<PAGE>   1
                                                                      Exhibit 13

BUSINESS PROFILE

FLAME RETARDANTS

Great Lakes is the world's leading producer of bromine-based flame retardants
used by our customers to impart combustion resistance in a variety of products
and applications. The company recently broadened its technology and opened
additional market opportunities when it began production of non-brominated
flame retardants.

Key Products and Services
The most comprehensive line of bromine-based flame retardants available on the
market. Compounds reacted with or incorporated into combustible materials such
as engineered plastics, urethanes and epoxy resins to reduce or eliminate their
tendency to burn.

Applications and Markets
Textiles, furniture, wire and cable, building and construction materials,
computers and business equipment, consumer electronics devices,automotive.

New Technologies
Great Lakes has developed several new generation derivatives of well
established proprietary PHT4(TM) technology that enhance the performance of our
customers' end products, such as automobile ceiling liners and wire and
cable applications.

Value-Added Opportunities
Building close customer relationships to meet specific requirements, Great
Lakes forms strategic alliances with customers to provide performance solutions
for their resin systems. These close ties yield new technologies Great Lakes
builds upon to develop proprietary products that further strengthen our entire
line of polymer additives.

INTERMEDIATES AND FINE CHEMICALS

Great Lakes produces a broad range of specialty and fine chemicals including
bromine and furfural derivatives. With the only bromine supply on two
continents and a strategic raw materials position in furfural, Great Lakes has
established ISO 9000 certified manufacturing facilities in the United States
and Europe to perform complex fine chemical synthesis at a competitive cost.

Key Products and Services
Bromine and brominated derivatives; furfural-based specialty chemicals;
value-added custom compounds; custom manufacturing of fine and specialty
chemicals.

Applications and Markets
World pharmaceutical industry; agrochemical industry; electronics; industrial
cleansers; custom manufacturing; soil, crop and structural pest control;
photographic papers and films; foundry industry; lube oil refining; engineered
plastics and fabrics.

New Technologies
Advances in manufacturing technology make Great Lakes the leading choice for an
increasing number of companies that outsource complex chemical production
needs. Established manufacturing capacity in the United States and Europe
positions the company to meet customer needs worldwide.

Value-Added Opportunities
Alkyl bromides--Great Lakes utilizes its bromine chemistry expertise to develop
high value-added bromine derivatives, which at the same time benefit the
environment and provide several high-margin, environmentally friendly products
with high growth market potential.

PETROLEUM ADDITIVES

Through its Octel Associates subsidiary, Great Lakes is the global leader in
the production and distribution of certain high-performance fuel additives and
petroleum specialties. Our quality products impart valuable
performance-enhancing characteristics in a growing number of diverse
applications while satisfying stringent environmental standards.

Key Products and Services
Gasoline antiknock boosters; cetane number improvers; multifunctional gasoline
and diesel fuel additives and detergents; corrosion and static inhibitors;
antioxidants; stabilizers.

Applications and Markets
More than 200 major oil refineries in 65 countries around the globe, and fuel
blenders worldwide.

New Technologies
At our world-class research and development facilities, we test new products
such as lead traps and lead-tolerant catalytic converters designed to reduce
emissions to the environment.

Value-Added Opportunities
In addition to producing fuel additives, Octel adapts its manufacturing
expertise to other products. Procter & Gamble recently commissioned Octel to
manufacture Octaquest(TM), a biodegradable cleaning agent with enhanced
stain-removal properties added to several European laundry detergents.

POLYMER STABILIZERS

Great Lakes is an innovator in the development of specialty chemicals added to
polymer systems to deliver precise performance traits such as heat resistance
and color consistency. Building on synergies with our flame retardant
technology, we engineer value by offering a comprehensive line of polymer
modifiers backed by expert technical service to ensure total customer
satisfaction.

Key Products and Services
Antioxidants; ultraviolet (UV) absorbers; hindered amine light stabilizers
(HALS); plasticizers; nodust blends (NDB).

Applications and Markets
Fibers, cables, household appliances, communications equipment, computers and
business machines, cosmetics, automotive.

New Technologies
Recent research and development advances may one day transform the polymer
stabilizers business, enabling product customization unlike anything ever
before developed. But gaining customer acceptance in this business is
challenging, so Great Lakes is working closely with select customers to win the
market over on a customer-by-customer basis.

Value-Added Opportunities
Great Lakes creates value by identifying and penetrating new markets. Working
closely with customers, we tailor our innovative and patented stabilizers to
meet exacting customer specifications in the high growth market for automobile
bumpers and trim--a market historically closed to Great Lakes by competitor
patents and lengthy customer approvals.

SPECIALIZED SERVICES AND MANUFACTURING

Extending Great Lakes' entrepreneurial drive to complementary businesses has
added to the company's success and growth potential. These stand-alone
businesses open dynamic markets for Great Lakes' high-margin, value-added
products and services, and provide significant growth opportunities.

Key Products and Services
Bromine-based fluids for oil and gas drilling; sand control and filtration;
reservoir analysis; environmental remediation; geotechnical engineering; fire
extinguishants; specialty refrigerants; pharmaceuticals; toxicological testing
and bioanalytical services; international trading of chemicals and plastics.

Applications and Markets
Enviro-Energy Performance Group--oil and gas industry, waste management firms,
forest product companies, government; Fluorine Chemicals--telecommunications,
military, data processing, museums, health care; Toxicological
Testing--pharmaceutical, chemical, veterinary, agricultural, food, consumer
products; International Trading--Central and Eastern European chemical markets.

New Technologies
OSCA, our oil field services business, is taking steps to meet the growing
demand for work boat-based offshore well service in the Gulf of Mexico. OSCA
plans to launch two boats fitted with computer-controlled, high-speed service
equipment for shallow-water wells and a third boat designed to service
deep-water platforms--even in severe weather conditions.

Value-Added Opportunities
Great Lakes capitalizes on the synergies created through the joint management
of a select group of businesses with high growth potential. By dedicating
necessary capital and management tools, we ensure the best possible chance for
the sustained long-term growth of each of these businesses.

WATER TREATMENT

Great Lakes is the premier formulator of water treatment biocides. Through its  
BioLab and Bayrol subsidiaries, Great Lakes markets popular pool and spa
products throughout North America, Europe, Australia and South Africa. A
growing number of industrial customers worldwide are also discovering the
proven value of the company's specialty biocides.

Key Products and Services
Bromine, chlorine and non-oxidizing water sanitizers: algicides, oxidizers, pH
balancers, mineral balancers and specialty chemicals; brand name swimming pool
and spa products, including BioGuard(R), OMNI(R), Hydrotech(R), Guardex(R),
Pool Time(R) and AQUA CHEM(R); industrial biocides and biocide dispensing
equipment.

Applications and Markets
Pool and spa dealers, mass market retailers, residential and commercial
builders, industrial cooling towers, water treatment, industrial and municipal
wastewater treatment, pulp and paper processing, food processing, home care
products.

New Technologies 
Great Lakes' advancements gained global exposure for Vantage(TM) Commercial 
Water System, a patented bromine-ozone treatment system, that provided 
remarkable clarity in the pools at the 1996 Olympic Games in Atlanta.

Value-Added Opportunities
Adding to BioLab's success in foreign pulp and paper markets, EPA approved
BromiCide(R) for use in producing food-contact paper. BromiCide is an
environmentally friendly and cost-effective alternative to bleach and other
biocides currently used in the $100 million U.S. market.

6  GREAT LAKES CHEMICAL CORPORATION
<PAGE>   2

FLAME RETARDANTS

Great Lakes' ability to engineer custom flame retardant solutions adds value to
customer relationships and creates new opportunities for growth.

Year-in-Review In 1996 Great Lakes eclipsed the performance of its competition
and maintained its market leadership position in every key flame retardant
product. Revenues for the year were essentially even with 1995, when they
increased 13 percent to a record level. These results reflect lower demand for
products targeted at the consumer electronics and wire and cable industries as
customers consumed inventory purchased at the end of 1995.

Derivatives of PDBS-80(TM) impart not only flame retardancy, but also thermal
stability and color consistency in electronic equipment such as fax machines.

Recent advances in new product development enable the production of wire and
cable jacketing that remains flexible during cold temperature installations
while meeting demanding flame retardant standards.

10 GREAT LAKES CHEMICAL CORPORATION
<PAGE>   3


As new products undergo development and testing, customers around the world
turn to Great Lakes to develop customized compounds that impart flame
retardancy and other characteristics that enhance performance and streamline
production. The growing complexity of these solutions, and the proven
superiority of bromine derivatives as flame retardant agents, make this a
dynamic business with solid growth potential. Great Lakes has leveraged its
unmatched raw materials and vast technology resources to build a world
leadership position in flame retardant chemistry.  Today, customer- and
market-focused research and development is keeping Great Lakes on the leading
edge and is creating new opportunities for growth. 

Great Lakes is adding value to customer relationships by helping customers
meet highly specific production challenges. For one customer, Great Lakes
developed a custom flame retardant additive that improves the performance of a
resin system used to manufacture a proprietary product.  For another, it is
creating a derivative of DP-45(TM) for PVC applications that imparts flame
retardancy while giving wire jacketing better flexibility during
low-temperature installations. These solutions in turn become the foundations
of new Great Lakes products that serve wider applications.  

In 1996 Great Lakes also continued work on several promising new        
derivatives of PHT4(TM), a versatile building block molecule. One new
derivative, CN-2065 for flexible urethanes, has received regulatory approval
and is being adopted by manufacturers of foam and fabric used in automobile
headliners. Another compound, CN-1753, is in the final stages of
commercialization and will be used in both wire and cable and light-stable
packaging film applications. 

Great Lakes also has a proud heritage of capitalizing on regulatory,
product and market opportunities. The company is closely monitoring ongoing
regulatory discussions that will shape the future of the consumer furniture,
carpet backing and wire and cable industries. Great Lakes currently supplies
these industries with flame retardant additives that meet today's regulatory
standards. But it has already engineered new families of compounds that will
enable customers to respond immediately to the more stringent flammability
requirements advocated by fire marshals. Additionally, the recent expansion of
Great Lakes' Polymer Stabilizers business into North America and the Pacific
Rim will provide new opportunities to introduce flame retardant technology to a
broader range of plastics applications.  


1997 OUTLOOK In 1996 competitive pressures and a return to more balanced
supply and demand produced a slight erosion of pricing for several key
products. Great Lakes' strategic decision to protect market share by matching
competitive pricing enabled the company to maintain its market share.
Strengthening market conditions, however, point to firmer demand and stable
pricing in 1997 and a return to recent revenue growth levels. An upturn in the
European economy and increased demand in Asia should improve sales for our
highest volume flame retardants. Orders from customers in the electronics and
wire and cable industries are rebounding with the depletion of inventories. And
in the United States, the current low interest rate environment should
stimulate demand from the automotive and construction markets.

PROCESS IMPROVEMENT
Manufacturers are always looking for new ways to increase productivity and
improve quality control. Great Lakes developed a custom solution for a producer
of small nylon connectors that resulted in greater production volume and a much
lower rejection rate. It engineered a new flame retardant additive--a
derivative of PDBS-80 --that improves the consistency of the plastic so it
flows into the injection mold faster and more smoothly.

[PHOTO OF CHAIR]
[CAPTION]

Great Lakes serves the furniture industry by producing flame retardant
additives used in both upholstery and foam cushioning materials.


Flame Retardants (in millions)
[BAR CHART]


                                            GREAT LAKES CHEMICAL CORPORATION 11
<PAGE>   4

INTERMEDIATES AND FINE CHEMICALS

With research and production facilities on two continents, Great Lakes is
emerging as an expert resource for complex chemical synthesis and custom
manufacturing.

Customers around the world turn to Great Lakes' Intermediates and Fine
Chemicals business unit to manufacture chemical intermediates that serve as the
building blocks for other compounds, and to engineer highly complex organic
molecules that meet specific performance, environmental and quality
requirements. These compounds have applications in the dynamic, expanding
agrochemical and life sciences industries, as well as in markets such as
imaging and photographic chemicals, fibers and specialty resins used by the
foundry industry. With eight production centers and four research and
development facilities in the United States and Europe, this business is well
positioned to perform chemical synthesis and custom manufacturing for the
growing number of large companies who choose to outsource these activities.

After steady improvement in 1995 across all product categories, revenues for
the Intermediates and Fine Chemicals business declined by seven percent as low
demand for polyurethanes led to overcapacity in the PTMEG market. Additionally,
competitive pressures in the Far East and a softening of the domestic tool
market restricted sales of furfuryl alcohol. At the same time, sales of
bromine-based fine chemicals and intermediates increased. The company's
distinct technological strengths in these areas, its well funded research and
development activities and a well timed capacity expansion in South Arkansas
and Wales have enabled Great Lakes to capture a much greater share of this fast
growing market.  

Aggressive new product development is a central component of Great Lakes'
strategy for building this business. In the life sciences arena, Great Lakes is
actively developing and marketing intermediates used in antiviral products and
antihypertensive medications. Its Palmer Research facility will soon be
supplying a major company with the first commercial amounts of a key building
block intermediate used in a new AIDS drug currently awaiting FDA approval that
promises to prolong life by arresting the multiplication of the killer virus. 

Several customers have commissioned Great Lakes to produce new agrochemical
intermediates used in herbicides, fungicides and insecticides.  These new
products focus on a wide variety of crops, from wheat and corn to fruit and
vegetables. The company also signed a new seven-year contract to produce a key
intermediate of an acaricide that protects a broad range of crops from the
devastating effects of spider mites. And after demonstrating its ability to
develop and manufacture new intermediates on time and within budget, Great
Lakes now produces a range of compounds for DowElanco, a leading agrochemical
company. 

[PHOTO OF GOLFER]
[CAPTION]

New applications for POLYMEG polyols, a versatile furfural derivative used
primarily by the polyurethane industry in a wide range of end uses, include
soft spikes on golf shoes as well as certain brands of golf balls.


12  GREAT LAKES CHEMICAL CORPORATION 
<PAGE>   5

Year-in-Review While weak demand for PTMEG and furfuryl alcohol led to a seven
percent decline in revenues for this business unit, Great Lakes introduced
several new compounds for the life sciences, agrochemical and photographic
markets that helped boost sales of bromine-based intermediates and fine
chemicals. 

1997 OUTLOOK Continued penetration of the life sciences and agrochemical
markets, plus new contracts to supply major photographic chemical companies
with fine chemicals used in complex fine-grained photographic development
compounds, should boost sales of fine chemicals and bromine-based intermediates
well beyond 1996 levels. Great Lakes will also consider opportunities to
acquire businesses or technologies that will help it meet the exacting
standards of a broader base of customers. Capacity is now in place to support
the growth of furfural-based intermediates. Though demand of PTMEG from its
largest market, the fibers industry, may remain weak through the first part of
1997, new applications for PTMEG such as soft golf spikes offer additional
revenue opportunities going forward. At the same time, we are exploring viable
new sources of cheap and abundant raw materials to enhance operating
efficiency, reduce costs and improve margins.


SAFETY AND PERFORMANCE
While chlorofluorocarbons and other ozone-depleting solvents and refrigerants
are being phased out worldwide, Great Lakes is capitalizing on its established
bromine chemistry and production expertise to develop superior bromine-based
alternatives. Certain alkyl bromides offer enhanced performance and
environmental characteristics due to their inherently lower toxicity. EPA
approval is under way to allow Great Lakes to enter these alkyl bromides into
the multi-billion dollar market for high-margin precision cleaning solvents for
electronics, aerospace and military applications.

INTERMEDIATES AND FINE CHEMICALS (in millions)

[BAR CHART]

                                        GREAT LAKES CHEMICAL CORPORATION   13
<PAGE>   6

PETROLEUM ADDITIVES

Octel's focus on new product development continues to produce new growth
opportunities in petroleum specialties and industrial and performance
chemicals.

[PHOTO OF AUTOMOBILE]
[CAPTION]


Year-in-Review Petroleum Additives endured its most challenging year since
Great Lakes acquired a majority interest in Octel in 1989. Revenues of $618
million were down six percent from record sales in 1995, due to a
larger-than-expected decline in retail volumes of antiknock compound and lower
than trend-line price increases. Octel generated significant cash flows,
however, and sales of petroleum specialties and industrial and performance
chemicals continue to present sustainable growth potential.

Octel America continues to refine its DMA multifunctional series of detergents,
which boost engine performance by improving engine and gasoline cleanliness.   

[PHOTO OF TRUCK]
[CAPTION]

Octel's new OLI 9000 lubricity improver helps refineries meet growing demand
for diesel fuels with reduced levels of sulfur.


14 GREAT LAKES CHEMICAL CORPORATION
<PAGE>   7


Great Lakes' Octel Associates subsidiary is the world's foremost producer of
lead compound, the most cost-effective and energy-efficient means for
delivering antiknock qualities to motor fuel. Additionally, Octel utilizes its
expertise in motor fuel technology to develop and manufacture new petroleum
specialties. Octel also draws on its abundant supply of elemental bromine to
manufacture bromine and sodium derivatives and chlor-alkali products.

ANTIKNOCK COMPOUND In 1996 Octel experienced a larger that expected decline in
lead compound sales as refiners continue seeking alternative methods to obtain
octane improvement. This company's performance was also hampered by volume
declines in those regions of the world where pricing and market share position
have a greater impact on profitability. Coupled with competitive pressures in
these same markets, the combination of factors resulted in Octel posting lower
sales and earnings.  

In response to the unfavorable market conditions, Octel
continued its aggressive management of costs by closing two plants and
consolidating all production at its highly efficient Ellesmere Port, U.K.,
facility. It also introduced new working arrangements aimed at reducing costs
through increased flexibility and productivity. These and other initiatives
enabled Octel to generate strong cash flows.  

PETROLEUM SPECIALTIES As economic conditions in Europe and North America
weakened demand for certain detergent and lubricant products, Octel focused on
bringing its performance-enhancing transport fuel additives technology to
emerging international markets such as in the Far East and South Africa. As a
result, sales of petroleum specialties grew over 1995 revenues.  

Octel is well positioned to take advantage of new legislation in Europe that
mandates reduced levels of sulfur in diesel fuels. The proven ability of
Octel's new OLI 9000 lubricity improver to protect engine fuel pumps has
resulted in strong and immediate demand from oil companies in Europe, Japan and
the United States. 

INDUSTRIAL AND PERFORMANCE CHEMICALS Natural synergies between Octel and Great
Lakes' Intermediates and Fine Chemicals business unit are helping Octel
solidify its position as a major supplier of bromine and derivatives to the
European market. With its new multi-product bromination plant in Amlwch, Wales,
Octel can meet growing demand for chemical intermediates from the
pharmaceutical, agricultural and other industries. This unique site provides an
integrated approach to bromine chemistry. It produces bromine from seawater,
has dedicated and multipurpose bromination facilities, and can recycle bromine
from other bromide-containing products.  

In 1996 Octel began supplying Procter & Gamble's European manufacturing
facilities with a new biodegradable chelating agent, Octaquest(TM), that reduces
wasteful decomposition in detergent bleach systems while improving their
ability to remove organic stains. Octaquest has enabled Procter & Gamble to
replace nonbiodegradable phosphonates over its extensive range of laundry
detergent brands in Europe. Procter & Gamble also has filed application patents
covering uses for Octaquest in automatic dishwashing detergents, fabric
softeners, rinse aids and personal care products.  

1997 OUTLOOK Octel will continue taking the steps necessary to manage its
future in the face of constricting demand for alkyl lead compounds.  The
combination of an ongoing diversification strategy and an aggressive profit
enhancement program will allow Octel to prolong and optimize the cash generated
by this business. These resources will be used to build Octel's position in the
worldwide petroleum specialties and industrial and performance chemicals
markets as well as to support other Great Lakes growth initiatives.

[PHOTO OF MAN AT INSTRUMENTS]

REFINING NEW PRODUCTS
Octel strengthened its foothold in the North American fuel additives market
when its wholly owned Octel America subsidiary introduced an innovative new
line of efficient fuel additives that meet the performance and regulatory
requirements of the North American market. Octel America also continued to
refine its DMA multifunctional series of detergents, which reduces emissions by
improving engine and gasoline cleanliness.

PETROLEUM ADDITIVES (in millions)

[BAR CHART]


                                         GREAT LAKES CHEMICAL CORPORATION   15
<PAGE>   8

POLYMER STABILIZERS

With manufacturing and technology centers in the world's three major polymer
stabilizers markets, Great Lakes is ready to set a new global standard for
innovative products and custom solutions.

Great Lakes' antioxidants, UV stabilizers and customized additive blends enable
manufacturers around the world to incorporate versatile, cost-effective
plastics stabilizers into an expanding array of products. These compounds
increase the range of use of plastics by making them more compatible with other
polymers, better protected against light degradation, cleaner to process and
easier to recycle. Growing use of polymers and new applications in global
markets, combined with an ever-changing regulatory environment, provide Great
Lakes ample opportunities to continue the four-year growth trend that has
produced double-digit increases in revenues. Manufacturing and technical
support capabilities in Europe, North America and Asia give Great Lakes direct
access to the world's three largest polymer markets and enable us to balance
supply and market requirements worldwide. Synergies with our Flame Retardants
business provide a competitive advantage in producing safe, efficient and
durable polymer systems that impart both flame retardancy and superior
stability.  

Even as the Polymer Stabilizers business unit fell slightly short
of its double-digit growth rate in 1996, major polymer producers and
compounders embraced several new UV stabilizer products as well as our new
antioxidant for tires, Anox(R) HPG. Proprietary silicon-based products such as
our patented Uvasil 299 hindered amine light stabilizer also met with increased
interest and approval. And customers turned to Great Lakes for custom compounds
such as our proprietary No Dust Blends and other additive blends to meet the
unique performance requirements of newly developed products.  

In 1996 Great Lakes continued to position itself to take full advantage of
growing global demand in the $2 billion polymer stabilizers market.  We took
our first steps to penetrate the buoyant North American plastic additives
market--which accounts for almost one-fourth of volume worldwide--when our new
manufacturing facility in Newport, Tennessee, began shipping high-quality
antioxidants during the third quarter. 

[PHOTOS OF BOTTLE]
[CAPTION]

Humidity resistant granular antioxidant blends maximize performance and greatly
simplify polymer processing operations.                                        

POLYMER STABILIZERS (in millions)

[BAR CHART]

16 GREAT LAKES CHEMICAL CORPORATION
<PAGE>   9

Year-in-Review A strong fourth quarter pushed 1996 revenues to $242 million, up
eight percent from 1995, and established momentum for higher growth in 1997.
Sales of UV stabilizers improved over the previous year, while sales of
antioxidants for plastics also increased.                                      

This manufacturing operation, coupled with our Technology Center in West
Lafayette, Indiana, will make North American customers much more receptive to
our wide range of value-added services--especially our custom additive blends. 

We also staked our claim to a greater share of the fast-growing Asian and
Pacific Rim markets by forming our joint venture Asia Stabilizers Co. Ltd.
(ASC) in Korea and establishing a Technology Center in Korea. Antioxidants
manufactured by ASC help Great Lakes penetrate these markets with our full
range of stabilizers.  

To further enhance Great Lakes' position in the UV light stabilization
and antioxidant markets, we continued our aggressive efforts to expand our
product range. Our new product strategy includes offering traditional products
in alternative physical forms that offer lower cost, improved safety and
greater convenience; extending our innovative line of highly stable,
silicon-based light stabilizers and leveraging this silicon technology to
develop new antioxidants; exploiting synergies with our global Flame Retardants
business to develop value-added formulations; and forming joint research and
development agreements with key customers to create molecules modified to meet
exact customer requirements.  

1997 OUTLOOK In 1996 the Polymer Stabilizers business experienced volume
weakness and pricing pressures in Europe, flat global plastics markets, and a
longer-than-expected customer approval process for new products such as
Lowinox(R) HD-98 and GP-45 and certain Uvasil compounds.  Great Lakes enters
1997 well positioned to penetrate new markets, better utilize available
production capacities to respond to global supply and market requirements, and
reduce importing costs. These factors, plus a strengthening European plastics
market and recent customer approval of several new products, should put the
Polymer Stabilizers business back on track to double-digit revenue and profit
growth.

[PHOTO OF PLANT EQUIPMENT]

NEW FORMULATIONS FOR NEW MARKETS
Great Lakes' new manufacturing facility in Newport is well equipped to serve
the needs of the North American market. Today's manufacturers seek better
performing products that help them raise productivity while increasing the
value of their products, and Great Lakes is responding with antioxidant blends
in non-dusting, multicomponent forms that compress multiple additives into
mechanically stable granules.

[PHOTO OF COMPUTER]
[CAPTION]

Great Lakes' polymer stabilizers safeguard polymer systems used in such
applications as computer housings from ultra-violet ray degradation.


                                        GREAT LAKES CHEMICAL CORPORATION  17

<PAGE>   10

SPECIALIZED SERVICES AND MANUFACTURING

To support its long-term growth objectives, Great Lakes builds and acquires
businesses and high growth technologies that serve fast growing markets and
produce high returns on equity.

Great Lakes views its Specialized Services and Manufacturing business unit as
an incubator for new technologies and business opportunities that can
contribute to the company's long-term growth. These stand-alone businesses open
dynamic markets for Great Lakes' high-margin, high value-added products and
services. All afford excellent growth potential while delivering high returns
on equity.  

ENVIRO-ENERGY PERFORMANCE GROUP Great Lakes' expertise in bromine
chemistry, its knowledge of drilling operations and its entrepreneurial
approach to solving environmental problems have helped the company build
leadership positions in the fast growing oil field services and environmental
remediation markets.  

Brominated clear fluids and other related products manufactured by OSCA
enhance the productivity of existing oil and gas wells and play an integral
role in the discovery of new energy resources around the world. In 1996 OSCA
benefited from heightened drilling activity in the North Sea, Venezuela and the
Gulf of Mexico, as well as from an increased level of domestic completion work
in the second half of the year. In the coming year, OSCA will enhance its
capabilities in the marine well service business, an area that promises
long-term growth potential, when it commissions two specially equipped service
boats. Each vessel features a quality assurance lab and computer-assisted well
servicing equipment.  To satisfy growing long-term demand, OSCA retained a firm
to design and build a third ship capable of providing well servicing for
deep-water drilling platforms in the Gulf of Mexico, even in extreme weather
and sea conditions.  

Four Seasons and Aquaterra create value for governmental agencies and
commercial companies around the world by applying their expertise in site
assessment and evaluation, groundwater treatment systems, soil reclamation,
waste minimization and pollution prevention to help customers address
environmental concerns. In 1996 the U.S. government put nonessential
environmental spending on hold, causing delays on certain projects already
under-way. This freeze caused the group to focus on other profitable segments
of the business, including Industrial Services and Consulting.  

FLUORINE CHEMICALS Fluorine chemistry represents one of the company's most
promising frontiers for growth, and aggressive research and development has
produced a number of compounds that are gaining worldwide recognition for their
superior performance.  

FM-200(R), a high-performance fire extinguishant, creates value for
customers by providing an environmentally superior alternative to halon-based
products. Industry estimates indicate that as many as 40,000 FM-200 systems
have been installed worldwide in over 70 countries,

[PHOTO OF WORKER WITH TEST TUBE]
[CAPTION]

Great Lakes' extensive research and development activities target emerging
technologies that meet specific market requirements.

[PHOTO OF OIL RIG]
[CAPTION]

18 GREAT LAKES CHEMICAL CORPORATION
<PAGE>   11

Year-in-Review Great Lakes benefited from growing demand for fluorine-based
fire extinguishant compounds and a high volume of oil field drilling activity in
several key regions.  Revenues declined precipitously, however, as political
and economic changes in Hungary sharply restricted sales opportunities for our
low-margin international trading business.      

making FM-200 the most widely accepted and used fire extinguishant worldwide
for special hazard applications. Increased demand for this product in 1996
again boosted sales to a record level.  

Another recently developed fluorine-based compound, HFC-32, has become a
key component of environmentally friendly refrigerant blends slated for use in
commercial refrigeration applications. To enhance its position as the only
world-scale producer of this important CFC replacement, Great Lakes completed a
capital project for HFC-32 that will enable the company to accommodate
increased demand.  

TOXICOLOGICAL TESTING At a time when an increasing number of companies are
outsourcing product research and development and new product testing, WIL
Research Laboratories, Inc. provides fully integrated research and testing
services that help assure these products meet tough governmental standards.
WIL's expansion of its world-class facilities in 1995 enabled it to manage the
strong demand for its services in the second half of 1996 and generate record
earnings. WIL anticipates growing worldwide demand for its services as countries
adopt more stringent requirements for pharmaceutical, chemical, veterinary
medical, agricultural, food and consumer products.  

1997 OUTLOOK Several factors point to improved performance in the year ahead.
OSCA's introduction of products such as FracPac(R) sand control/well
enhancement technology will help drive growth in OSCA's most important
market--the U.S. Gulf of Mexico. In addition, Four Seasons expects to resume
the environmental remediation projects sponsored by the U.S. government and
anticipates further penetration of the private sector. And abundant sales
opportunities for new and existing fluorine-based products, and an active new
product pipeline, will produce significant growth in fluorine derivatives over
the next five years.

[PHOTO OF SHIP]


PROTECTING STRATEGIC ASSETS
After extensive testing, the U.S. Navy selected Great Lakes' FM-200, a
fluorine-based fire extinguishant, to safeguard strategic areas on its new
"ozone-friendly" ships. The U.S. Army has also specified FM-200 to replace
halons in its watercraft and is now completing the required testing to clear
the system for use in tactical vehicles as well.

SPECIALIZED SERVICES AND MANUFACTURING (in millions)

[BAR CHART]

                                          GREAT LAKES CHEMICAL CORPORATION 19

<PAGE>   12

WATER TREATMENT

With its extensive manufacturing, technical support and sales network, BioLab
can deliver pool and spa products and services to distributors, consumers and
industrial and commercial enterprises around the world.

A GOLD MEDAL PERFORMANCE
While the world's best swimmers and divers collected medals for their superior
performance at last summer's Olympic Games in Atlanta, BioLab's Commercial
Water Division earned accolades of its own for the gold medal performance of
its Vantage(TM) Commercial Water System in keeping the Olympic pools crystal
clear. The Vantage system, introduced in 1994, features a patented
bromine-ozone technology that is now used in more than 250 commercial pools
around the United States. At the Olympics, the remarkable water clarity helped
set a new standard for underwater photography of the events.

[PHOTO OF SWIMMING GEAR]
[CAPTION]

BioLab's comprehensive line of water treatment formulations deliver algae-free
water with outstanding clarity for recreational swimming pools and spas.




20 GREAT LAKES CHEMICAL CORPORATION
<PAGE>   13

Year-in-Review Revenues for the global Water Treatment business improved three
percent to $430 million. Higher sales volumes in the United States, Canada,
Australia and South Africa helped generate record revenues from pool and spa
products marketed under the BioGuard(R), OMNI(R), Guardex(R), Hydrotech(R),
Pool Time(R) and AQUA CHEM(R) brand names. Sales of industrial biocides
targeted at applications such as water cooling towers, the pulp and paper
industry and wastewater treatment facilities improved slightly over 1995.     

Great Lakes has systematically built its BioLab subsidiary into the world's
leading producer of bromine-based water treatment chemicals and a premier
distributor of pool and spa products. One of the keys to BioLab's success in
this non-discretionary, non-cyclical market is its ability to anticipate and
respond to the full range of customer requirements for product packaging,
formulation, safety, presentation and ease of handling. Further, its proven
ability to identify, acquire and successfully integrate acquisitions has helped
create a manufacturing, technical support and sales network that covers every
major global water treatment market. The strong performance characteristics of
BioLab's recreational and industrial products and its success in penetrating
new markets provide a solid foundation for consistent growth.  

BioLab continued to manage its business portfolio to the greatest
advantage when it sold the assets of BLN, a wholly owned subsidiary, to SCP
Pool Corporation and acquired the assets and inventory of SCP's Alliance
Packaging subsidiary, which has been consolidated at BioLab's Conyers, Georgia,
facility. This transaction allows BioLab to focus on its core value-added
activities --formulating and packaging chemicals for swimming pools and spas.
BioLab also adds a business that complements its existing packaging operations.
The transaction includes a long-term supply agreement under which BioLab will
supply a vast majority of SCP's pool chemical requirements. 

A number of additional initiatives will help BioLab continue to meet its
performance objectives in 1997 and beyond. Its ongoing efforts to broaden
applications for existing technologies and develop new products for emerging
markets led to the development of Smart Sticks(TM), a convenient new BioGuard
product that simplifies pool and spa maintenance. BioLab also solidified ties
with an important segment of its customer base by sponsoring a conference that
introduced authorized BioGuard dealers to the newest products and latest sales
and marketing techniques.  And it continued to support its industrial customers
by helping them proactively manage the implications of changing environmental
regulations.  

1997 OUTLOOK In 1996 a slow European economy limited the growth of the pool
and spa industry, while poor weather conditions in Europe and an unseasonably
cool and wet spring in the United States reduced sales to existing customers.
These conditions were balanced by increased penetration of the Canadian,
Australian and South African markets and the success of new products developed
for the industrial market. In 1997 several factors will contribute to BioLab's
steady growth, including its acquisition of Alliance Packaging; greater
availability of a key building-block compound; and the extension of this
technology to new applications such as wood catalysts, hard-surface
disinfectants and home care.

[PHOTO OF TY-D-BOL DURA BLEACH]
[CAPTION]

Extending bromine technology to household water sanitizers, Great Lakes
manufactures Ty-D-Bol Dura-Bleach(TM), a concentrated automatic toilet bowl
cleaner, for Kiwi Brands.


WATER TREATMENT (in millions)

[BAR CHART]

                                      GREAT LAKES CHEMICAL CORPORATION 21
<PAGE>   14



Financial Review

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share data)                                                       
                                                   1996            1995           1994            1993 
-------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>            <C>             <C>          
SUMMARY OF EARNINGS                                                                                    
  Net sales                                 $ 2,211,704       2,361,069      2,065,008       1,792,042 
    Percent change from previous year              (6.3)           14.3           15.2            19.8 
  Income from operations                    $   445,358         497,343        438,689         424,781 
    Percent of net sales                           20.1            21.1           21.2            23.7 
  Income before income taxes                $   379,196         437,873        402,675         383,384 
    Percent of net sales                           17.1            18.5           19.5            21.4 
  Income taxes                              $   128,900         142,300        124,000         110,600 
    Percent of income before income taxes          34.0            32.5           30.8            28.8 
  Net income                                $   250,296         295,573        278,675         272,784 
    Per share                               $      3.94            4.52           4.00            3.82 
    Percent of net sales                           11.3            12.5           13.5            15.2 
    Percent of stockholders' average               17.2            21.7           21.7            23.6 
    equity                                                                                             
                                                                                                       
FINANCIAL POSITION AT YEAR-END                                                                         
  Working capital                           $   743,076         645,783        551,735         489,179 
  Current ratio                                     2.7             2.3            2.3             2.3 
  Capital expenditures                      $   237,464         246,639        123,109          79,270 
  Total assets                              $ 2,661,339       2,533,672      2,111,465       1,900,864 
  Long-term debt                            $   503,795         340,145        143,661          61,041 
    Percent of total capitalization                24.1            18.8            9.7             5.1 
                                                                                                       
SHARE DATA                                                                                             
  Stockholders' equity                      $ 1,486,899       1,416,183      1,310,948       1,256,563 
    Per share                               $     24.13           21.92          19.48           17.63 
  Cash dividends per share                                                                             
    Declared during year                    $       .57             .44            .39             .35 
    Paid during year                        $       .54             .43            .38             .34 
    Payout as percent of net income                14.5             9.7            9.8             9.2 
  Shares outstanding                                                                                   
    Average during year                      63,538,759      65,364,066     69,658,653      71,329,145 
    At year-end                              61,612,851      64,604,377     67,297,420      71,274,796 
  Stock price                                                                                          
    High                                    $    78 5/8          74 5/8         82              84     
    Low                                     $    44 1/4          55 3/4         48 3/4          64 1/2 
    At year-end                             $    46 3/4          72             57              74 5/8 
-------------------------------------------------------------------------------------------------------
</TABLE>

Share data has been restated to reflect the 100 percent stock dividends on
January 30, 1992, and October 31, 1989.  Long-term debt in 1991 excludes debt
of $125 million incurred to fund an acquisition.


22 GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
<PAGE>   15

<TABLE>
<CAPTION>
(in thousands of dollars, except per share data)                                                                       Ten-Year
                                                                                                                        Growth
   1992              1991             1990           1989           1988            1987             1986              Percentage
------------------------------------------------------------------------------------------------------------------------------------
<S>               <C>              <C>            <C>            <C>             <C>              <C>                <C>
  1,496,478        1,307,607        1,066,298        792,327        557,770         478,386          300,329          22.1          
       14.4             22.6             34.6           42.1           16.6            59.3              8.4                        
    363,010          309,867          270,452        163,918         92,600          76,120           42,895          26.4          
       24.3             23.7             25.4           20.7           16.6            15.9             14.3                        
    332,735          225,473          209,449        167,918        143,488          85,036           42,717          24.4          
       22.2             17.2             19.6           21.2           25.7            17.8             14.2                        
    100,000           68,000           68,600         45,000         40,200          29,500           15,900                        
       30.1             30.2             32.8           26.8           28.0            34.7             37.2                        
    232,735          157,473          140,849        122,918        103,288          55,536           26,817          25.0          
       3.27             2.23             2.00           1.76           1.48             .83              .44          24.5          
       15.6             12.0             13.2           15.5           18.5            11.6              8.9                        
       23.8             19.2             21.1           22.9           23.6            18.2             13.0                        
                                                                                                                                    
                                                                                                                                    
    342,171          338,009          301,092        236,648        100,238         101,083          113,370          20.7          
        1.8              2.1              2.0            2.1            1.8             1.9              2.4                        
     69,368           71,243           48,565         40,466         47,017          35,186           18,327                        
  1,731,989        1,649,132        1,406,296      1,097,400        663,838         577,087          491,567          18.4          
     45,642          139,788           76,657        113,700         19,266          42,149          163,319                        
        7.3              4.4             12.8           17.5            3.7             9.4             40.1                        
                                                                                                                                    
                                                                                                                                    
  1,052,851          900,344          744,158        590,861        482,225         392,602          216,265          21.3          
      14.75            12.69            10.56           8.42           6.91            5.64             3.60          21.0          
                                                                                                                                    
        .31              .27              .23            .20            .18             .16              .14          15.1          
        .30              .26              .22            .19            .17             .15              .13          15.2          
        9.5             12.1             11.5           11.4           12.2            19.3             31.8                        
                                                                                                                                    
 71,164,010       70,700,332       70,287,088     69,885,212     69,658,840      66,469,556       59,992,472                        
 71,410,458       70,923,990       70,443,150     70,098,826     69,653,184      69,580,948       60,044,516                        
                                                                                                                                    
     71 3/8           58               34             24             16 1/2          19 1/4           11 1/8                        
     50 1/4           30 3/8           20 3/8         14 1/8         12 1/8           9                7 1/2                        
     69 1/4           57 1/4           31 7/8         23 5/8         14 5/8          13 1/2            9              17.9          
</TABLE> 



                           GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES  23
<PAGE>   16



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

This annual report, including Management's Discussion and Analysis, contains
both historical information and forward-looking statements. The forward-looking
statements involve risks and uncertainties that affect the Company's
operations, markets, products, services, prices and factors as discussed in the
Company's Annual Report on Form 10K filed with the Securities and Exchange
Commission. These risks and uncertainties include, but are not limited to,
economic, competitive, governmental and technological factors. Accordingly,
there is no assurance that the Company's expectations will be realized.

OPERATING RESULTS 1996 COMPARED WITH 1995

Sales for the year were $2.2 billion, a decline of 6 percent from the $2.4
billion reported in 1995. Sales have grown at a compound rate of 22 percent
over the last 10 year period. Sales by business unit are shown in the following
table (in millions):


<TABLE>
<CAPTION>
---------------------------------------------------------------
                                                  Percent Inc./
                                                     (Dec.)Over
                       1996        1995        1994  Prior Year
---------------------------------------------------------------
                      $   %       $   %       $   %  1996  1995
---------------------------------------------------------------
<S>               <C>    <C>  <C>    <C>  <C>    <C>  <C>    <C>
Flame Retardants    294   13    300   13    265   13   (2)   13
Intermediates
  and Fine
  Chemicals         282   13    302   13    262   13   (7)   15
Petroleum
  Additives         618   28    656   28    610   30   (6)    8
Polymer
  Stabilizers       242   11    224    9    162    8    8    38
Specialized
  Services and
  Manufacturing     346   16    460   19    383   18  (25)   20
Water Treatment     430   19    419   18    383   18    3     9
---------------------------------------------------------------
                  2,212  100  2,361  100  2,065  100   (6)   14
===============================================================
</TABLE>

The change in sales from the prior year is due to the following (in millions):

<TABLE>
<CAPTION>
---------------------------------------------------------
Increase/(Decrease)                     1996         1995
---------------------------------------------------------
<S>                                    <C>           <C>
Selling price                          $  34         $ 87
Volume                                  (116)          81
Acquisitions                              --          102
Dispositions                             (45)          --
Foreign Exchange                         (22)          26
---------------------------------------------------------
                                       $(149)        $296
=========================================================
</TABLE>

Flame Retardants sales of $294 million were approximately 2 percent short of
1995's record performance. Even though volumes increased, reduced product       
prices and the negative effects of a strong dollar vis-a-vis both the Japanese
yen and the deutsche mark more than offset the improvements. Market demand was
weak all year, particularly in automotive, wire and cable and consumer
electronics. A sluggish European economy also held down customer requirements.
Worldwide market share was maintained in a very competitive environment. 

Intermediates and Fine Chemicals sales of $282 million were down approximately
7 percent from the prior year due to volume declines in furfural and furfural
derivatives. Worldwide demand for furfuryl alcohol and PTMEG declined at an
accelerating rate over the course of 1996. Slowdowns in new tooling
requirements for the heavy equipment and the machine tool industries negatively
affected furfuryl alcohol, while weak polyurethane requirements restricted
POLYMEG(R) polyols sales. Both products are under significant price pressure
due to the supply demand imbalance. In 1996, the business sacrificed volume and
successfully maintained price improvements that were achieved in 1995.
Unfortunately, competitive pricing will have to be met in 1997 in order to
maintain market share. Sales of agricultural chemicals, bromine and derivatives
and fine chemicals were essentially flat following a very strong performance in
1995.

Petroleum Additives sales declined $38 million in 1996. Retail alkyl lead
compound volumes declined 13 percent for the year which is higher than the 7 to
10 percent annual market decline experienced over the last several years. No
single factor accounts for the decline, and the Company believes it maintained
its share of the worldwide market. Price improvements for the year averaged
about 4 percent, which is lower than what was achieved in the prior year. In
part, this reduced rate of increase is attributable to (1) the Company's
strategy to extend the life of the product; (2) refinery economics related to
achieving octane ratings; (3) a changing mix of customers and regions of the
world where alkyl lead compound is sold - compound sold in Western Europe is
declining at a faster rate than in other regions; and (4) aggressive pricing by
an Eastern European producer with relatively small capacity. Future price
increases are expected to be in the low single-digit range, with the average
change for a period very dependent on the regional sales mix.

Wholesale alkyl lead compound sales relate primarily to supplying Ethyl
Corporation's requirements under a 1994 agreement. Wholesale volumes increased
approximately 5 percent in 1996, with deliveries to Ethyl Corporation
comparable to the prior year. Prices in the wholesale market increased about 6
percent for the year. The relationship of retail to wholesale was 68/32
compared to 72/28 in 1995.

Non-lead fuel additives and other chemical sales grew approximately 11 percent
due to new product introductions and expanding volume.

Polymer Stabilizers sales for the year increased $18 million, or approximately  
8 percent. On an overall basis, the sales improvement is attributable to volume
gains as market conditions and competitive activity restricted price
improvements and the effect of currency fluctuations was negative. The reduced
rate of improvement experienced by this business unit in 1996 reflects a
stagnant European economy, our largest market, where total plastics output
declined about 10 percent in 1996. End-use markets in North America and the Far
East grew at a modest rate. The business unit improved market share outside of
Europe in part by bringing onstream an antioxidant production facility in
Newport, Tennessee, and establishing a production joint venture in Korea.


24 GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
<PAGE>   17


Specialized Services and Manufacturing sales declined $114 million in 1996.
Chemol, our Hungarian-based chemical trading company, experienced a decline in
sales of approximately $125 million due to the loss of major suppliers as the
privatization process in Hungary continued. The Company anticipates that Chemol
will experience some additional contraction in 1997. Other businesses in this
unit registered solid improvements. In our Enviro-Energy Performance Group
(EEP), oil field services sales improved approximately 35 percent from the
prior year as drilling activity in the Gulf of Mexico expanded and the business
extended its presence in international markets. The environmental services
segment of EEP struggled in 1996 as it was unable to recover from Environmental
Protection Agency-related contract delays due to the federal government budget
stalemate experienced early in 1996. Fluorine chemicals sales grew
approximately 25 percent as the FM-200(R) fire extinguishing product
strengthened its worldwide market position.

Water Treatment sales gained $11 million primarily due to volume improvement of
chemical products which more than offset the divestiture of BLN in September
1996. U.S. recreational water treatment sales posted strong growth to
distributors and mass merchandisers in an average weather year. Volumes in
Europe suffered due to cool weather conditions during the pool season.
Competitive pressure allowed only minimal price improvements which were mostly
offset by unfavorable currency effects.

<TABLE>
<CAPTION>
---------------------------------------------------------
                                       Gross Profits as a
Year                              Percentage of Net Sales
---------------------------------------------------------
<S>                                                 <C>
1996                                                 32.8
1995                                                 33.4
1994                                                 33.7

</TABLE>

Gross profits of $726 million declined $63 million from the prior year, net of
$34 million in price increases. The decline reflects the impact of lower volume
(58 percent), higher cost (23 percent), unfavorable currency effects (12
percent), and divestitures (7 percent). The negative impact of volumes is
attributable to running polymer stabilizer and certain flame retardant units at
reduced rates to adjust inventory levels; reduced requirements for alkyl lead
compounds and furfural derivatives, and the contraction of Chemol's trading
operations. Manufacturing cost increases result from a one-point increase in
the Company's average raw material price index and a $10 million provision for
anticipated alkyl lead compound plant closures. Benefits from closing the
compound plant in France and reducing staffing levels at the plant in the U.K.
will not be fully realized until 1997.

Approximately 50 percent of the Company's business is transacted in foreign
currencies, principally the pound sterling, deutsche mark and Japanese yen.     
Currency changes, while not having a significant impact on profit margins, were
higher than recent years. The strength of the dollar against the Japanese yen
and deutsche mark adversely impacted sales, while the strength of the Italian
lira to the deutsche mark adversely affected costs. To minimize the effect of
currency fluctuations, the Company uses foreign exchange contracts, average
rate options, and other financial instruments. The Company's Octel subsidiary
invoices approximately 50 percent of its sales in U.S. dollars; the balance of
Octel's billing is in pound sterling which approximates Octel's pound sterling
costs. This program is designed to insulate Octel's profits, measured in
dollars, from fluctuations in the pound sterling.

<TABLE>
<CAPTION>

---------------------------------------------------------
                 SAR Expense as a Percentage of Net Sales
                   Selling &
Year          Administration           R&D          Total
---------------------------------------------------------
<S>                      <C>           <C>           <C>
1996                     9.8           2.9           12.7
1995                     9.6           2.7           12.3
1994                     9.5           2.9           12.4
</TABLE>

Selling, administration and research (SAR) expense in 1996 amounted to $280
million, a decline of $11 million from 1995 as a result of lower costs and the
effect of dispositions. As a percentage of sales, SAR expense increased
slightly due to lower sales.

Research and development spending in 1996 amounted to $64 million, a 2.4
percent increase over 1995. Research and development activities are centered on
new and improved flame retardants and polymer stabilizers, pharmaceutical
intermediates, non-lead fuel additives and water treatment products.

<TABLE>
<CAPTION>
----------------------------------------------------------
                                 Income from Operations as
Year                             a Percentage of Net Sales
----------------------------------------------------------
<S>                                                  <C>
1996                                                 20.1
1995                                                 21.1
1994                                                 21.2
</TABLE>

Operating income of $445 million declined 10 percent from 1995. Petroleum
Additives were off 8 percent while the core specialty chemicals business
declined 14 percent.

Equity in earnings of affiliates and other income amounted to $60 million in
1996, double that of 1995. Included in 1996 is a gain of $19 million, net of
expenses, resulting from breakup fees received when Nowsco Well Services, Ltd.,
accepted an acquisition offer that the Company was unwilling to meet and a net
gain of $13 million resulting from the sale of the Company's engineered surface
treatments business, E/M Corporation. Excluding the aforementioned one-time
gains, other income is equivalent to the prior year.

Interest and other expenses amounted to $96 million in 1996, $41 million higher
than 1995. Included in the 1996 expense is a special charge recorded in the
second quarter of almost $14 million primarily related to environmental
remediation costs associated with a former plant site sold by the Company in
the early 1980s and an approximately $13 million charge in the fourth quarter
to write off unused equipment and to provide for redundancies. In addition to
the above, other expenses increased due to: (1) interest expense on higher
borrowings in support of share repurchases and capital projects; (2)
accelerated amortization of goodwill related to the petroleum additives
business to better match costs and revenues; and (3) foreign exchange losses,
primarily unrealized, resulting from the pound sterling reaching highs
vis-a-vis the U.S. dollar near the end of 1996.


                            GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES 25
<PAGE>   18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL 
CONDITION

Minority interest in the income of subsidiaries includes an approximate 12
percent minority interest in Octel and an 11 percent minority interest in
Chemol. The minority interest in Octel is before income taxes as earnings are
predominantly from a partnership; therefore, taxes are paid by each partner
individually.

<TABLE>
<CAPTION>
---------------------------------------------------------
                                       Effective Tax Rate
Year                                           Percentage
---------------------------------------------------------
<S>                                                <C>
1996                                                 34.0
1995                                                 32.5
1994                                                 30.8
</TABLE>

Income taxes of $129 million were $13 million lower than 1995; an increase of
$6 million due to the higher effective tax rate was offset by lower earnings.
The higher effective tax rate is due principally to a reduction in reversals of
prior-year reserves.

Net income for 1996 was $250 million, or $3.94 per share, compared to $296
million, or $4.52 per share, in 1995. The share repurchase program benefited
earnings per share by approximately 3.5 cents.

OPERATING RESULTS 1995 COMPARED WITH 1994

Sales for the year were $2.4 billion, an increase of 14 percent over the $2.1
billion reported in 1994. The $296 million improvement is attributable to
increased selling prices of $87 million; volume gains of $81 million; sales of
acquisitions, $102 million; and favorable foreign exchange of $26 million.

Flame Retardants sales reached a record $300 million, an increase of $35
million over 1994. Selling price increases effected in late 1994 and early 1995
were maintained throughout the year. Incremental capacity expansions allowed
the unit to satisfy strong market requirements in the United States and the
Pacific Rim. Sales volumes in Europe were comparable to the prior year.

Intermediates and Fine Chemicals sales increased $40 million, totaling $302
million for the year. Demand was strong across all product lines with furfural
and derivatives, bromine and derivatives, and fine chemicals posting
double-digit volume gains. All product lines achieved price improvements.
Furfural and derivatives led the price improvements, with the combined effect
of tight raw material supply and strong market demand for high value-added
derivative products.

Petroleum Additives sales improved $46 million in 1995 reflecting sales added
by the September 1994 acquisition of E. I. du Pont de Nemours (DuPont) fuel
additives business. In the alkyl lead compound product line, retail volumes
declined approximately 8 percent for the year. Price improvements for the year
averaged about 9 percent. Product pricing reflects the Company's strategy to
extend the life of the product, refinery economics related to achieving octane
ratings and the changing mix of geographic regions where lead fuels are used.

During 1995 wholesale compound volumes declined 19 percent while prices
improved about 5 percent for the year. The relationship of retail to wholesale
compound sales was 72/28 in 1995 compared to 70/30 in 1994.

Polymer Stabilizers sales increased 38 percent, or $62 million, during 1995.
Approximately half of the improvement is attributable to the April 1994
acquisition of EniChem Synthesis S.p.A.'s (GLCI) polymer additives and
associated chemicals business. The business unit successfully expanded its
market presence through new product introductions and incremental capacity
increases to meet customer requirements. Volume gains made during the first
half of the year were offset in part by customer year-end inventory
corrections. Product pricing increased over 1994.

Specialized Services and Manufacturing posted a $77 million sales improvement
over 1994 primarily due to Chemol's expansion of trading activities in Central
Europe. The oil field service business registered solid improvements through an
expanded presence in international markets and a broader offering of oil and
gas well completion services. The fluorine chemicals business, led by expanded
market acceptance of the FM-200(R) fire extinguishing product, gained over 40
percent for the year.

Water Treatment sales gained $36 million in 1995. The extended summer season
and higher than normal temperatures contributed to strong volume gains in
recreational water chemical sales. Volume contributed more than 40 percent of
the sales improvement with acquisitions adding another 35 percent. Favorable
currency effects account for the balance of the improvement as competitive
pressures did not allow for price improvement.

Gross profits of $788 million increased $93 million over the prior year.
Increases in selling prices were more than double manufacturing and raw
materials cost increases. Core specialty chemical businesses registered volume
gains that more than offset declines in the Petroleum Additives business unit.
The contribution from acquisitions accounted for about 30 percent of the
overall improvement while foreign exchange had a minimal impact on the increase
in gross profits. As a percentage of sales, gross profits declined slightly as
a one percentage point improvement in our core businesses was offset by a
decline in Petroleum Additives.

SAR expenses were $291 million, an increase of $34 million from the $257
million in 1994. As a percentage of sales, SAR expense declined slightly. In
absolute terms, about half of the increase is attributable to increased
spending associated with the growth of the business, 30 percent is related to
acquisitions, and the balance is due to negative foreign exchange impacts.
Research and development spending in 1995 amounted to $63 million, an increase
of 6 percent over the prior year.

Operating income increased 13 percent to $497 million on the strength of the
strong showing turned in by the core business units. Operating income of these
businesses increased 31 percent over the prior year.


26 GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
<PAGE>   19


Equity in earnings of affiliates and other income was $29 million in 1995, a
decrease of $16 million from the prior year. Nonrecurring 1994 gains from
insurance settlements, the disposition of a product line, and the settlement of
a natural gas contract-related matter account for half of the decrease with the
balance related to converting an equity position in Huntsman Chemical
Corporation (HCC) to cumulative preferred shares in March 1995.

Interest and other expenses amounted to $55 million in 1995, an increase of $7
million from the prior year. Interest expense, net of capitalized interest on
construction projects, increased $5 million due to higher borrowing in support
of the Company's share repurchase program and capital investment projects.
Other expenses increased due to losses on asset disposals and the settlement of
various legal matters.  Amortization of intangibles declined slightly as
goodwill amortization associated with the investment in HCC was eliminated with
the conversion of the equity position in HCC to preferred stock. Foreign
exchange gains and losses, which are included in other expenses, were not
significant.

Income taxes of $142 million increased $18 million over the prior year. The
higher effective tax rate is due to a reduction in reversals of prior-year tax
reserves and from a change in the mix of earnings from lower to higher tax rate
jurisdictions. These items account for approximately $7 million of the increase
with the balance related to increased earnings.

Net income for 1995 was $296 million, or $4.52 per share, compared to net
income of $279 million, or $4.00 per share, in 1994. The increase in net income
and earnings per share was 6 percent and 13 percent, respectively. The share
repurchase program added approximately $.07 to 1995 earnings per share.

FINANCIAL CONDITION AND LIQUIDITY

In 1996 the Company fell short of its objective to return 20 percent or more on
stockholders' average equity. Management is focusing its efforts on
profitability improvements, effective asset utilization and allocation of
resources to capital projects, and strategic acquisitions that will return the
Company to historic performance levels.

<TABLE>
<CAPTION>
---------------------------------------------------------
Year                                     Return on Equity
---------------------------------------------------------
<S>                                                 <C>
1996                                                 17.2
1995                                                 21.7
1994                                                 21.7
</TABLE>

Cash from operating activities amounted to $310 million in 1996, a decrease of
$34 million from the prior year. This strong cash flow, supplemented by
commercial paper borrowings, was utilized by the Company to expand and improve
production capacity, to increase dividends paid to shareholders by 26 percent
and to repurchase approximately 3.3 million shares of stock. Cash and cash
equivalents were $202 million including $139 million of short-term investments,
an increase of $21 million from the prior year.

The Company's investment in working capital, excluding cash and equivalents,
increased $76 million during the year to $541 million. Total accounts
receivable declined $21 million from the prior year. Trade receivables declined
$7 million reflecting the decline in sales. Other non-trade receivables
declined $11 million, resulting from the recovery of insurance claims and 
value-added taxes. Average days sales outstanding are essentially unchanged 
from 1995 at 79 days.

Inventories at December 31, 1996 were $427 million, an increase of $51 million
from the prior year. Increases are in Petroleum Additives where a number of
factors including higher lead stocks and prices and a weak U.S. dollar have
caused a temporary increase in inventories, and Intermediates and Fine
Chemicals where inventories were built early in the year to compensate for
expected tight supplies of furfural.  Inventories in other business units are
equal to or lower than a year ago. Inventory turnover has slowed from a year
ago as a result of lower sales and the aforementioned increases.

Spending on plant and equipment in 1996 amounted to $237 million, a $9 million
decrease from the prior year. Additional capacity for both new and existing
products accounted for approximately 45 percent of the spending, while 25
percent was for capital replacement and cost savings projects. The remainder of
the spending was directed toward safety and regulatory compliance,
environmental matters and support activities. The Company's capital spending
activities are well diversified by product area and geographic location. Key
capacity-adding projects include POLYMEG(R) polyols expansion, polymer
stabilizers production in the United States and Korea, flame retardants
capacity and brine production facilities. Capital spending in 1997 is projected
to be about $150 million and will emphasize cost reduction and replacement
rather than capacity additions.

Spending on environmental-related capital projects was approximately $13
million in 1996 which is slightly higher than the prior year. Capital
requirements for environmental-related projects in 1997 should be consistent
with 1996 levels.

The Company utilizes commercial paper borrowing as its primary source of
external financing due to interest rate considerations. Commercial paper
borrowings at December 31, 1996, amounted to $467 million compared to $262
million at December 31, 1995. At December 31, 1996, the level of debt to total
capitalization was 24.1 percent, up from 18.8 percent at December 31, 1995.

The Company has a $600 million, five-year credit facility with various banks,
an increase of $200 million over the facility in place a year ago. The credit
facility provides back-up to the Company's $600 million commercial paper
program. The Company's corporate credit rating is AA-/A2 and its commercial
paper rating is A-1+/P1.



                           GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES 27
<PAGE>   20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION

Other noncurrent liabilities of $109 million include a $90 million reserve for
expected future plant closures and related personnel reductions and
decontamination costs at Octel's alkyl lead plants in the U. K., France, and
Italy as demand for this product diminishes. Approximately $20 million was
spent in 1996, compared to $6 million in 1995. Operations in Italy were ceased
in the first quarter of 1996, and operations in France were ceased in the
fourth quarter of 1996. The closures, coupled with staff reductions in the
U.K., caused the increased spending in 1996. Spending on plant closures should
be in the $20 million range in both 1997 and 1998. Production at the U.K.
plants should continue into the next century based on the current rate of
market decline.

In 1996 the Company applied $62 million of deferred revenue related to
pre-payments for product from a dedicated plant, included in other non-current
liabilities, against the book value of that facility and certain deferred costs
as it has been agreed with the customer that production will not be resumed. A
portion of the plant was converted to polymer stabilizer production which
started up in the 1996 fourth quarter. Another portion of the plant is being
converted to fine chemical production which is expected to come onstream in the
second quarter of 1997.

During 1996 the Company settled certain issues relating to federal and state
tax returns for the years 1989, 1990 and 1991. The settlement resulted in
payments totaling approximately $40 million. The settlement had no impact on
earnings as the Company had provided for the possible non-allowance of these
items in prior years.

Stockholders' equity was $1.5 billion, or $24.13 per share, at December 1996,
compared to $1.4 billion, or $21.92 per share, at the end of 1995. Over the
past 10 years, stockholders' equity has grown at a compound rate of 21 percent.

Dividends declared increased for the twenty-fourth consecutive year totaling
$36 million, compared with $29 million in the prior year. On a per-share basis,
dividends of $.57 per share were increased 30 percent over the $.44 per share
declared in 1995.

In 1996, the Company purchased 3.3 million shares of its stock for a total cost
of $192 million under share repurchase programs authorized by the Board of
Directors. The average price per share of the stock purchased was $57.45.
During the three-year period ended December 31, 1996, the Company has
repurchased 10.3 million shares at a cost of approximately $589 million, or
$57.17 per share. As of December 31, 1996, management is authorized to
repurchase an additional 2.3 million shares. Management intends to repurchase
additional shares as market conditions warrant.

The cumulative translation adjustment component of stockholders' equity
represents the translation of foreign currency-denominated financial
statements into U.S. dollars. The change in the cumulative translation
adjustment increased stockholders' equity by $40 million in 1996. The increase
primarily related to the strength of the British pound sterling against the
dollar. Approximately 50 percent of the Company's net assets are in Europe,
predominantly the United Kingdom.

OTHER MATTERS

The Company's operations, like those of most companies which use or make        
chemicals, are subject to stringent laws and regulations relating to
maintaining or improving the quality of the environment. Such laws and
regulations, along with the Company's own internal compliance efforts, have
required and will continue to require capital expenditures and associated
operating costs. Spending for environmental compliance, including that
associated with waste minimization and pollution prevention programs, amounted
to approximately $65 million in 1996 and about $62 million in 1995. These
amounts include approximately $13 million and $12 million for capital equipment
in 1996 and 1995, respectively. Spending for environmental compliance is
anticipated to be in the same range in 1997.

The Company is a party to several proceedings and lawsuits involving
environmental matters, including being named as defendant, respondent or a
potentially responsible party, together with other companies, under CERCLA, and
similar state laws, in which recovery is sought for the cost of cleanup of
contaminated manufacturing and waste disposal sites. Due to the prevailing
practices of manufacturing facilities, waste disposal haulers and disposal
facilities prior to adoption and implementation of the environmental laws and
regulations, evidence is difficult to obtain or evaluate. In each such matter,
the Company anticipates, although there can be no assurance, that liability, if
any, will eventually be equitably apportioned among the companies found to be
responsible. In most of these matters, the Company believes that its
responsibility is small relative to other parties and that it may have
meritorious claims against these other parties. Based upon current regulation
and the information available, management believes that adequate provisions
have been made in the financial statements and future costs will not have a
material adverse impact on the Company's consolidated financial condition.

Inflation has not been a significant factor for the Company over the last
several years. Management believes that inflation will continue to be moderate
over the next several years and can be offset through a combination of price
increases and productivity improvements.

With the Company's strong balance sheet, substantial free cash flow and access
to low-cost external financing, the Company is well positioned to capitalize on
opportunities that may arise in 1997.



28 GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
<PAGE>   21
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of Great Lakes Chemical Corporation is responsible for the
preparation and presentation of the accompanying consolidated financial
statements and all other information in this Annual Report. The financial
statements are prepared in accordance with generally accepted accounting
principles and include amounts that are based on management's informed
judgements and estimates.

The Company maintains accounting systems and internal accounting controls which
management believes provide reasonable assurance that the Company's financial
reporting is reliable, that assets are safegaurded, and that transactions are
executed in accordance with proper authorization. This internal control
structure is supported by the selection and training of qualified personnel and
an organizational structure which permits the delegation of authority and
responsibility. The systems are monitored worldwide by an internal audit
function that reports its findings to management.

The Company's financial statements have been audited by Ernst & Young LLP,      
independent auditors, in accordance with generally accepted auditing
standards. These standards provide for the review of internal accounting
control systems to plan the audit and determine auditing procedures and tests
of transactions to the extent they deem appropriate.

The Audit Committee of the Board of Directors, which consists solely of 
non-employee directors, is responsible for overseeing the functioning of the
accounting systems and related internal controls and the preparation of annual
financial statements. The Audit Committee periodically meets with management
and the independent auditors to review and evaluate their accounting,
auditing and financial reporting activities and responsibilities. The
independent auditors and internal auditors have full and free access to the
Audit Committee without management's presence to discuss internal accounting
controls, results of their audits and financial reporting matters.

/s/Robert T. Jeffares

Robert T. Jeffares
Executive Vice President and Chief Financial Officer


REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


We have audited the accompanying consolidated balance sheets of the Great Lakes
Chemical Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income and retained earnings and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Great Lakes
Chemical Corporation and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.

/s/ Ernst & Young LLP

Indianapolis, Indiana
January 29, 1997


                          GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES  29
<PAGE>   22

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS


<TABLE>
<CAPTION>
(in thousands of dollars, except per share data)
YEAR ENDED DECEMBER 31                                             1996            1995            1994
-------------------------------------------------------------------------------------------------------
<S>                                                          <C>             <C>             <C>
NET SALES                                                    $2,211,704      $2,361,069      $2,065,008

OPERATING EXPENSES
  Cost of products sold                                       1,486,027       1,572,653       1,369,618
  Selling, administrative and research expenses                 280,319         291,073         256,701
-------------------------------------------------------------------------------------------------------
                                                              1,766,346       1,863,726       1,626,319
-------------------------------------------------------------------------------------------------------

INCOME FROM OPERATIONS                                          445,358         497,343         438,689

EQUITY IN EARNINGS OF AFFILIATES AND OTHER INCOME                59,835          29,353          45,645

INTEREST AND OTHER EXPENSES                                      96,252          55,149          48,432

MINORITY INTEREST IN INCOME OF SUBSIDIARIES                      29,745          33,674          33,227
-------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES                                      379,196         437,873         402,675

INCOME TAXES                                                    128,900         142,300         124,000
-------------------------------------------------------------------------------------------------------

NET INCOME                                                      250,296         295,573         278,675
-------------------------------------------------------------------------------------------------------

RETAINED EARNINGS AT BEGINNING OF YEAR                        1,678,834       1,411,890       1,160,173

CASH DIVIDENDS DECLARED                                          36,026          28,629          26,958
-------------------------------------------------------------------------------------------------------

RETAINED EARNINGS AT END OF YEAR                             $1,893,104      $1,678,834      $1,411,890
=======================================================================================================

NET INCOME PER SHARE                                         $     3.94      $     4.52      $     4.00

CASH DIVIDENDS DECLARED PER SHARE                            $      .57      $      .44      $      .39

AVERAGE SHARES OUTSTANDING                                   63,538,759      65,364,066      69,658,653
-------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.


30  GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
<PAGE>   23

CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
December 31                                                                                     1996            1995
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>             <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents                                                                   $  202,255      $  180,970
  Accounts and notes receivable, less allowance of
    $10,219 and $7,659, respectively                                                             506,203         527,014
  Inventories                                                                                    426,658         375,967
  Prepaid expenses                                                                                42,080          41,060
------------------------------------------------------------------------------------------------------------------------
  TOTAL CURRENT ASSETS                                                                         1,177,196       1,125,011
------------------------------------------------------------------------------------------------------------------------
PLANT AND EQUIPMENT                                                                              858,483         765,311

GOODWILL                                                                                         435,195         416,632

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES                                          72,767          72,587

OTHER ASSETS                                                                                     117,698         154,131
------------------------------------------------------------------------------------------------------------------------
                                                                                              $2,661,339      $2,533,672
========================================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Notes payable                                                                               $      288      $    6,309
  Accounts payable                                                                               190,853         198,490
  Accrued expenses                                                                               127,333         122,217
  Income taxes payable                                                                            98,687         128,891
  Dividends payable                                                                                9,242           7,430
  Current portion of long-term debt                                                                7,717          15,891
------------------------------------------------------------------------------------------------------------------------
  TOTAL CURRENT LIABILITIES                                                                      434,120         479,228
------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT PORTION                                                             503,795         340,145

OTHER NONCURRENT LIABILITIES                                                                     109,012         177,820

DEFERRED INCOME TAXES                                                                             83,912          88,540

MINORITY INTEREST                                                                                 43,601          31,756

STOCKHOLDERS' EQUITY
  Common stock, $1 par value, authorized 200,000,000 shares,
    issued 72,455,051 and 72,109,477 shares, respectively                                         72,455          72,109
  Additional paid-in capital                                                                     121,224         113,647
  Retained earnings                                                                            1,893,104       1,678,834
  Cumulative translation adjustment                                                               17,064         (23,179)
  Less treasury stock, at cost, 10,842,200 and 7,505,100 shares, respectively                   (616,948)       (425,228)
  ----------------------------------------------------------------------------------------------------------------------
  TOTAL STOCKHOLDERS' EQUITY                                                                   1,486,899       1,416,183
  ----------------------------------------------------------------------------------------------------------------------
                                                                                              $2,661,339      $2,533,672
  ====================================================================================================================== 
</TABLE>
See notes to consolidated financial statements.


                            GREAT LAKES CHEMICAL CORPORATION ADN SUBSIDIARIES 31
<PAGE>   24


CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)

YEAR ENDED DECEMBER 31                                                               1996           1995            1994
------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>           <C>              <C>
OPERATING ACTIVITIES
  Net income                                                                     $250,296       $295,573        $278,675
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and depletion                                                   90,185         83,461          72,663
      Amortization of intangible assets                                            34,186         27,184          29,634
      Deferred income taxes                                                        (5,444)        12,600             700
      Net (unremitted) remitted earnings of affiliates                             (1,382)          (518)        112,312
      Loss (gain) on disposition of assets                                          7,774           (185)            (65)
      Other                                                                       (10,890)          (843)         (1,365)
      Change in operating assets and liabilities,
         net of effects from business combinations:
           Accounts receivable                                                     22,157        (34,432)        (95,097)
           Inventories                                                            (39,036)       (57,565)         (9,969)
           Other current assets                                                      (113)       (13,948)         (6,602)
           Accounts payable and accrued expenses                                  (10,917)        22,137          35,010
           Income taxes and other current liabilities                              (9,201)        10,504          10,131
           Other noncurrent liabilities                                           (17,373)           639          (8,098)
------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                         310,242        344,607         417,929

INVESTING ACTIVITIES
  Plant and equipment additions                                                  (237,464)      (246,639)       (123,109)
  Business combinations, net of cash acquired                                     (27,695)       (24,399)       (198,494)
  Proceeds from sale of assets                                                      8,738          3,144          11,700
  Other                                                                            16,871        (47,986)         21,484
------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                                            (239,550)      (315,880)       (288,419)

FINANCING ACTIVITIES
  Net (repayment) and borrowings under short-term credit lines                    (15,263)        (5,878)          1,243
  Net payments of long-term borrowings                                             (7,880)        (2,399)         (8,026)
  Net increase  in commercial paper and
    other long-term obligations                                                   175,159        208,081          85,042
  Minority interest                                                                 6,836          2,345           9,751
  Proceeds from stock options exercised                                             7,923          1,065           3,336
  Cash dividends                                                                  (36,026)       (28,629)        (26,958)
  Repurchase of common stock                                                     (191,720)      (164,816)       (232,279)
------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES                                  (60,971)         9,769        (167,891)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                       11,564         (2,192)          3,313
------------------------------------------------------------------------------------------------------------------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   21,285         36,304         (35,068)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    180,970        144,666         179,734
------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                         $202,255       $180,970        $144,666
========================================================================================================================
</TABLE>

See notes to consolidated financial statements.
Parentheses indicate decrease in cash and cash equivalents.
                                                           
32 GREAT LAKES CHEMICALL CORPORATION AND SUBSIDIARIES
<PAGE>   25



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)

ACCOUNTING POLICIES

NATURE OF OPERATIONS 
The Company is a well diversified specialty chemicals company.  Primary
manufacturing operations are located in the United States and Europe. 
Principal product lines ranked in order of sales are: Petroleum Additives,
Water Treatment, Specialized Services and Manufacturing, Flame Retardants,
Intermediates and Fine Chemicals and Polymer Stabilizers. The Company's
products are sold globally. The principal markets include: Oil Refineries,
Computer and Business Equipment, Consumer Electronics, Data Processing,
Construction Materials, Telecommunications, Pharmaceuticals, and Pool and Spa
Dealers and Distributors.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all subsidiaries of the Company
after elimination of significant intercompany accounts and transactions.
Investments in less than majority-owned companies in which the Company has the
ability to exercise significant influence over operating and financial policies
of the investees are recorded at cost, plus equity in their undistributed
earnings since acquisition.

USE OF ESTIMATES
The preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect the amount reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

REVENUE RECOGNITION
Revenue from sales of products is recognized at the time products are shipped
to the customer. Revenue from services is recognized when the services are
provided to the customer.

CASH EQUIVALENTS
Investment securities with maturities of three months or less when purchased
are considered to be cash equivalents.

INVENTORIES
Over 90 percent of inventories are stated at the lower of cost (first-in,
first-out method) or market.

PLANT AND EQUIPMENT
Plant and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets using the straight-line, declining-balance
and unit-of-production methods. The costs of gas wells, leases and royalty
interests are amortized by the unit-of-production method based upon estimated
recoverable reserves and annual volumes of production.

GOODWILL
Goodwill, the excess of investment over net assets of subsidiaries acquired, is
amortized over periods of eight to 40 years. The Company regularly evaluates
the realizability of goodwill based on projected undiscounted cash flows and
operating income for each business having material goodwill balances. Based on
its most recent analysis, the Company believes that no impairment of goodwill
exists at December 31, 1996.  As of December 31, 1996 and 1995, accumulated
amortization was $115 million and $83 million, respectively.

ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental compliance costs include ongoing maintenance, monitoring and
similar costs. Such costs are expensed as incurred. Environmental remediation
costs are accrued, except to the extent costs can be capitalized, when
environmental assessments or remedial efforts are probable and the cost can be
reasonably estimated. Environmental costs which improve the condition of a
property as compared to the condition when constructed or acquired are
capitalized.

INCOME TAXES
Income taxes are provided on the portion of the income of unconsolidated
affiliates that is expected to be remitted to the parent company and be
taxable.

STOCK OPTIONS
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and related Interpretations in accounting
for its employee stock options. Under APB 25, because the exercise price of the
stock option equals the market price of the underlying stock on the issuance
date, no compensation expense is recognized. Pro forma net income and net
income per share is presented in the stock option note as if the alternative
fair value method of accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), had been applied to options granted after December 31, 1994.

SHARE DATA
Net income per share is computed on the weighted average number of shares
outstanding for all periods presented. The effect on net income per share
resulting from the assumed issuance of outstanding stock options is not
material.


                           GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES 33
<PAGE>   26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACQUISITIONS

In 1995, the Company completed acquisitions in the Water Treatment and
Intermediates and Fine Chemicals business units at a cost of $11 million,
including $6 million excess purchase price over the value of net assets
acquired.

On September 7, 1994, the Company completed the acquisition of E. I. du Pont de
Nemours & Company's (DuPont) petroleum additives business including DuPont's
North and South American tetraethyl lead business for approximately $50
million. The excess of purchase price over the value of net assets acquired
totaled approximately $35 million.

The Company's acquisition of EniChem Synthesis S.p.A. (renamed GLCI) was
completed on April 21, 1994, for approximately $90 million in cash.  The excess
of purchase price over the net assets acquired amounted to $25 million.
Headquartered in Milan, Italy, GLCI is a leading manufacturer of antioxidants
and UV absorbers.

Other acquisitions completed in 1994 were in the Water Treatment business unit
and the oil field services business. The acquisitions cost approximately $43
million. The excess of purchase price over the net assets acquired amounted to
approximately $6 million.

The Company's 87.82 percent ownership interest in Octel Associates and The
Associated Octel Company, Limited, was acquired in two transactions.  In 1989
the Company acquired a 51.15 percent interest with the balance acquired in
1992. The 1989 acquisition agreement provides for profit participation payments
for specified periods of time after the date of acquisition. Such profit
participation is treated as an adjustment to the purchase price. Profit
participation payments for 1996 amounted to $17 million. In early 1997 the
Company completed the determination of the profit participation payments for
the years 1989 through 1995 resulting in an addition to purchase price of
approximately $30 million.  Funding for the payment which had been previously
set aside and classified as other non-current assets in the 1995 consolidated
balance sheet is now classified as goodwill. Total profit participation
payments amount to approximately $216 million since inception.

All acquisitions have been accounted for as purchases and the results of
operations of the acquired businesses are included in the consolidated
financial statements from the dates of acquisition. The unaudited pro forma
results of operations as if the above-noted 1994 business combinations had
occurred at the beginning of that year are as follows: net sales, $2.1 billion;
net income, $287 million; and earnings per share, $4.12. Acquisitions
consummated in 1996 and 1995 had no material impact on reported results.

The pro forma results do not represent the Company's actual operating results
had the acquisitions been made at the beginning of the respective years, or the
results which may be expected in the future.

DISPOSITIONS

During 1996 the Company sold its pool equipment distribution business and its
engineered surface treatment business. On an annual basis, these operations
accounted for approximately $150 million in sales. These transactions did not
have a material impact on the Company's results of operations.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:

<TABLE>
<CAPTION>
---------------------------------------------------------
December 31                               1996       1995
---------------------------------------------------------
<S>                                   <C>        <C>
Cash                                  $ 63,452   $ 57,607
Time deposits                          138,803    123,363
---------------------------------------------------------
                                      $202,255   $180,970
=========================================================
</TABLE>

INVENTORIES

The major components of inventories are as follows:

<TABLE>
<CAPTION>
---------------------------------------------------------
December 31                               1996       1995
---------------------------------------------------------
<S>                                   <C>        <C>
Finished products                     $298,682   $260,293
Raw materials                           87,687     82,297
Supplies                                40,289     33,377
---------------------------------------------------------
                                      $426,658   $375,967
=========================================================
</TABLE>


PLANT AND EQUIPMENT

Plant and equipment consist of the following:

<TABLE>
<CAPTION>
---------------------------------------------------------
December 31                               1996       1995
---------------------------------------------------------
<S>                                 <C>        <C>
Land                                $   25,125 $   25,750
Buildings and land improvements        134,732    115,897
Equipment and leasehold improvements 1,086,728    936,383
Construction in progress (estimated
  additional cost to complete at
  December 31, 1996, $85,000)          178,011    200,302
---------------------------------------------------------
                                     1,424,596  1,278,332

Less allowances for depreciation,
  depletion and amortization           566,113    513,021
---------------------------------------------------------
                                    $  858,483 $  765,311
=========================================================
</TABLE>

The estimated useful lives for purposes of computing depreciation are:
buildings and land improvements, 7-40 years; equipment and leasehold
improvements, 2-17 years.

Maintenance and repairs charged to costs and expenses were $89 million, $98
million and $89 million for 1996, 1995 and 1994, respectively.

Rent expense for all operating leases amounted to $23 million, $24 million and
$21 million for 1996, 1995 and 1994, respectively.


34 GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
<PAGE>   27




NOTES PAYABLE

Data concerning borrowings are as follows:

<TABLE>
<CAPTION>
---------------------------------------------------------
                               1996       1995       1994
---------------------------------------------------------
<S>                         <C>        <C>        <C>
Amounts borrowed:
  Maximum during the year   $12,011    $44,969    $34,758
  Average for the year      $   623    $10,992    $11,916
Weighted average
  interest rates:
  At December 31                7.6%      12.9%       6.6%
  On borrowings during
    the year                   11.3%      11.0%       6.7%
---------------------------------------------------------
</TABLE>

The Company has no confirmed short-term credit lines, but has available for its
use substantial non-confirmed credit lines.

LONG-TERM DEBT

Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------
December 31                               1996       1995
------------------------------------------------------------
<S>                                      <C>        <C>
Commercial paper, 1996 year-end
  average interest rate of 5.4%          $467,283   $262,382
Industrial development bonds, at
  fixed and variable interest rates from
  4.2% to 7.0% at December 31, 1996
  (weighted average 4.8%) with
  maturities to May 2025                   21,685     21,685
Other                                      22,544     71,969
------------------------------------------------------------
                                          511,512    356,036
Less current portion                        7,717     15,891
------------------------------------------------------------
                                         $503,795   $340,145
============================================================
</TABLE>

During 1996 the Company entered into a five-year $600 million revolving credit
agreement with nine banks which serves as a backup for the Company's commercial
paper program. The facility replaced a $400 million credit agreement. The
agreement provides various interest rate options, including the banks' prime
interest rate, and contains restrictive financial covenants, including an
interest coverage ratio. The Company's commercial paper is rated A-1+ by
Standard and Poor's and P-1 by Moody's.

Long-term debt matures as follows: 1997, $7.7 million; 1998, $4.1 million;
1999, $2.0 million; 2000, $11 million; and 2001, $473 million.

During 1996, 1995 and 1994 interest costs were $26 million, $21 million and $12
million, respectively, of which $5.8 million, $6.2 million and $1.7 million,
respectively, were capitalized as additional costs of equipment and leasehold
improvements in connection with the expansion of physical facilities. In these
years, interest payments were $27 million, $21 million and $12 million,
respectively.


OTHER NONCURRENT LIABILITIES

Other noncurrent liabilities consist of the following:

<TABLE>
<CAPTION>
----------------------------------------------------------
December 31                               1996       1995
----------------------------------------------------------
<S>                                    <C>        <C>
Future estimated closing costs of
  Octel's TEL manufacturing facilities $ 90,324   $ 97,328
Deferred revenue                             --     64,932
Other                                    18,688     15,560
----------------------------------------------------------
                                       $109,012   $177,820
==========================================================
</TABLE>

Prior to 1996 a pension asset of $51 million (resulting from the excess of the
fair market value of pension plan assets as compared to the projected benefit
obligation at the time of the Octel acquisition) was netted against the future
estimated closing costs of Octel's TEL manufacturing facilities. This asset,
including subsequent additions, has been classified as other assets in the 1996
balance sheet and prior year balances have been restated. The reclassification
has no effect on net income or stockholders' equity.

The liability for estimated closing costs of Octel's TEL manufacturing
facilities provides for personnel reductions, decontamination and environmental
remediation when demand for the product diminishes. Estimated closing costs are
regularly evaluated. Adjustments to the liability are prorated over the
estimated remaining life of the business in proportion to the expected rate of
market decline. Closure costs are estimated to be about $145 million.

Deferred revenue of $62 million, related to prepayment for products to be
delivered to a major customer from a dedicated production facility, was applied
against the book value of the facility and related assets. The Company and the
customer have agreed that production at the facility will not be resumed.

INCOME TAXES

The following is a summary of domestic and foreign income before income taxes,
the components of the provisions for income taxes and deferred income taxes, a
reconciliation of the U.S. statutory income tax rate to the effective income
tax rate, and the components of deferred tax assets and liabilities.

Income Before Income Taxes:

<TABLE>
<CAPTION>
---------------------------------------------------------
Year Ended December 31         1996       1995       1994
---------------------------------------------------------
<S>                        <C>        <C>        <C>
Domestic                   $135,039   $142,271   $145,351
Foreign                     244,157    295,602    257,324
---------------------------------------------------------
                           $379,196   $437,873   $402,675
=========================================================    
</TABLE>


                           GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES 35
<PAGE>   28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Provisions for Income Taxes:

---------------------------------------------------------------------
Year Ended December 31             1996           1995           1994           
---------------------------------------------------------------------
Current:                                                                        
  Federal                      $ 40,000       $ 34,900       $ 39,500           
  State                           7,000          5,300          6,000           
  Foreign                        78,500         89,500         77,800           
---------------------------------------------------------------------
                                125,500        129,700        123,300           
=====================================================================
                                                                                
Deferred:                                                                       
  Domestic                       (3,800)         5,800         (6,100)          
  Foreign                         7,200          6,800          6,800           
---------------------------------------------------------------------
                                  3,400         12,600            700           
---------------------------------------------------------------------
                               $128,900       $142,300       $124,000           
=====================================================================         
                                                                                
Provisions for Deferred Income Taxes:                                           
                                                                                
---------------------------------------------------------------------
Year Ended December 31            1996           1995           1994            
---------------------------------------------------------------------
Equity in affiliates           $    --        $    --        $(8,313)           
Depreciation                     6,000          7,003          4,297            
Other                           (2,600)         5,597          4,716            
---------------------------------------------------------------------
                               $ 3,400        $12,600        $   700            
=====================================================================
                                                                                
Effective Income Tax Rate Reconciliation:                                       
                                                                                
---------------------------------------------------------------------         
Year Ended December 31            1996           1995           1994            
---------------------------------------------------------------------         
U.S. statutory income tax rate    35.0%          35.0%          35.0%           
Decrease resulting from:                                                        
   Reversal of prior provisions     --             --           (2.0)           
  Other                           (1.0)          (2.5)          (2.2)           
---------------------------------------------------------------------         
Effective income tax rate         34.0%          32.5%          30.8%           
=====================================================================         

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

Components of Deferred Tax Assets and Liabilities:

--------------------------------------------------------------------          
December 31                                      1996           1995            
--------------------------------------------------------------------          
Deferred tax assets                          $ 30,045       $ 26,231            
--------------------------------------------------------------------          
Deferred tax liabilities                                                        
  Depreciation                               $ 50,000       $ 62,000            
  Foreign liabilities pending settlements      20,000         20,000            
  Undistributed affiliate earnings              1,352          1,352            
  Other                                        31,933         23,399            
--------------------------------------------------------------------          
                                             $103,285       $106,751            
====================================================================          

Cash payments for income taxes were $139 million, $126 million and $109 million
in 1996, 1995 and 1994, respectively.

STOCKHOLDERS' EQUITY

Changes in common stock and additional paid-in capital accounts are summarized
as follows:

-----------------------------------------------------------------------
                                                             Additional
                                            Common Stock        Paid-In
                                         Shares      Amount     Capital
-----------------------------------------------------------------------
Balance at
  December 31, 1993                    71,817,996    $71,818   $107,268
Exercise of stock options,
  net of shares exchanged                 206,524        207      3,129
Tax benefit from early
  disposition of stock
  by optionees                                 --         --      2,270
-----------------------------------------------------------------------
Balance at
  December 31, 1994                    72,024,520     72,025    112,667
Exercise of stock options,
  net of shares exchanged                  84,957         84        400
Tax benefit from early
  disposition of stock
  by optionees                                 --         --        580
-----------------------------------------------------------------------
Balance at
  December 31, 1995                    72,109,477     72,109    113,647
Exercise of stock options,
  net of shares exchanged                 345,574        346      1,357
Tax benefit from early
  disposition of stock
  by optionees                                 --         --      6,220
-----------------------------------------------------------------------
Balance at
  December 31, 1996                    72,455,051    $72,455   $121,224
=======================================================================

The Company has a Stockholder Rights Plan. Under the Plan, the stockholders
have received a right (the "Right") for each outstanding share of common stock
of the Company. Each Right entitles the holder under certain circumstances to
purchase from the Company at an exercise price of $92.50 per Right (after
adjustment pursuant to the Plan) one unit consisting initially of one-tenth of
a share of the Company's common stock and a note in a principal amount equal to
nine-tenths of the market price of a share of the Company's common stock on the
date of exercise.

The Rights become exercisable and transferable apart from the common stock if a
person acquires 15 percent or more of the Company's outstanding common stock or
the Company declares a 10 percent-or-more stockholder an "adverse person"
because such stockholder meets certain criteria set forth in the Plan. In such
event, each Right entitles the holder, except the acquiring person or adverse
person, to purchase, at the Right's then-current exercise price, the number of
Great Lakes common shares having a market value equal to twice the Right's
exercise price.


36 GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
<PAGE>   29

If after one of the triggering events described above, the Company is acquired
in a merger or other business combination, and the Rights have not been
redeemed, the holder of each Right is entitled to purchase, at the Right's
then-current exercise price, that number of the acquiring company's common
shares having a market value equal to twice the Right's exercise price.

Under certain conditions, the Rights may be redeemed by the Company at a price
of $.0025 per Right (after adjustment pursuant to the Plan) prior to their
expiration on September 22, 1999.

The Company has repurchased shares of its common stock as follows:

-----------------------------------------------------------------               
                                     Number of
Year                                    Shares             Cost
-----------------------------------------------------------------               
1996                                 3,337,100         $191,720
1995                                 2,778,000         $164,816
1994                                 4,183,900         $232,279

Changes in the cumulative translation adjustment account are as follows:

-----------------------------------------------------------------------------
Year Ended December 31                    1996          1995            1994
-----------------------------------------------------------------------------   
Balance at beginning of year          $(23,179)     $(25,222)       $(54,563)
Translation adjustments and
  gains and losses from
  hedging transactions                  40,243         2,043          29,341
-----------------------------------------------------------------------------   
Balance at end of year                 $17,064      $(23,179)       $(25,222)
=============================================================================   

The increase in the cumulative translation adjustment in 1996 was primarily due
to the weakening of the U.S. dollar against the British pound sterling. The
1995 and 1994 increase in the cumulative translation adjustment account was
principally due to the effect of the weakening U.S.  dollar in relation to the
currencies of the various foreign countries in which the Company operates.

STOCK OPTIONS

In May 1993 the stockholders adopted the 1993 Employee Stock Compensation Plan
for officers and other key employees, authorizing the issuance of 2 million
shares of the Company's common stock upon exercise of incentive stock options,
non-qualified stock options or other stock-based awards. The Plan replaced the
1984 Plan which expired in May 1994. Under the Plan, options are granted at the
market value at date of grant, become exercisable over periods of one to five
years after grant and expire 10 years from the date of grant.

The following summarizes the changes in options under the Plans:

----------------------------------------------------------------------
                                   Shares            Weighted Average    
                             Under Option              Exercise Price    
----------------------------------------------------------------------
Outstanding at                                                           
  December 31, 1994             1,850,637                      $39.47    
                                                                         
Granted                           309,030                       59.71    
Exercised                         (98,280)                      15.29    
Terminated                        (14,319)                      61.94    
----------------------------------------------------------------------
                                                                         
Outstanding at                                                           
  December 31, 1995             2,047,068                       43.53    
                                                                         
Granted                           260,610                       74.94    
Exercised                        (529,039)                      26.26    
Terminated                        (77,883)                      67.64    
----------------------------------------------------------------------
Outstanding at                                                           
  December 31, 1996             1,700,756                      $52.61    
======================================================================
                                                                        
Currently Exercisable           1,186,170                      $45.24    
======================================================================

Options outstanding at December 31, 1996, expire from December 5, 1997, to
August 26, 2006. A total of 1.4 million shares are reserved for future grants
as of December 31, 1996.

The following table summarizes information concerning outstanding and
exercisable options at December 31, 1996:

------------------------------------------------------------------------
Range of Exercise Prices         $10-$25         $26-$50         $51-$80 
------------------------------------------------------------------------
Options Outstanding:                                                     
Weighted Average                                                         
  Remaining                                                              
  Contractual Life              2.8 yrs.        5.0 yrs.        8.3 yrs. 
Weighted Average                                                         
  Exercise Price                  $17.73          $40.71          $69.37 
Number                           441,795         198,896       1,060,065 
                                                                         
Options Exercisable:                                                     
Weighted Average                                                         
  Exercise Price                  $17.73          $40.71          $69.17 
Number                           441,795         198,896         545,479 
------------------------------------------------------------------------

The weighted average fair value of options granted during 1996 and 1995 is
estimated at $24.61 and $22.34 per share, respectively, on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
     
------------------------------------------------------------------------
                                          1996            1995
------------------------------------------------------------------------
Expected volatility                     22.80%          26.50%
Expected life in years                   6.00            5.50
Risk-free interest rate                  5.27%           7.34%
Dividend yield                            .60%            .64%
------------------------------------------------------------------------


                            GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES 37
<PAGE>   30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Had compensation cost for the Company's 1996 and 1995 grants for stock-based
compensation plans been recognized consistent with SFAS 123, the Company's net
income and earnings per share for 1996 and 1995 would approximate the pro forma
amounts below:

<TABLE>
<CAPTION>
---------------------------------------------------------
                                          1996       1995
---------------------------------------------------------
<S>                                   <C>        <C>
Net income - as reported              $250,296   $295,573
Net income - pro forma                $245,788   $292,707
Earnings per share - as reported      $   3.94   $   4.52
Earnings per share - pro forma        $   3.87   $   4.48
---------------------------------------------------------
</TABLE>

For the purpose of pro forma disclosure, the estimated compensation costs are
amortized to expense over the options' vesting period, primarily three years.
Therefore, because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1998.

RETIREMENT PLANS

The Company maintains several noncontributory defined benefit pension plans
covering substantially all U.S. employees. Benefits are based on total
compensation, as defined, and years of credited service reduced by social
security benefits according to a plan formula. Normal retirement age is 65, but
provisions are made for early retirement. The Company's funding policy is to
contribute amounts to the plans to meet the funding requirements of federal
laws and regulations, as determined by the Company's actuary. The plans' assets
are invested by an insurance company, one bank, and nine investment management
companies in various commingled and segregated funds holding equities, bonds,
guaranteed income contracts and cash or cash equivalents.

The Company maintains three contributory defined benefit pension plans covering
substantially all U. K. employees. Benefits are based on final salary and years
of credited service, reduced by social security benefits according to a plan
formula. Normal retirement age is 65, but provisions are made for early
retirement. The Company's funding policy is to contribute amounts to the plans
to cover service costs to date as recommended by the Company's actuary. The
plans' assets are invested by three investment management companies in funds
holding U.K. and overseas equities, U.K. and overseas fixed interest
securities, index linked securities, property unit trusts and cash or cash
equivalents.

A summary of the components of net periodic pension cost for U.S. and U.K.
pension plans is as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------
Year Ended December 31         1996       1995       1994
-------------------------------------------------------------
<S>                           <C>        <C>         <C>
Service cost                  $ 17,287    $15,290    $ 16,218
Interest cost on projected
  benefit obligation            42,838     40,614      37,855
Actual return on plan assets   (72,844)   (80,636)    (16,280)
                                                              
Net amortization and deferral   19,016     31,461     (28,317)
-------------------------------------------------------------
Net pension cost              $  6,297    $ 6,729    $  9,476
=============================================================
</TABLE>

The funded status and accrued pension cost for the U.S. pension plans are as
follows:

<TABLE>
<CAPTION>
----------------------------------------------------------
December 31                    1996       1995       1994
----------------------------------------------------------
<S>                          <C>        <C>        <C>
Actuarial present value of 
  accumulated plan benefits:
Vested                       $52,107    $48,041    $40,219
Non-vested                     2,712      1,540      1,241
----------------------------------------------------------
Total accumulated
  benefit obligation          54,819     49,581     41,460
Additional amounts related to
  projected salary increases  21,979     18,868     12,074
----------------------------------------------------------
Total projected
  benefit obligation          76,798     68,449     53,534
Plan assets at fair value     75,137     62,352     50,975
----------------------------------------------------------
Projected benefit obligation
  in excess of plan assets     1,661      6,097      2,559
Unrecognized net gain (loss)     683     (2,110)     3,418
Unrecognized prior
  service cost                  (459)       217       (175)
Unrecognized obligation
  at January 1, 1987,
  net of amortization         (1,261)    (1,452)    (1,643)
----------------------------------------------------------
Accrued pension cost         $   624    $ 2,752    $ 4,159
==========================================================   
</TABLE>



38 GREAT LAKES CORPORATION AND SUBSIDIARIES
<PAGE>   31

The funded status and prepaid pension cost for the U.K. pension plans are as
follows:

<TABLE>
<CAPTION>
---------------------------------------------------------
December 31                    1996       1995       1994
---------------------------------------------------------
<S>                        <C>        <C>        <C>
Actuarial present value
  of accumulated plan
  benefits, all vested     $474,909   $392,925   $384,140
Additional amounts
  related to projected
  salary increases           52,558     41,540     13,310
---------------------------------------------------------
Total projected benefit
  obligation                527,467    434,465    397,450
Plan assets at fair value   677,096    551,645    486,242
---------------------------------------------------------
Plan assets in excess
  of projected
  benefit obligation        149,629    117,180     88,792
Unrecognized net (gain)     (92,276)   (75,640)   (56,532)
Unrecognized prior
  service cost                9,245      9,145     10,649
---------------------------------------------------------
Prepaid pension cost       $ 66,598   $ 50,685   $ 42,909
=========================================================
</TABLE>

Assumptions used in determining the actuarial present value of the projected
benefit obligations are set forth below. Assumptions used in 1996 are
consistent with the prior year. In 1995 the weighted average discount rate for
U.S. plans was decreased from 8.7 percent to 7.7 percent, thus increasing the
1995 year-end projected benefit obligation by approximately $9.5 million. In
1994, the weighted-average discount rate for the U.S. plans was increased from
7.5 percent to 8.7 percent thus reducing the 1994 year-end projected benefit
obligation by approximately $11 million.

<TABLE>
<S>                                        <C>
Weighted-average discount rates             7.7% to 8.75%
Rates of increase in compensation levels    4.8% to 6.5%
Expected long-term return on assets         9.0% to 9.5%
</TABLE>

Supplemental defined benefit pension plans covering certain officers and
directors are also maintained. These plans are non-qualified and unfunded. The
pension liability associated with these plans is accrued using the same
actuarial methods and assumptions as those used in the qualified U.S. plans.
The cost for these plans which is included in the net pension cost shown above
amounted to $1.6 million, $1.2 million and $.8 million in 1996, 1995 and 1994,
respectively. The unfunded projected benefit obligation amounted to $8.1
million, $5.1 million and $4.5 million in 1996, 1995 and 1994, respectively.
Benefits under these plans will be paid from general Company funds.

The Company provides no significant postretirement benefits other than
pensions.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses were approximately $64 million, $63 million
and $59 million in 1996, 1995 and 1994, respectively.

INDUSTRY SEGMENTS AND FOREIGN OPERATIONS

The Company's operations consist of one dominant industry segment, chemicals
and allied products.


Net sales, income before income taxes and identifiable assets by geographic
areas follow:

<TABLE>
<CAPTION>
                          -----------------------------------
                            1996         1995        1994
                          -----------------------------------
<S>                       <C>          <C>         <C>
Net sales to unaffiliated
  customers:
    United States         $1,081,257   $1,062,495  $  938,214
    Foreign                1,130,447    1,298,574   1,126,794
                          -----------------------------------
                          $2,211,704   $2,361,069  $2,065,008
                          ===================================
Intercompany
  sales between
  geographic areas:
    United States         $  105,758   $  103,265  $   96,668
    Foreign                   37,841       31,924      26,418
                          -----------------------------------
                          $  143,599   $  135,189  $  123,086
                          ===================================

Income before
  income taxes:
    United States         $  173,812     $172,511  $  138,123
    Foreign                  220,854      273,905     258,279
    Earnings
      of affiliates            2,663        4,023      14,765
    Corporate
       interest expense      (18,133)     (12,566)     (8,492)
                          -----------------------------------
                          $  379,196   $  437,873  $  402,675
                          ===================================

Identifiable assets
  at year-end:
    United States         $1,165,765   $1,084,117  $  972,002
    Foreign                1,422,807    1,376,968   1,072,984
    Affiliates                72,767       72,587      66,479
                          -----------------------------------
                          $2,661,339   $2,533,672  $2,111,465
                          ===================================
</TABLE>

Most of the Company's foreign operations are conducted by European subsidiaries
or U.S. branch offices. Sales between the United States and its foreign
operations are generally priced to recover cost plus an appropriate markup for
profit and are eliminated in the consolidated financial statements.
Identifiable assets include assets directly identified with operations,
principally: accounts receivable, inventories and plant and equipment, plus an
allocation of goodwill.

Export sales for 1996, 1995 and 1994 amounted to approximately $229 million,
$216 million and $199 million, respectively, of which 87 percent, 86 percent
and 88 percent, respectively, were outside the Western Hemisphere.




                           GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES 39
<PAGE>   32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


INVESTMENT IN UNCONSOLIDATED AFFILIATES
As of December 31, 1996, the Company's investment in unconsolidated affiliates
consists mainly of a 50 percent interest in KAO-Quaker, Co.  Ltd., a Japanese
marketer of furfural derivatives, and a preferred stock interest in Huntsman
Chemical Corporation (HCC).

Effective December 29, 1994, the Company's ownership interest in HCC, a
producer of polystyrene and compounded specialty plastics, was reduced from 40
percent to 17 percent when the Company elected to receive a $130 million cash
dividend while HCC's other shareholder elected to receive additional shares. On
March 17, 1995, the Company exchanged its remaining common stock holdings for
58,700 shares of series A cumulative preferred stock with an annual dividend
rate of 14 percent. Beginning in the year 2000, the annual dividend rate will
increase 1 percent per year to a maximum rate of 25 percent. The preferred
shares have a face value of $59 million.

The Company's equity in earnings of unconsolidated affiliates was $2.7 million,
$4 million and $20 million for 1996, 1995 and 1994, respectively. Preferred
dividends from HCC amounted to $8.2 million in 1996 and 1995.

FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying amounts reported in the balance sheet of cash and cash
equivalents, notes payable and long-term debt do not materially differ from
their fair value at December 31, 1996. The fair value of the Company's debt was
estimated using a discounted cash flow analysis based upon the Company's
current incremental borrowing rates for similar borrowing arrangements.

The Company hedges certain portions of its exposure to foreign currency
fluctuations in revenues and net foreign investments through the use of options
and forward exchange contracts. Gains and losses arising from the use of such
instruments are recorded in the income statement concurrently with gains and
losses arising from the underlying hedged transactions.

The Company enters into currency option contracts to hedge anticipated foreign
currency transactions, primarily export sales, during the next 12 months. At
December 31, 1996, the Company had outstanding option contracts with a notional
value of approximately $37 million. The cost to acquire the contracts that
hedge 1997 export sales was approximately $.7 million, and that amount was
deferred as of December 31, 1996. Had these contracts been acquired at December
31, 1996, their cost to acquire would have been $6 million. The Company did not
have any outstanding option contracts in place at December 31, 1995.

The Company uses currency swap contracts to hedge long-term intercompany loans
and the related interest. The terms of the swap contracts match the loan
payment terms. Swap contracts in existence at December 31, 1996, were for
French francs, deutsche marks and Italian lira against the British pound
sterling. The U.S. dollar equivalent of the notional amount of the contracts
outstanding as of December 31, 1996, was approximately $168 million.
Liquidating the position at December 31, 1996, would cost the Company
approximately $1.9 million. It is the Company's intention to hold the swap
contracts to maturity.

Counterparties to the currency swap agreements are major financial
institutions. Credit losses from counterparty non-performance are not
anticipated.

The Company sells a broad range of products to a diverse group of customers
operating throughout the world. These industries generally are not
significantly affected by changes in economic or other factors. Credit limits,
ongoing credit evaluation and account monitoring procedures are utilized to
minimize the risk of loss. Collateral is generally not required.


40 GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
<PAGE>   33

QUARTERLY RESULTS OF OPERATIONS


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share data)

1996

THREE MONTHS ENDED                                        MAR. 31             JUN. 30            SEPT. 30             DEC. 31
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                 <C>                 <C>                 <C>
Net Sales                                                $536,960            $594,949            $564,355            $515,440

Operating Expenses
  Cost of products sold                                   351,223             396,101             371,531             367,172
  Selling, administrative and research expenses            68,985              72,381              70,998              67,955
-----------------------------------------------------------------------------------------------------------------------------
                                                          420,208             468,482             442,529             435,127
-----------------------------------------------------------------------------------------------------------------------------
Income from Operations                                    116,752             126,467             121,826              80,313
Equity in Earnings of Affiliates and Other Income           7,578              27,021               6,374              18,862
Interest and Other Expenses                                16,393              28,067              16,178              35,614
Minority Interest in Income of Subsidiaries                 7,615               7,263               8,477               6,390
-----------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes                                100,322             118,158             103,545              57,171
Income Taxes                                               34,100              40,200              35,200              19,400
-----------------------------------------------------------------------------------------------------------------------------
Net Income                                               $ 66,222            $ 77,958            $ 68,345            $ 37,771
=============================================================================================================================
Net Income per Share                                     $   1.03            $   1.20            $   1.09            $   0.62
=============================================================================================================================
Cash Dividends Paid                                      $   .115            $    .12            $    .15            $    .15
=============================================================================================================================
Stock Price Data
  High                                                     78 5/8              69 3/8              62 7/8              57 1/2
  Low                                                      65                  61                  46 1/2              44 1/4
  Year-End Close                                                                                                       46 3/4
-----------------------------------------------------------------------------------------------------------------------------

<CAPTION>

1995    

THREE MONTHS ENDED                                        MAR. 31             JUN. 30            SEPT. 30             DEC. 31
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                 <C>                 <C>                 <C>
Net Sales                                                $569,035            $640,851            $586,224            $564,959

Operating Expenses
  Cost of products sold                                   385,389             430,576             385,084             371,604
  Selling, administrative and research expenses            71,316              74,715              73,787              71,255
-----------------------------------------------------------------------------------------------------------------------------
                                                          456,705             505,291             458,871             442,859
-----------------------------------------------------------------------------------------------------------------------------
Income from Operations                                    112,330             135,560             127,353             122,100
Equity in Earnings of Affiliates and Other Income           6,565               7,936               5,613               9,239
Interest and Other Expenses                                 9,702              18,710              14,148              12,589
Minority Interest in Income of Subsidiaries                 7,966               8,515               8,954               8,239
-----------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes                                101,227             116,271             109,864             110,511
Income Taxes                                               32,900              37,800              35,700              35,900
-----------------------------------------------------------------------------------------------------------------------------
Net Income                                               $ 68,327            $ 78,471            $ 74,164            $ 74,611
=============================================================================================================================
Net Income per Share                                     $   1.02            $   1.20            $   1.15            $   1.15
=============================================================================================================================
Cash Dividends Paid                                      $    .10            $   .105            $   .105            $   .115
=============================================================================================================================
Stock Price Data
  High                                                     62 7/8              64 1/8              69 7/8              74 3/8
  Low                                                      56                  55 3/4              59 3/8              65 3/4
  Year-End Close                                                                                                       72
=============================================================================================================================
</TABLE>


                            GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES 41
<PAGE>   34

SUBSIDIARIES AND AFFILIATES

Bayrol Chemische Fabrik GmbH
Swimming Pool and Spa Products
100% Owned

Bio-Lab, Inc.
Swimming Pool and Spa Products
100% Owned

Chemische Werke LOWI Beteiligungs GmbH & Co.
Specialty Chemicals
100% Owned

Chemol RT
Chemical Trading Company
78% Owned

Four Seasons Industrial Services, Inc.
Environmental Remediation
100% Owned

Great Lakes Chemical (Europe), Ltd.
Specialty Chemicals
100% Owned

Great Lakes Chemical France S.A.
Specialty Chemicals
100% Owned

Great Lakes Chemical International, Inc.
Export Sales-FSC
100% Owned

Great Lakes Chemical Italia S.r.l.
Specialty Chemicals
100% Owned

Great Lakes Fine Chemicals, Ltd.
Manufacturer of Fine and Specialty Chemicals
and Intermediates
100% Owned

KAO-Quaker Co., Ltd.
Furfural Derivatives
50% Owned

Octel Associates and
The Associated Octel Company, Limited
Fuel Additives and Specialty Chemicals
87.8% Owned

OSCA, Inc.
High-Density, Clear Fluids
100% Owned

WIL Research Laboratories, Inc.
Toxicological Testing
100% Owned

SHAREHOLDER INFORMATION

TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for Great Lakes' stock is Harris Trust
Company of New York. Stockholders who wish to transfer their stock, or change
the name in which the shares are registered, should contact: 

Harris Trust and Savings Bank
Attn: Shareholder Services
P.O. Box 755
Chicago, Illinois 60690-0755
(312) 461-2421

AUDITORS
Ernst & Young LLP
Indianapolis, Indiana

LISTINGS
New York Stock Exchange
New York, New York

Pacific Stock Exchange
Los Angeles and San Francisco, California

Ticker Symbol: GLK

ANNUAL MEETING
The Annual Meeting of the Stockholders will be held at 11:00 a.m., Thursday,
May 1, 1997, at the University Place Conference Center and Hotel,
850 West Michigan, Indianapolis, Indiana.

FORM 10-K AND OTHER INFORMATION
A complimentary copy of the company's 1996 Annual Report to the Securities and
Exchange Commission on Form 10-K is available upon request. For
this, or for other information concerning the company, please contact:

Jeffery Potrzebowski
Director, Investor Relations

or

Gregory J. Griffith
Director, Public Affairs and Administration

Great Lakes Chemical Corporation
One Great Lakes Boulevard
West Lafayette, Indiana 47906-0200
Phone: (765) 497-6100

Design: Taylor Bruce Associates, Inc.

Inside of back cover