ 28.3
Marketable Securities 131.8 130.5 4
Receivables
Finance receivables 1,381.3 1,102.2 5
Allowance for losses (10.4) (8.2) 6
Receivables, net 1,370.9 1,094.0
Amounts Due from Sales of Receivables 247.8 193.0 5
Equipment on Operating Leases, Net 39.3 26.6
Repossessions 5.8 1.8
Reinsurance Receivables 24.8 33.7
Other Assets 51.4 26.9

Total Assets $1,874.7 $1,534.8

LIABILITIES AND SHAREOWNER'S EQUITY

Short-Term Debt $ 50.5 $ 419.2 8
Accounts Payable 138.8 63.6
Accrued Income Taxes 12.0 2.3
Accrued Interest 12.1 11.3
Senior and Subordinated Debt 1,279.8 672.3 9
Dealers' Reserves 21.0 18.8
Unpaid Insurance Claims and Unearned Premiums 103.8 121.7
Shareowner's Equity 12
Capital stock (Par value $1.00, 1,600,000
shares issued and outstanding) and
paid-in capital 171.0 171.0
Retained Earnings 84.0 56.8
Unrealized gains (losses) on marketable
securities 1.7 (2.2) 4
Total 256.7 225.6

Total Liabilities and Shareowner's Equity $1,874.7 $1,534.8
</TABLE>

See Notes to Consolidated Financial Statements.
<PAGE>
Navistar Financial Corporation and Subsidiaries

Statement of Consolidated Cash Flow
Millions of dollars
<TABLE>
<CAPTION>
Note
For the years ended October 31 1995 1994 1993 Reference
<S> <C> <C> <C> <C>
Cash Flow From Operations
Net income $ 36.2 $ 34.0 $ 22.5
Adjustments to reconcile net income to
cash provided from operations:
Gains on sales of receivables (5.2) (11.8) (14.2) 5
Depreciation and amortization 11.1 8.7 9.7
Provision for losses on receivables 2.6 2.3 1.5 6
Cumulative effect of changes in
accounting policy - - 8.8
Supplemental Trust expense - - 3.7
Increase (decrease) in accounts payable
and accrued liabilities 5.3 (3.5) (1.8)
Increase in deferred income taxes .5 3.1 3.7
Increase (decrease) in accounts payable
to affiliated companies 73.2 (0.9) 14.3
Increase (decrease) in unpaid insurance
claims and unearned premiums, net of
reinsurance receivables (8.9) (6.5) 10.7
Other (3.6) (5.4) (3.6)
Total 111.2 20.0 55.3
Cash Flow From Investing Activities
Purchase of retail notes and lease
receivables (1,099.5) (915.9) (770.2)
Principal collections on retail notes
and lease receivables 123.4 180.9 337.4
Proceeds from sold retail notes 726.8 994.8 558.2
Acquisitions over cash collections of
wholesale notes and accounts
receivable (77.1) (140.0) (171.9)
Purchase of marketable securities (61.9) (51.8) (58.1)
Proceeds from sales of marketable
securities 67.3 45.1 64.8
Increase in property and equipment
leased to others (18.7) (5.3) (14.2)
Total (339.7) 107.8 (54.0)
Cash Flow From Financing Activities
Net increase in commercial paper 31.3 19.2 -
Net increase (decrease) in
short-term bank borrowings (400.0) 325.0 75.0
Net increase (decrease) in bank
revolving credit facility usage 405.0 (372.0) -
Net increase in asset-backed commercial
paper facility usage 275.8 - -
Principal payments on term debt (100.0) (80.0) (99.0)
Principal payments on subordinated debt - (100.0) -
Proceeds from issuance of subordinated
debt - 100.0 -
Dividends paid to Transportation (9.0) (25.6) (22.6)
Total 203.1 (133.4) (46.6)
Decrease in Cash and Cash Equivalents (25.4) (5.6) (45.3)
Cash and Cash Equivalents at Beginning of
Year 28.3 33.9 79.2
Cash and Cash Equivalents at End of Year $ 2.9 $ 28.3 $ 33.9

Supplementary disclosure of cash flow
information:
Interest paid $ 74.3 $ 64.8 $ 79.3
Income taxes paid $ 14.6 $ 22.1 $ 13.5
</TABLE>

See Notes to Consolidated Financial Statements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE YEARS ENDED OCTOBER 31, 1995

MILLIONS OF DOLLARS

1. SUMMARY OF ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts
of Navistar Financial Corporation ("NFC") and its wholly-owned
subsidiaries ("Corporation"). All significant intercompany
accounts and transactions have been eliminated. All of the
Corporation's capital stock is owned by Navistar International
Transportation Corp. ("Transportation"), which is wholly owned by
Navistar International Corporation ("Navistar").

Revenue on Receivables

Finance charges on retail notes and finance leases are
recognized as income over the terms of the receivables using the
interest method. Interest from interest-bearing notes and
accounts is taken into income on the accrual basis.

Allowance for Losses on Receivables

The Corporation's allowance for losses on receivables is
maintained at an amount management considers appropriate in
relation to the outstanding receivables portfolio. Receivables
are charged off to the allowance for losses as soon as they are
determined to be uncollectible based on a note-by-note review,
after all prelitigation collection efforts have been exhausted.

Repossessions are carried at the lower of the unpaid net receivable
balance or estimated realizable value of the equipment.

Receivable Sales

The Corporation securitizes and sells receivables to public
and private investors with limited recourse. The Corporation
continues to service the receivables, for which a servicing fee
is received. Servicing fees are earned on a level yield basis
over the terms of the related sold receivables and are included
in servicing fee income. In a subordinated capacity, the
Corporation retains excess servicing cash flows, a limited
interest in the principal balances of the sold receivables and
certain cash deposits provided as credit enhancements for
investors. Gains or losses on sales of receivables are credited
or charged to financing revenue in the period in which the sales
occur.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

1. SUMMARY OF ACCOUNTING POLICIES (Continued)

Insurance Operations

Insurance premiums are earned on a pro rata basis over the
terms of the policies. Commission costs and premium taxes
incurred in acquiring business are deferred and amortized on the
same basis as such premiums are earned. The liability for unpaid
insurance claims includes provisions for reported claims and an
estimate of unreported claims based on past experience. Such
provisions include an estimate of loss adjustment expense. The
estimated liability for unpaid insurance claims is regularly
reviewed and updated. Any change in such estimate is reflected
in current operations.

The Corporation's wholly-owned insurance subsidiary, Harco
National Insurance Company ("Harco"), limits its exposure on any
single loss occurrence by ceding reinsurance to other insurance
enterprises. Reinsurance receivables including amounts related
to unpaid insurance claims and prepaid reinsurance premiums are
reported as assets in the Statement of Consolidated Financial
Condition.

Income Taxes

Navistar and its subsidiaries file a consolidated Federal income
tax return which includes Transportation and the Corporation. Federal
income taxes for the Corporation are computed on a separate consolidated
return basis and are payable to Transportation.

Cash and Cash Equivalents

Cash and cash equivalents include money market funds and marketable
securities with original maturities of three months or less, except for
such securities held by the insurance operations which are included in
marketable securities.

Marketable Securities

Marketable securities, which are classified as available-for-sale,
are reported at fair value. Unrealized gains or losses, net of deferred
income taxes, are included as a separate component of shareowner's
equity in the Statement of Consolidated Financial Condition.

Derivative Financial Instruments

The Corporation uses derivatives to reduce risks of interest rate
volatility. All derivative financial instruments are held for
purposes other than trading, and the Corporation's policy does not allow
the use of derivatives for speculative purposes. Gains or losses
related to hedges of anticipated sales of receivables are deferred and are
recognized in income when the receivables are sold.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

1. SUMMARY OF ACCOUNTING POLICIES (Continued)

Reclassification

Certain amounts for prior years have been reclassified to conform
with the presentation used in the 1995 financial statements.

2. TRANSACTIONS WITH AFFILIATED COMPANIES

The Corporation's primary business is the retail, wholesale, and,
to a lesser extent,lease financing of products sold by Transportation
and its dealers within the United States.

Wholesale Notes, Wholesale Accounts and Retail Accounts Revenue

In accordance with the agreements between the Corporation and
Transportation relating to financing of wholesale notes, wholesale
accounts and retail accounts, the Corporation receives interest income
from Transportation at agreed upon interest rates applied to the
average outstanding balances less interest amounts paid by dealers on
wholesale notes and wholesale accounts.

The Corporation purchases wholesale notes and accounts of dealers
from Transportation at the principal amount of the receivables. An
acquisition fee applicable to purchases of wholesale notes secured by new
equipment is charged to Transportation. The retail accounts are accounts
of Transportation customers. Revenue collected from Transportation for
wholesale notes, wholesale and retail accounts and leases was $55.7
in 1995, $50.7 in 1994 and $41.2 in 1993.

Support Agreements

Under provisions of certain public and private financing
arrangements, agreements with Transportation and Navistar provide that
the Corporation's consolidated income before interest expense and income
taxes will be maintained at not less than 125% of its consolidated interest
expense. Since 1984, no maintenance payments have been required under
these agreements.

Administrative Expenses

The Corporation pays a fee to Transportation for data processing
and other administrative services based on the actual cost of services
performed. The amount of the fee was $2.4 in 1995, $2.5 in 1994 and $2.3
in 1993.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

2. TRANSACTIONS WITH AFFILIATED COMPANIES (Continued)

Short-Term Borrowings

The Corporation had daily average short-term borrowings from
Transportation of $93 in 1995 and $83 in 1994 on which interest
accrued at the Corporation's incremental short-term borrowing rate.
These borrowings, including $6 and $4 of interest expense in 1995 and 1994,
respectively, were repaid during each of the fiscal years.

Accounts Payable

Accounts payable include $89.5 and $16.3 payable to Transportation
at October 31, 1995 and 1994, respectively.

3. INDUSTRY SEGMENTS

Information by industry segment is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues:
Finance operations $ 175.1 $ 150.6 $ 164.2
Insurance operations 53.1 60.2 67.7
Total revenue $ 228.2 $ 210.8 $ 231.9

Income before taxes on income and
cumulative effect of changes in
accounting policy:
Finance operations $ 53.1 $ 49.9 $ 47.9
Insurance operations 5.6 5.3 1.1
Total income before taxes on income
and cumulative effect of changes
in accounting policy $ 58.7 $ 55.2 $ 49.0

Assets at end of year:
Finance operations $1,701.9 $1,354.1 $1,473.5
Insurance operations 172.8 180.7 151.7
Total assets at end of year $1,874.7 $1,534.8 $1,625.2
</TABLE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

4. MARKETABLE SECURITIES

The fair value of marketable securities is estimated based
on quoted market prices, when available. If a quoted price is
not available, fair value is estimated using quoted market prices
for similar financial instruments. The difference between
amortized cost and fair value, net of deferred income taxes, is
reflected as a separate component of shareowner's equity.
Shareowner's equity was increased by net unrealized holding gains
of $1.7 as of October 31, 1995, and decreased by net unrealized
holding losses of $2.2 at October 31, 1994. The following table
sets forth, by type of security issuer, the amortized cost and
estimated market values at October 31, 1995 and 1994:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
Cost Gains Losses Value
<S>
October 31, 1995 <C> <C> <C> <C>
U.S. government securities $ 52.8 $ 1.2 $ .1 $ 53.9
Corporate debt securities 32.0 .2 .2 32.0
Mortgage- and
asset-backed securities 32.7 .5 .1 33.1
Foreign governments 1.7 - - 1.7
Total debt securities $119.2 $ 1.9 $ .4 $120.7

Equity securities 10.0 1.7 .6 11.1
Total $129.2 $ 3.6 $ 1.0 $131.8

October 31, 1994
U.S. government securities $ 67.4 $ .4 $ 2.4 $ 65.4
Corporate debt securities 27.7 - .4 27.3
Mortgage- and
asset-backed securities 28.3 .1 .7 27.7
Foreign governments 1.6 - - 1.6
Total debt securities $125.0 $ .5 $ 3.5 $122.0

Equity securities 8.8 .4 .7 8.5
Total $133.8 $ .9 $ 4.2 $130.5
</TABLE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

4. MARKETABLE SECURITIES (Continued)

Contractual maturities of marketable debt securities at
October 31, 1995, are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 21.9 $ 21.9
Due after one year through five years 32.1 32.8
Due after five years through ten years 21.2 21.5
Due after ten years 11.3 11.4
86.5 87.6
Mortgage- and asset-backed securities 32.7 33.1
Total $ 119.2 $ 120.7
</TABLE>

Proceeds from sales or maturities of marketable securities
available for sale were $67.3 during 1995 and $45.1 during 1994.
Gross gains of $.8 and $.9 and gross losses of $.6 and $.2 were
realized on those sales in 1995 and 1994, respectively.

All marketable securities at October 31, 1995 and 1994, were
held by Harco, of which $23.2 and $29.5, respectively, were on
deposit with various state departments of insurance or otherwise
restricted as to use.

5. FINANCE RECEIVABLES

Finance receivable balances, net of unearned finance income,
at October 31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Retail notes and lease financing $ 747.2 $ 513.9

Wholesale notes 268.2 230.6

Accounts:
Retail 316.7 308.2
Wholesale 49.2 49.5
Total 365.9 357.7
Total finance receivables $1,381.3 $1,102.2
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

5. FINANCE RECEIVABLES (Continued)

Contractual maturities of finance receivables including
unearned finance income at October 31, 1995, are summarized as
follows:
<TABLE>
<CAPTION>
Retail Wholesale Accounts
<S> <C> <C> <C>
Due in:
1996 $238.6 $181.3 $365.9
1997 203.0 86.9 -
1998 184.5 - -
1999 139.8 - -
2000 92.5 - -
Due after 2000 7.7 - -
Gross finance receivables 866.1 268.2 365.9
Unearned finance income 118.9 - -
Total finance receivables $747.2 $268.2 $365.9
</TABLE>

The actual cash collections from finance receivables will
vary from the contractual cash flows because of sales,
prepayments, extensions and renewals. The contractual
maturities, therefore, should not be regarded as a forecast of
future collections.

The Corporation sells finance receivables to public and
private investors with limited recourse provisions. Outstanding
sold receivable net balances at October 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Retail notes $1,173.2 $1,046.8
Wholesale notes 500.0 300.0
Total $1,673.2 $1,346.8
</TABLE>

Gains or losses from the sales of receivables are recognized
in the period in which such sales occur. As the allowance for
credit losses is adequately provided prior to the receivable
sales, gains from receivable sales are not reduced for expected
credit losses. Included in "Retail notes and lease financing"
revenue are gains totaling $5.2, $11.8 and $14.2 on retail note
receivable sales of $740, $1,033 and $576 for the fiscal years
ended October 31, 1995, 1994 and 1993, respectively. Gains on
sales of wholesale receivables are not material as a result of
their short maturities.

The Corporation has two wholly-owned subsidiaries, Navistar
Financial Retail Receivables Corporation ("NFRRC") and Navistar
Financial Securities Corporation ("NFSC"), which have a limited
purpose of purchasing retail and wholesale receivables,
respectively, and transferring an undivided ownership interest in
such notes to investors in exchange for pass-through notes and
certificates. These subsidiaries have limited recourse on the
sold
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

5. FINANCE RECEIVABLES (Continued)

receivables and their assets are available to satisfy the claims
of their creditors prior to such assets becoming available to the
Corporation or affiliated companies. During fiscal 1995, in two
separate sales, the Corporation sold a total of $740 of retail
notes, net of unearned finance income, through NFRRC to two
individual owner trusts. The owner trusts, in turn, sold $714 of
notes and $26 of certificates to investors. The proceeds of
$693, after deducting $2 for underwriting fees and $45 to
establish reserve accounts with the trusts as credit enhancement,
were used by the Corporation for general working capital
purposes. At October 31, 1995, the remaining shelf registration
available to NFRRC for issuance of asset-backed securities was
$1,430. On November 14, 1995, NFRRC filed an additional
registration with the Securities and Exchange Commission
providing for the issuance from time to time of an additional
$2,000 of asset-backed securities.

At October 31, 1994, NFSC had in place a $300 revolving
wholesale note sales trust providing for the continuous sale of
eligible wholesale notes on a daily basis. On June 8, 1995, a
new Navistar Financial Dealer Note Master Trust issued $200 of
9.3 year asset-backed certificates to the public. The proceeds
of $195, net of $2 of expenses and underwriting fees and $3 to
fund a reserve account, were used by the Corporation for general
working capital purposes. Under the terms of the sale, the
Corporation increased the amount subordinated to the investor's
interest from $46.5 to $86.5. This issuance of $200 of
certificates during fiscal 1995 increased NFSC's revolving
wholesale note sales trusts to $500. The sales trusts are
comprised of three $100 pools of notes maturing serially from
1997 to 1999 and the $200 pool maturing in 2004.

The Corporation's retained interest in sold receivables and
other related amounts are generally restricted and subject to
limited recourse provisions. Holdback reserves were established
pursuant to the limited recourse provisions of the retail note
sales to private investors. The retail securitized sales
structure requires the Corporation to maintain cash reserves with
the trusts as credit enhancement for public sales. The cash
reserves are held by the trusts and restricted for use by the
securitized sales agreements.
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

5. FINANCE RECEIVABLES (Continued)

The following is a summary of amounts included in "Amounts Due
from Sales of Receivables":
<TABLE>
<CAPTION>
October 31
1995 1994
<S> <C> <C>
Cash held and invested by trusts $ 66.8 $ 51.5
Subordinated retained interests in wholesale
receivables 86.3 46.5
Subordinated retained interests in retail
receivables 12.2 14.1
Holdback reserves 43.7 64.4
Excess servicing fee and other 48.0 24.5
Allowance for credit losses (9.2) (8.0)
Total $247.8 $193.0
</TABLE>

6. ALLOWANCE FOR LOSSES

The allowance for losses on receivables is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Total allowance for losses at beginning of
year $16.2 $14.8 $14.0
Provision for losses 2.6 2.3 1.5
Net (losses) recoveries (charged)
credited to allowance .8 (.9) (.7)
Total allowance for losses at end of
year $19.6 $16.2 $14.8

Allowance pertaining to:
Owned notes $10.4 $ 8.2 $10.9
Sold notes 9.2 8.0 3.9
Total $19.6 $16.2 $14.8
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

7. TAXES ON INCOME

Deferred tax assets and liabilities are generally determined
based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse.
Recognition of deferred tax assets is allowed if future
realization is more likely than not.

Taxes on income are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $18.9 $15.1 $12.0
State and local 3.1 3.0 2.0
Total current 22.0 18.1 14.0

Deferred (primarily Federal) .5 3.1 3.7
Total $22.5 $21.2 $17.7
</TABLE>

The effective tax rate of 38% in 1995 and 1994 and 36% in
1993 differs from the statutory United States Federal tax rate of
35% primarily because of state and local income taxes. Deferred
tax assets and liabilities at October 31, 1995 and 1994,
comprised the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Other postretirement benefits $2.8 $2.7
Unrealized losses on marketable securities - 1.2
Total deferred tax assets 2.8 3.9

Deferred tax liabilities:
Depreciation and other 6.4 5.9
Unrealized gains on marketable securities 1.0 -
Total deferred tax liabilities 7.4 5.9
Net deferred tax liabilities $4.6 $2.0
</TABLE>
During 1992, auditors of the Illinois Department of Revenue
("Department") began an income tax audit of NFC for the fiscal
years ended October 31, 1989, 1990 and 1991. On February 1,
1994, the Department issued a Notice of Deficiency to NFC for
approximately $11.9 million. The Department has taken the
position that nearly 100% of NFC's income during these years
should be attributed to and taxed by Illinois. NFC maintains
that the Department's interpretation and application of the law
is incorrect and improper, and that the Department's intended
result is constitutionally prohibited. NFC's outside counsel is
of the opinion that it is more likely than not that NFC's
position will prevail such that the Department's action will not
have a material impact on NFC's earnings and financial position.
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

8. SHORT-TERM DEBT

Commercial paper is issued by the Corporation with varying
terms. The Corporation also has short-term borrowings with
various banks on a non-committed basis. Compensating cash
balances and commitment fees are not required under these
agreements.

Short-Term Debt at October 31 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commercial paper $50.5 $ 19.2
Short-term bank borrowings - 400.0
Total $50.5 $419.2
</TABLE>

Information regarding short-term borrowings is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Aggregate obligations outstanding:
Daily average $ 37.8 $ 11.7 $ .6
Maximum month-end balance 81.1 419.2 75.0

Weighted average interest rate:
On average daily borrowing 6.4% 5.4% 6.5%
At October 31 6.3% 5.6% 6.5%
</TABLE>

Unused commitments under the Corporation's bank revolving
credit facility and bank liquidity facility supporting the asset-
backed commercial paper program are used as backup for
outstanding short-term borrowings. See also note 9 to the
Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

9. SENIOR AND SUBORDINATED DEBT

Senior and Subordinated Debt outstanding at October 31 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Bank revolving credit, at variable rates,
due October 1998 $ 760.0 $ 355.0

Funding under asset-backed commercial
paper program, at variable rates,
maturing October 1998 302.3 -

Senior term debt:
Notes, medium-term, 9.50%, due 1996 117.5 217.5
Unamortized discount - (.2)
Total senior term debt 117.5 217.3

Subordinated term debt:
Senior Notes, 8 7/8%, due November 1998 100.0 100.0
Total senior and subordinated debt $1,279.8 $ 672.3
</TABLE>

The weighted average interest rate on total debt, including
short-term debt and the effect of discounts and related
amortization, was 7.4%, 7.1% and 6.6% in 1995, 1994 and 1993,
respectively. The aggregate annual maturities and required
payments of debt are as follows: 1996, $117.5; 1998, $1,062.3
and 1999, $100.0.

Effective November 9, 1994, the Corporation amended and
restated its $727 bank revolving credit agreement, extending the
maturity date to October 31, 1998 and expanding the commitment to
$900. In addition, the purchasers' commitments under the $600
retail notes purchase facility agreement were terminated and the
Corporation established a $300 asset-backed commercial paper
("ABCP") program supported by a bank liquidity facility with a
maturity date of October 31, 1998. Under the terms of the ABCP
program, a special purpose wholly-owned subsidiary of NFC
purchases eligible receivables from NFC. All assets of the
subsidiary are pledged to a Trust that funds the receivables with
A1/P1 rated commercial paper. In addition, the assets may be
sold to the Trust.

Available funding under the amended and restated credit
facility and the ABCP program was $148, of which $50 provided
funding backup for the outstanding short-term debt at October 31,
1995. The remaining $98 when combined with unrestricted cash and
cash equivalents made $101 available to fund the general business
purposes of the Corporation at October 31, 1995. While the
amended revolving credit facility removed certain dividend
restrictions, the Corporation is required to maintain tangible
net worth at a minimum of $175 and a debt to tangible net worth
ratio of no greater than 7 to 1. Consistent with the previous
revolving credit agreement, the restated agreement grants
security interests in substantially all of the Corporation's
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

9. SENIOR AND SUBORDINATED DEBT (Continued)

assets to the Corporation's debtholders. Compensating cash
balances are not required under the restated revolving credit
facility. Facility fees are paid quarterly regardless of usage.

As of October 31, 1995, approximately $208 of sold notes was
outstanding under the $600 retail notes purchase facility.
Participants of the facility will continue to own the receivables
during the run-off.

10. RETIREMENT BENEFITS

The Corporation provides postretirement benefits to
substantially all of its employees. Expenses associated with
postretirement benefits include pension expense for employees,
retirees and surviving spouses, and postretirement health care
and life insurance expense for employees, retirees, surviving
spouses and dependents.

The pension plans are non-contributory with benefits related
to an employee's length of service and compensation rate. The
Corporation's policy is to fund its qualified pension plan in
accordance with applicable government regulations and to make
additional payments as necessary to maintain full funding of the
vested accumulated benefit obligation. For plan years which
ended during the current fiscal year, all legal funding
requirements have been met. Plan assets are primarily invested
in a dedicated portfolio of long-term fixed income securities.

In addition to providing pension benefits, the Corporation
provides health care and life insurance for a majority of its
retired employees. For most retirees, these benefits are defined
by the terms of an agreement between Navistar and its employees,
retirees and collective bargaining organizations which provides
for postretirement health care and life insurance benefits (the
"Plan"). The Plan, which was implemented on July 1, 1993,
provided for cost sharing between Navistar and retirees in the
form of premiums, co-payments and deductibles. A trust was
established to provide a vehicle for funding of the health care
liability through Navistar contributions and retiree premiums. A
separate independent Retiree Supplemental Benefit Trust was also
established to potentially reduce retiree premiums, co-payments
and deductibles and provide additional benefits in the future.
During 1993, the Corporation agreed to contribute $3.7 to the
Supplemental Benefit Trust.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

10. RETIREMENT BENEFITS (Continued)

Pension Expense
Net pension cost includes the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost-benefits earned during
the period $ .5 $ 1.0 $ .6
Interest cost on projected benefit
obligation 2.8 2.7 2.8
Return on assets - actual (gain) loss (9.1) 3.3 (8.4)
- deferred gain (loss) 5.8 (6.8) 5.2
Other costs (including amortization of
transition amount) - .1 .1
Net pension cost $ - $ .3 $ .3
</TABLE>

Pension Assets and Liabilities

The plans' funded status and reconciliation to the Statement
of Consolidated Financial Condition as of October 31 were as
follows:
<TABLE>
<CAPTION>
Plan in Which Plan in Which
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits $(31.8) $(25.8) $ (2.2) $ (1.8)
Non-vested benefits (4.0) (3.0) (.1) (.1)
Accumulated benefit
obligation (35.8) (28.8) (2.3) (1.9)
Effect of projected future
compensation levels (.9) (.6) - -
Total projected benefit
obligation (36.7) (29.4) (2.3) (1.9)
Plan assets at fair value 41.5 34.5 - -
Funded status at October 31 4.8 5.1 (2.3) (1.9)
Unrecognized net losses (gains) (4.2) (4.8) .6 .2
Unrecognized plan amendments .5 .5 - -
Unrecognized net obligation
as of transition date .1 .2 - -
Net asset (liability) $ 1.2 $ 1.0 $ (1.7) $ (1.7)
</TABLE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MILLIONS OF DOLLARS

10. RETIREMENT BENEFITS (Continued)

The weighted average rate assumptions used in determining
the projected benefit obligation and pension expense were:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Discount rate used to determine the present
value of the projected benefit obligations 7.5% 9.2% 6.7%
Expected long-term rate of return on plan
assets 9.9% 9.0% 10.0%
Expected rate of increase in future
compensation levels 3.5% 3.5% 3.5%
</TABLE>