<PAGE>
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                  
                               FORM 10-K/A     
                               
(MARK ONE)                  (AMENDMENT NO. 1)     
 [X]         ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
                  For the Fiscal Year Ended December 31, 1997
 
                                      OR
 
 [_]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
 
                         Commission file number 1-6157
 
                            HELLER FINANCIAL, INC.
            (Exact name of registrant as specified in its charter)
 
               Delaware                              36-1208070
    (State or other jurisdiction of     (I.R.S. Employer Identification No.)
    incorporation or organization)
 
   500 West Monroe Street, Chicago,                     60661
               Illinois                              (Zip Code)
    (Address of principal executive
               offices)
 
      Registrant's telephone number, including area code: (312) 441-7000
 
          Securities registered pursuant to Section 12(b) of the Act:
 
<TABLE>
<CAPTION>
                 TITLE OF EACH CLASS                   NAME OF EXCHANGE ON WHICH REGISTERED
                 -------------------                   ------------------------------------
<S>                                                    <C>
Cumulative Perpetual Senior Preferred Stock, Series A     New York Stock Exchange, Inc.
</TABLE>
 
       Securities registered pursuant to Section 12(g) of the Act: None
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes  X   No    .
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
 
     Aggregate market value of voting stock held by non-affiliates: None.
        
     Number of shares of Common Stock outstanding at March 31, 1998:     
                            Class A Common Stock--0
                       Class B Common Stock--51,050,000
                  Documents incorporated by reference: None.
 
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                 Web site address is http://www.hellerfin.com
<PAGE>
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
 ITEM NO.                          NAME OF ITEM                           PAGE
 --------                          ------------                           ----
 
                                     PART I
 <C>      <S>                                                             <C>
 Item  1. Business......................................................    4
          General.......................................................    4
          Asset Based Finance...........................................    6
          Equipment Finance and Leasing.................................    6
          Sales Finance.................................................    8
          Business Credit...............................................   10
          Current Asset Management......................................   11
          Small Business Lending........................................   12
          Real Estate Finance...........................................   13
          International Group...........................................   15
          Corporate Finance.............................................   16
          Project Finance...............................................   18
          Pre-1990 Portfolio............................................   18
          Sales and Marketing...........................................   19
          Securitization, Syndication and Loan Sale Activities..........   20
          Securitizations...............................................   20
          Syndications and Loan Sales...................................   20
          Competition...................................................   20
          Regulation....................................................   21
          Employees.....................................................   21
          Risk Management...............................................   22
          Credit Risk Management........................................   22
          Asset/Liability Management....................................   22
          Portfolio Quality.............................................   25
 Item  2. Properties....................................................   28
 Item  3. Legal Proceedings.............................................   28
 Item  4. Submission of Matters to a Vote of Security Holders...........   28
 
                                    PART II
 Item  5. Market for Registrant's Common Equity and Related Stockholder
           Matters......................................................   28
 Item  6. Selected Financial Data.......................................   30
 Item  7. Management's Discussion and Analysis of Financial Condition
          and Results of Operations.....................................   33
          General.......................................................   33
          Year Ended December 31, 1997 Compared to Year Ended December
           31, 1996.....................................................   34
          Results of Operations.........................................   34
          Lending Assets and Investments................................   38
          Year Ended December 31, 1996 Compared to Year Ended December
           31, 1995.....................................................   39
          Results of Operations.........................................   39
          Lending Assets and Investments................................   42
          Liquidity and Capital Resources...............................   44
          Accounting Developments.......................................   45
          Year 2000 Compliance..........................................   45
          Special Note Regarding Forward-Looking Statements.............   46
 Item  8. Financial Statements and Supplementary Data...................   47
 Item  9. Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure.....................................   81
</TABLE>
 
 
                                       2
<PAGE>
 
<TABLE>   
<CAPTION>
 ITEM NO.                          NAME OF ITEM                            PAGE
 --------                          ------------                            ----
                                    PART III
 <C>      <S>                                                              <C>
 Item 10. Directors and Executive Officers of the Registrant............    82
          Section 16(a) Beneficial Ownership Reporting Compliance.......    87
 Item 11. Executive Compensation........................................    88
          Summary Compensation Table....................................    88
          Long Term Incentive Plans.....................................    89
          Retirement and Other Defined Benefit Plans....................    90
          Employment Contracts and Termination of Employment and Change
           of Control Arrangements......................................    91
          Compensation of Directors.....................................    92
          Compensation Committee Interlocks and Insider Participation...    92
 Item 12. Security Ownership of Certain Beneficial Owners and
           Management...................................................    92
 Item 13. Certain Relationships and Related Transactions................    93
          Relationship with Fuji Bank...................................    93
          Keep Well Agreement...........................................    94
          Registration Rights Agreement.................................    95
          Purchase of Interest in International Group from Fuji Bank....    96
          Certain Other Transactions with Fuji Bank and Its
           Subsidiaries.................................................    96
          Tax Allocation Agreement......................................    96
          Services Provided by Fuji Bank, HIC and FAHI for the Company..    97
          Services Provided by the Company for Affiliates...............    97
          Intercompany Receivables, Payables, Transactions and Financial
           Instruments..................................................    97
          Certain Other Relationships...................................    98
 
                                    PART IV
 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
           K............................................................    99
</TABLE>    
 
                                       3
<PAGE>
 
                                    PART I
 
ITEM 1. BUSINESS
 
  The following discussion contains certain "forward-looking statements" (as
defined in Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), which are generally identified by the words "anticipates",
"believes", "estimates", "expects", "plans", "intends" and similar
expressions. Such statements are subject to certain risks, uncertainties and
contingencies which could cause the Company's actual results, performance or
achievements to differ materially from those expressed in, or implied by, such
statements. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Special Note Regarding Forward-Looking
Statements".
 
GENERAL
 
  Heller Financial, Inc. (including its consolidated subsidiaries, the
"Company") is a leading diversified commercial financial services company
which provides a broad array of financial products and services to mid-sized
and small businesses in the United States and selected international markets.
The Company provides its products and services principally in five business
categories: (i) asset based finance ("Asset Based Finance"), which provides
secured loans and factoring through five business groups, (ii) Heller Real
Estate Financial Services ("Real Estate Finance"), which provides secured real
estate financing, (iii) Heller International Group, Inc. ("International
Group"), which provides international asset based financing and factoring,
(iv) Heller Corporate Finance ("Corporate Finance"), which provides
collateralized cash flow lending, and (v) Heller Project Finance ("Project
Finance"), which provides structured financing for domestic energy-related
projects. The Company's primary clients and customers are entities in the
manufacturing and service sectors having annual sales generally in the range
of $5 million to $250 million and in the real estate sector having property
values generally in the range of $1 million to $40 million.
 
  The Company concentrates primarily on senior secured lending, with 89% of
lending assets and investments at December 31, 1997 being made on such basis.
Also, to a more limited extent, the Company makes subordinated loans and
invests in select debt and equity instruments. The Company believes that, as
of December 31, 1997, it was the fourth largest factoring operation in the
United States in terms of factoring volume (and the largest factoring
operation worldwide), the third largest originator of U.S. Small Business
Administration ("SBA") 7(a) guaranteed small business loans (including
leadership positions in California and Texas) and among the largest lenders to
private equity-sponsored companies in the U.S. middle market. Additionally,
the Company is a recognized leader in real estate finance, vacation ownership
lending and middle-market equipment finance and leasing in the United States.
The Company has built its portfolio through effective asset origination
capabilities, disciplined underwriting and credit approval processes and
effective portfolio management. Most of the Company's business groups have
also developed the ability to manage asset, client and industry concentrations
and enhance profitability by distributing assets through securitizations,
syndications and/or loan sales.
 
  The Company was founded in 1919 and from its inception has targeted its
commercial financing activities at mid-sized and small businesses in the
United States. Since 1964, the Company has also competed in selected
international markets through its consolidated subsidiaries and investments in
international joint ventures. The Company was purchased by The Fuji Bank,
Limited ("Fuji Bank") in 1984, and between the time of such acquisition and
1990, the substantial majority of the Company's portfolio consisted of
Corporate Finance and Real Estate Finance assets (together representing 76% of
the Company's lending assets and investments at December 31, 1990). Since
1990, the Company has diversified its portfolio, investing major resources in
building its Asset Based Finance businesses, through start-ups of new business
groups and business units, as well as the acquisition of its small
 
                                       4
<PAGE>
 
business lending operation and the expansion of smaller existing operations.
During these years, the Company has also introduced a number of Asset Based
Finance businesses, including asset based working capital and term financing,
and commercial equipment finance in 1992; public finance and industrial
equipment finance in 1996; and commercial funding in 1997. As a result, the
Company's Asset Based Finance business, which represented only 14% of the
portfolio of lending assets and investments at December 31, 1990, constituted
40% of the Company's portfolio at December 31, 1997. In the past several
years, the Company has also expanded its overseas operations, most
significantly by completing the acquisition in April 1997 of the interest of
its joint venture partner in Factofrance Heller, S.A. ("Factofrance"), the
leading factoring company in France. The portfolio built by the Company is a
lower risk, though lower yielding, well-diversified portfolio with stronger
collateralization than the Company's pre-1990 Corporate Finance and Real
Estate Finance portfolio (its "pre-1990 portfolio"). Therefore, the Company
categorizes its pre-1990 portfolio and the portfolio of its ongoing business
categories (its "current portfolio") separately.
 
  The Company's total lending assets and investments were $11.9 billion and
common stockholders' equity was $1.4 billion at December 31, 1997. For the
year ended December 31, 1997, the Company's net income increased 19% to $158
million, from $133 million for the prior year, while new business volume
increased 47% over the prior year, from $4.1 billion to $6.0 billion. Net
income applicable to common stock was $144 million for the year ended December
31, 1997, which represented an increase of 17% from $123 million for the prior
year. The credit quality of the Company's portfolio is reflected in nonearning
assets of $155 million, or 1.4% of total lending assets, at December 31, 1997,
the lowest level of nonearning assets in over 10 years.
 
  During 1997, the Company was a wholly-owned subsidiary of Heller
International Corporation ("HIC"), which was a wholly-owned subsidiary of Fuji
Bank. Effective January 2, 1998, Fuji Bank formed a new wholly-owned
subsidiary, Fuji America Holdings, Inc. ("FAHI"), which was the surviving
corporation of a merger with HIC and therefore became the owner of all of the
outstanding Common Stock of the Company. Fuji Bank also directly owns 21% of
the outstanding stock of International Group, the remaining 79% of which is
owned by the Company.
 
 
                                       5
<PAGE>
 
ASSET BASED FINANCE
 
  Asset Based Finance is the Company's largest business category with total
lending assets and investments of $4.7 billion, or 40% of the Company's total
lending assets and investments, at December 31, 1997, and revenues of $517
million, or 41% of the Company's total revenues, for 1997. The Asset Based
Finance portfolio is comprised of factored accounts receivable, secured
working capital loans, equipment loans and leases to end users, vendor finance
program loans and leases, small business loans, and loans to leasing companies
and timeshare developers. Asset Based Finance consists of five distinct
business groups: (i) Heller Equipment Finance and Leasing ("Equipment Finance
and Leasing"), (ii) Heller Sales Finance ("Sales Finance"), (iii) Heller
Business Credit ("Business Credit"), (iv) Heller Current Asset Management
(principally domestic factoring) ("Current Asset Management") and (v) Heller
Small Business Lending ("Small Business Lending"). The following tables
present certain information regarding Asset Based Finance as of the end of,
and for, each of the years in the three-year period ended December 31, 1997:
 
<TABLE>
<CAPTION>
                                                        AS OF, OR FOR THE
                                                       YEAR ENDED, DECEMBER
                                                               31,
                                                       ------------------------
                                                        1997      1996    1995
                                                       ------    ------  ------
                                                           (DOLLARS IN
                                                            MILLIONS)
      <S>                                              <C>       <C>     <C>
      Lending Assets and Investments:
        Equipment Finance and Leasing................. $1,316    $  981  $  697
        Sales Finance.................................  1,228     1,090     849
        Business Credit...............................  1,025       867     638
        Small Business Lending........................    766       403     208
        Current Asset Management......................    391(1)    917     755
                                                       ------    ------  ------
          Total lending assets and investments........ $4,726    $4,258  $3,147
                                                       ======    ======  ======
      Revenues:
        Current Asset Management...................... $  122    $  113  $   98
        Business Credit...............................    114        86      64
        Equipment Finance and Leasing.................    110        73      53
        Sales Finance.................................    106        80      72
        Small Business Lending........................     65        47      18
                                                       ------    ------  ------
          Total revenues.............................. $  517    $  399  $  305
                                                       ======    ======  ======
      Revenues as of percentage of total revenues.....   40.7%     40.5%   28.1%
      Ratio of net writedowns to average asset
       based lending assets...........................    0.2       0.2     0.4
      Ratio of nonearning assets to total asset
       based lending assets...........................    0.7       0.4     0.6
</TABLE>
     --------
     (1) Reflects the sale of $500 million of factored accounts receivable
         during 1997.
 
  At December 31, 1997, the Asset Based Finance groups were contractually
committed to finance an additional $1.2 billion to new and existing borrowers,
generally contingent upon the maintenance of specific credit standards. Since
many of the commitments are expected to remain unused, the total commitment
amounts do not necessarily represent future cash requirements. No significant
commitments exist to provide additional financing related to nonearning
assets.
 
 EQUIPMENT FINANCE AND LEASING
 
  Equipment Finance and Leasing is comprised of the following four distinct
business units: Heller Commercial Equipment Finance ("Commercial Equipment
Finance"), which as of December 31, 1997 represented 70% of the Equipment
Finance and Leasing portfolio; Heller Aircraft Finance ("Aircraft Finance"),
which as of December 31, 1997 represented 21% of this portfolio; and two newer
businesses, Heller Public Finance ("Public Finance") and Heller Industrial
Equipment Finance ("Industrial Equipment Finance").
 
                                       6
<PAGE>
 
    Commercial Equipment Finance, which has generated over $1.8 billion
  in new business volume since its inception in 1992, represents the
  largest unit in Equipment Finance and Leasing, with $913 million in
  lending assets and investments at December 31, 1997. Commercial
  Equipment Finance generated new business volume of $542 million in
  1997. Commercial Equipment Finance provides general equipment term debt
  and lease financing directly to a diverse group of middle market
  companies, which use such financing to expand, replace or modernize
  their equipment or refinance existing equipment obligations. Typically,
  the equipment which serves as collateral for the financing is essential
  to the operations of the borrower, and the amount financed is generally
  not a substantial part of the borrower's capital structure. In 1997,
  the average transaction size was approximately $4 million. A typical
  borrower/lessee is a U.S. business with annual revenues of at least $35
  million seeking financing of between $1 million and $40 million. The
  Commercial Equipment Finance portfolio consisted of 18 industry
  classifications at December 31, 1997, of which transportation
  represented the largest with 18% of lending assets, followed by
  food/grocery and computer-related, each of which represented 14% of
  lending assets, and restaurants which represented 10% of lending
  assets. The portfolio's credit quality is reflected in cumulative net
  writedowns of $1 million since the business unit's inception in 1992.
 
    Aircraft Finance is a niche competitor in the commercial aircraft and
  aircraft engine finance industry, with total lending assets and
  investments of $280 million at December 31, 1997. Aircraft Finance
  provides financing through operating leases and senior and junior
  secured loans on both new and used equipment. Clients are typically
  mid-tier foreign or domestic airlines. Transaction sizes range from $3
  million to $40 million, with an average transaction size in 1997 of
  approximately $17 million. Aircraft Finance generated new business
  volume of $198 million in 1997. Aircraft Finance has developed a
  reputation for responsiveness on single investor transactions, which
  generally involve one aircraft with lease terms of three to seven
  years. In addition, Aircraft Finance's reliability and industry
  knowledge has made it a frequently desired participant in larger
  financings by other aircraft lessors. Utilizing its industry and
  equipment expertise, Aircraft Finance is able to effectively shift its
  product offering mix during various phases of the aircraft finance
  equipment cycle and effectively remarket and dispose of equipment.
 
    Public Finance and Industrial Equipment Finance, both of which were
  started in 1996, together had total lending assets and investments of
  $123 million at December 31, 1997. Public Finance and Industrial
  Equipment Finance generated new business volume in the aggregate amount
  of $144 million in 1997. Public Finance provides equipment and
  project/facility financing to state and local governments, with an
  average transaction size in 1997 of approximately $2 million. The
  interest income earned by Public Finance is generally exempt from
  federal income taxes. Industrial Equipment Finance provides collateral
  based equipment financing to companies with annual revenues of less
  than $35 million in the machine tool, construction and printing
  industries. The average transaction size of Industrial Equipment
  Finance in 1997 was approximately $600,000.
 
   Equipment Finance and Leasing represents the largest business group within
Asset Based Finance, with total lending assets and investments of $1.3
billion, or 28% of the lending assets and investments of Asset Based Finance,
as of December 31, 1997. Each business unit of Equipment Finance and Leasing
provides structured equipment finance in select markets through transactions
sourced through multiple channels. Equipment Finance and Leasing serves a
broad range of industries, including transportation, supermarket,
manufacturing, computers, energy, restaurant and food processing. Major
product offerings include finance leases, true leases, term loans, off-balance
sheet loans, operating leases and turn-key financing. Through its broad market
access, the group also generates new business referrals for other business
groups of the Company, particularly Business Credit, Small Business Lending
and Sales Finance.
 
                                       7
<PAGE>
 
  The following table sets forth certain information regarding Equipment
Finance and Leasing as of the end of, and for, each of the years in the three-
year period ended December 31, 1997:
 
<TABLE>
<CAPTION>
                                                              AS OF, OR FOR
                                                             THE YEAR ENDED,
                                                               DECEMBER 31,
                                                             ------------------
                                                              1997   1996  1995
                                                             ------  ----  ----
                                                               (DOLLARS IN
                                                                MILLIONS)
      <S>                                                    <C>     <C>   <C>
      Total lending assets and investments.................. $1,316  $981  $697
      New business volume...................................    884   534   386
      Revenues..............................................    110    73    53
      Revenues as a percentage of total revenues............    8.7%  7.4%  4.9%
      Ratio of net writedowns (recoveries) to
       average lending assets...............................    0.1  (0.4) (0.2)
      Ratio of nonearning assets to lending assets..........    0.1   0.0   0.7
</TABLE>
 
  Equipment Finance and Leasing provides the Company broad, national access to
the equipment finance marketplace through its 18 domestic offices. Unlike many
of its competitors, Equipment Finance and Leasing emphasizes direct
origination of its business, which the Company believes provides it with a
competitive advantage and enables it to generate repeat business. In addition
to direct origination, Equipment Finance and Leasing generates business
through traditional broker and intermediary channels. The servicing of the
Equipment Finance and Leasing portfolio is performed on a centralized basis.
 
  Commercial Equipment Finance's and Industrial Equipment Finance's approach
to lending concentrates on the following three critical factors: (i) the cash
flow of the borrower, (ii) the importance/value of the equipment to the
borrower's overall operations and (iii) the relative strength of the
borrower's balance sheet and capital structure. Aircraft Finance focuses on
the strength of the underlying collateral and the credit worthiness of the
underlying lessee. Public Finance generally lends to investment grade
municipalities secured by essential use equipment.
 
  In addition to maintaining underwriting discipline, Equipment Finance and
Leasing manages credit risk through industry and borrower diversification. The
group's portfolio exhibited strong credit quality as of December 31, 1997,
with nonearning assets of less than $1 million on a $1.3 billion portfolio,
and net writedowns of $1 million (0.1% of lending assets) for the year ended
December 31, 1997. Equipment Finance and Leasing is also able to assess
residual value risk and effectively manage off-lease equipment exposures.
Designated individuals establish all equipment residuals used in pricing lease
transactions and continuously research secondary market values to establish
current values, estimate future values and mark industry trends. As of
December 31, 1997, no equipment was off-lease.
 
  Equipment Finance and Leasing distributes a portion of its assets through
securitizations and syndications. In 1997, Equipment Finance and Leasing
contributed $72 million of assets to an equipment securitization and
syndicated an additional $102 million of assets. Through these capital markets
capabilities, Equipment Finance and Leasing is able to provide broader market
penetration, while managing borrower and industry concentrations.
 
 SALES FINANCE
 
  Sales Finance is comprised of two business units: (i) Heller Vendor Finance
("Vendor Finance"), which provides customized financing programs to
manufacturers and distributors of a wide variety of commercial, industrial and
technology products, and (ii) Heller Lender Finance ("Lender Finance"), which
provides customized financing programs to independent leasing companies and
timeshare developers.
 
    Vendor Finance, which comprised 50% of the Sales Finance portfolio at
  year end 1997, provides customized sales financing programs to
  manufacturers and distributors of a wide variety of commercial,
  industrial and technology products. Vendor Finance offers products
 
                                       8
<PAGE>
 
     
  and services to two broad client categories: (i) commercial and
  industrial, for which Vendor Finance provides sales financing programs
  consisting of true leases, loans, conditional sales contracts and
  installment sales contracts secured by equipment; and (ii) healthcare,
  information and technology, for which Vendor Finance provides sales
  financing programs consisting of true leases, loans and conditional
  sales contracts, secured by health care and high-technology products.
  These sales financing programs enable the vendor to enhance its
  marketing and sales capabilities by offering financing and leasing
  options to its customers. Transactions under these programs generally
  have partial or, in some cases, full recourse to the vendor. Individual
  transaction sizes within these programs range from $50,000 to $5
  million, with an average transaction size in 1997 of approximately
  $400,000. Terms generally range from two to six years. In 1997, Vendor
  Finance generated approximately $500 million in new business volume.
         
    Lender Finance, which comprised 50% of the Sales Finance portfolio at
  year-end 1997, provides (i) financing for the vacation ownership
  industry and (ii) lease portfolio financing. Lender Finance is one of
  the largest lenders to the U.S vacation ownership industry, providing
  timeshare resort developers with full life-cycle financing, primarily
  receivables hypothecation and inventory financing. Lender Finance also
  provides a wide range of financing to independent leasing companies,
  including term financing, residual financing, private securitization
  structures and warehouse financing. Lender Finance generated $254
  million in new business volume in 1997. Vacation ownership transaction
  sizes range from $3 million to $50 million, with an average transaction
  size in 1997 of $14 million, secured by individual, underlying
  transactions with an average size in 1997 of approximately $100,000.
  Terms generally range from two to ten years. Lease portfolio financing
  transaction sizes range from $50,000 to $2 million, with an average
  transaction size in 1997 of $1 million. Terms generally range from two
  to seven years.     
 
  Sales Finance, with $1.2 billion in lending assets and investments
represented 26% of the Asset Based Finance portfolio as of December 31, 1997.
Sales Finance provides financing and related support and servicing
capabilities to assist its clients in selling their products and services by
enabling them to provide financing for the end-customer of these products. The
range of services provided by Sales Finance includes sales financing,
transaction structuring, credit analysis, documentation, billing, collections,
portfolio reporting and marketing support. In 1997, Sales Finance generated
new business volume of $754 million, which represented a 39% increase over
1996.
 
  The following table sets forth certain information regarding Sales Finance
as of the end of, and for, each of the years in the three-year period ended
December 31, 1997:
 
<TABLE>
<CAPTION>
                                                         AS OF, OR FOR THE
                                                            YEAR ENDED,
                                                            DECEMBER 31,
                                                         --------------------
                                                          1997    1996   1995
                                                         ------  ------  ----
                                                            (DOLLARS IN
                                                             MILLIONS)
      <S>                                                <C>     <C>     <C>
      Total lending assets and investments.............. $1,228  $1,090  $849
      New business volume...............................    754     544   589
      Revenues..........................................    106      80    72
      Revenues as a percentage of total revenues........    8.3%    8.1%  6.6%
      Ratio of net writedowns (recoveries) to
       average lending assets...........................    --     (0.1)  0.1
      Ratio of total nonearning assets to lending
       assets...........................................    1.2     0.9   0.4
</TABLE>
 
  The business strategy of Sales Finance is to focus on developing long-term
relationships with clients by understanding its clients' businesses and the
role that financing plays in their sales and marketing processes. The sales
force, which has expertise in originating and structuring customized programs
for companies in its targeted industries, calls directly on prospective
clients, using a database of pre-qualified prospects.
 
                                       9
<PAGE>
 
  Sales Finance's credit approach focuses on the structure of the underlying
financing program and stresses a balance among three key factors: (i) credit
strength of the underlying lessee or borrower, (ii) value and quality of the
underlying collateral and (iii) financial support from the client, and Sales
Finance's reliance upon that support, as many of its programs have full or
partial recourse to the manufacturer or vendor. The group uses standard
underwriting formats and documents to ensure strict credit controls, while
still providing the quick response times demanded by clients. Credit quality
of Sales Finance's portfolio is evidenced by nonearning assets constituting
1.2% of total lending assets and investments, and no net writedowns during
1997.
 
  Sales Finance is focusing increasingly on the use of syndications and
securitizations to manage client and industry concentrations, and to generate
fee income and increase returns. During 1997, the Company securitized $195
million of Sales Finance receivables in a single transaction. The Company did
not retain any credit risk on this transaction, as all securities were sold to
third parties on a non-recourse basis. The Company continues to generate
servicing fees from these assets.
 
 
 BUSINESS CREDIT
 
  Business Credit, with $1.0 billion in total lending assets and investments,
represented 22% of the Asset Based Finance portfolio as of December 31, 1997.
Business Credit provides asset based working capital and term financing to
middle-market companies for growth, refinancings, recapitalizations,
acquisitions, seasonal borrowing, and debtor-in-possession ("DIP") and post-
DIP transactions, through senior loans primarily secured by accounts
receivable, inventory and, to a lesser extent, machinery and equipment and
real estate. Middle-market companies served by Business Credit include
manufacturers, retailers, wholesalers, distributors and service firms. The
group's portfolio is well-diversified, consisting of 20 industries, with
food/grocery and retail representing the largest concentrations at 22% and
13%, respectively, of total lending assets, and no other industry constituting
more than 10% of total lending assets, as of December 31, 1997. Terms of
transactions usually range from one to eight years, with an average commitment
size and funds employed of $25 million and $10 million, respectively.
 
  The following table sets forth certain information regarding Business Credit
as of the end of, and for, each of the years in the three-year period ended
December 31, 1997:
 
<TABLE>
<CAPTION>
                                                              AS OF, OR FOR
                                                             THE YEAR ENDED,
                                                               DECEMBER 31,
                                                             ------------------
                                                              1997   1996  1995
                                                             ------  ----  ----
                                                               (DOLLARS IN
                                                                MILLIONS)
      <S>                                                    <C>     <C>   <C>
      Total lending assets and investments.................. $1,025  $867  $638
      New business volume...................................    695   639   476
      Revenues..............................................    114    86    64
      Revenues as a percentage of total revenues............    9.0%  8.7%  5.9%
      Ratio of net writedowns to
       average total lending assets.........................    --    0.1   --
      Ratio of nonearning assets to lending assets..........    --    --    --
</TABLE>
 
  Through its nine regional sales offices, Business Credit provides the
Company with broad national coverage with a focus on regional market
opportunities. Financing is typically provided as agent (lead lender), but
also may be provided as a co-lender or a participant in senior secured
transactions agented by other traditional asset-based lenders. Business Credit
generates the majority of its new business through intermediaries such as
investment and commercial banks, and private equity investors. The group is
also expanding its direct marketing efforts through its use of proprietary
databases of prospective borrowers. In 1997, Business Credit generated new
business commitments and related fundings of $1.7 billion and $695 million,
respectively, up 26% and 9% over the prior year period.
 
                                      10
<PAGE>
 
  Business Credit underwrites transactions based on balancing collateral
values, cash flow and capital structure. Business Credit protects its position
against deterioration of a borrower's performance by using established advance
rates against eligible collateral and cross-collateralizing revolving credit
facilities and term loans. Credit risk is also actively managed through
portfolio diversification by industry and individual client exposure. Business
Credit manages its portfolio centrally, ensuring more consistent control over
all of its accounts and efficient documentation and approval of transactions.
The credit quality is reflected in cumulative net writedowns of $2 million
since the group's inception in 1992, and no nonearning assets as of December
31, 1997.
 
  Business Credit has established a syndication capability, enabling it to
commit to larger transactions while still managing the size of ultimate
retained positions and to generate additional income. Although Business Credit
can provide commitments of up to $200 million, the business generally
syndicates its ultimate retained funds employed position to $35 million or
less. Total syndication activity in 1997 amounted to $132 million in fundings.
 
 CURRENT ASSET MANAGEMENT
 
  Current Asset Management has been a leading provider of factoring services
in the United States for over 50 years. For 1997, the Company believes Current
Asset Management was the fourth largest factor in terms of volume in the
United States, with factoring volume of over $7.3 billion, a 6% increase from
the prior year. This group provides factoring, working capital and term loans,
receivables management, import and export financing and credit protection to
middle-market companies which have targeted annual sales in the range of $10
million to $100 million. Working capital and term loans consist of advances
against inventory and equipment on a formula basis, as well as seasonal over-
advances. In addition, during 1997, the group's commercial funding unit began
making asset based loans in the $1 million to $10 million range secured by
receivables and inventory. Current Asset Management serves a wide variety of
markets, with specific expertise in apparel, textiles and home furnishings. As
of December 31, 1997, the majority of Current Asset Management's lending
assets consisted of short-term trade receivables from department and general
merchandise retail stores. The group has also begun to service a broad range
of additional markets such as golf, temporary staffing services, seafood and
housewares. Clients use Current Asset Management's factoring products and
services to address a broad range of needs, including improving cash flow,
mitigating the risk of bad debt charge-offs, increasing sales, improving
management information and converting the high fixed cost of operating a
credit and collection department into a lower, variable expense.
 
  The following table sets forth certain information regarding Current Asset
Management as of the end of, and for, each of the years in the three-year
period ended December 31, 1997:
 
<TABLE>
<CAPTION>
                                                      AS OF, OR FOR THE
                                                     YEAR ENDED, DECEMBER
                                                             31,
                                                     ------------------------
                                                      1997      1996    1995
                                                     ------    ------  ------
                                                         (DOLLARS IN
                                                          MILLIONS)
      <S>                                            <C>       <C>     <C>
      Total lending assets and investments.......... $  391(1) $  917  $  755
      Factoring volume(2)...........................  7,347     6,933   6,084
      Revenues......................................    122       113      98
      Revenues as a percentage of total revenues....    9.6%     11.5%    9.0%
      Ratio of net writedowns to average lending
       assets.......................................    1.0       1.0     1.3
      Ratio of nonearning assets to total lending
       assets.......................................    0.5       0.4     1.1
</TABLE>
     --------
     (1) Reflects the sale of $500 million of factored accounts receivable
         during 1997.
     (2) Due to the short-term nature of these purchased receivables,
         factoring volume is not included in new business volume.
 
                                      11
<PAGE>
 
  Current Asset Management maintains two full service offices in New York and
Los Angeles and operates sales offices in Atlanta and Dallas. Through its
experienced sales force, Current Asset Management generates business through
direct calling on manufacturers, and develops and maintains relationships with
financial intermediaries that provide financing advice to prospective clients.
In addition to its direct sales efforts, Current Asset Management generates
business through its programmatic use of direct mail and advertising and
through referrals from other business groups of the Company. The Company
believes that its focused sales efforts, market research program, and
advertising and marketing efforts have played a key role in the growth of its
domestic factoring operation. Current Asset Management has developed
sophisticated proprietary information storage and retrieval systems, such as
electronic transmission of invoices and remittances, scanning technology and
electronic linkage with clients, that streamline the management and processing
of accounts receivable and enable the Company to efficiently process the high
transaction volumes related to factoring invoices. Current Asset Management
believes that the investments in technology associated with factoring
represent a significant entry barrier to new competitors.
 
  Current Asset Management generally purchases the accounts receivable owed to
clients by their customers, usually on a nonrecourse basis, and may provide
funding to clients as an advance against those receivables. Customer credit
coverage is extended based on an analysis of operating performance and sources
of short-term liquidity, such as borrowing facilities and trade relationships.
The Company also utilizes technology to electronically perform basic credit
surveillance routines. The Current Asset Management portfolio's strong credit
quality is evidenced by nonearning assets of only 0.5% of lending assets at
December 31, 1997 and net writedowns of 1.0% of lending assets for 1997.
 
  The Company has a factored accounts receivable facility, which allows it to
sell an undivided interest of up to $550 million in a designated pool of its
factored accounts receivable to five bank-supported conduits. The Company
utilized this facility during the fourth quarter of 1997. At December 31,
1997, the Company had sold approximately $500 million of factored accounts
receivables through this facility, resulting in a decrease of Current Asset
Management lending assets from the end of the prior year.
 
 SMALL BUSINESS LENDING
 
  Small Business Lending, with $766 million in lending assets and investments,
represented 16% of the Asset Based Finance portfolio as of December 31, 1997.
Small Business Lending provides long-term financing to the large and growing
small business market, primarily under SBA loan programs. Small Business
Lending's major product offerings are SBA 7(a) loans, which are guaranteed up
to 80% by the SBA, and SBA 504 loans, which are senior to an accompanying SBA
loan and have an average loan to collateral value of 50%. Small Business
Lending is one of only fourteen non-banks licensed by the SBA to make SBA 7(a)
loans and is the third largest originator of such loans. Small Business
Lending provides long-term financing for real estate purchase, construction or
refinance; business or equipment acquisition; working capital; and debt
refinancing, primarily to companies in the manufacturing, retail or service
sectors with annual sales of $500,000 to $3 million. While the portfolio is
somewhat concentrated in California and Texas, it is geographically
diversified within these states. The entire Small Business Lending portfolio
is diversified by industry type, with concentrations of 13% in transportation
services and 10% in miscellaneous consumer services and no other industry
representing more than 10% of the portfolio as of December 31, 1997. The loans
provided by Small Business Lending are generally for amounts up to $3 million,
have an average size of $500,000 and have a contractual maturity ranging from
five to 25 years.
 
                                      12
<PAGE>
 
  The following table sets forth certain information regarding Small Business
Lending as of the end of, and for, each of the years in the three-year period
ended December 31, 1997:
 
<TABLE>
<CAPTION>
                                                               AS OF, OR FOR
                                                                  THE YEAR
                                                                   ENDED,
                                                                DECEMBER 31,
                                                               ----------------
                                                               1997  1996  1995
                                                               ----  ----  ----
                                                                (DOLLARS IN
                                                                 MILLIONS)
      <S>                                                      <C>   <C>   <C>
      Total lending assets and investments.................... $766  $403  $208
      New business volume.....................................  472   393   165
      Revenues................................................   65    47    18
      Revenues as a percentage of total revenues..............  5.1%  4.8%  1.7%
      Ratio of net writedowns to average lending assets.......  0.3   0.3   0.5
      Ratio of nonearning assets to lending assets............  2.0   1.2   0.5
</TABLE>
 
  Small Business Lending operates out of 24 offices in 12 states and the
portfolio is managed on a centralized basis. Small Business Lending focuses
its marketing efforts on developing relationships with third party
intermediaries, such as real estate brokers, mortgage brokers and business
brokers. Additional business originates from referrals from existing
customers, franchisors, targeted direct marketing and cross-referrals from
other of the Company's business groups. Small Business Lending enjoys SBA
Preferred Lender Program "PLP" status, which enables it to approve SBA 7(a)
loans under SBA-delegated approval authority. The Company believes that Small
Business Lending has maintained a position as one of the nation's three
largest originators of SBA 7(a) loans since 1995, and placed first and second
in volume growth in 1996 and 1997, respectively. In California and Texas, the
two largest markets for SBA 7(a) loans, Small Business Lending was the largest
originator of SBA 7(a) loans in 1997. Total new business for all products
exceeded $470 million in 1997.
 
  Small Business Lending's underwriting and procedural guidelines are
standardized to ensure a consistent and efficient process. Credit decisions
are based on analysis of a prospective borrower's cash flow, the use of
independent valuations for collateral and a review of management. Loans are
generally secured by real estate and equipment, with additional collateral in
the form of other business assets, personal residences and, in many instances,
personal guarantees. The portfolio is comprised of approximately 2,800
individual loans, which provides diversified risk. Delinquent accounts are
managed aggressively, beginning at five days past due, through a combination
of collection calls and letters. At 60 days past due, accounts are transferred
to a specialized workout area. Nonearning assets represented 2% of the
portfolio as of December 31, 1997, of which 75% were the guaranteed portions
of net SBA 7(a) loans which are held until a liquidation is complete and the
SBA repurchases the loan. Net writedowns have remained at or below 0.5%
annually for the past three years.
 
  The Company has developed the ability to sell the guaranteed portions of SBA
7(a) loans in the secondary market. The guaranteed portions of SBA 7(a) loans,
which represented 45% of the lending assets of this group at December 31,
1997, can generally be sold and settled, at amounts in excess of book value,
in less than 45 days. Small Business Lending has sold over $150 million in
guaranteed 7(a) loans over the past two years.
 
REAL ESTATE FINANCE
 
  Real Estate Finance had total lending assets and investments of $2.1
billion, or 17% of the Company's total lending assets and investments, as of
December 31, 1997, and total revenues of $252 million, or 20% of the Company's
total revenues, for 1997. Real Estate Finance provides financing to owners,
investors and developers for the acquisition, refinancing and renovation of
commercial income producing properties in a wide range of property types and
geographic areas. The group serves these markets by offering structured
financings using tailored senior secured debt and junior participating
financings, as well as through a unit which originates fixed rate commercial
mortgages held for ultimate securitization ("CMBS"). Transactions are secured
by a variety of property types including office, multi-family, retail,
industrial, manufactured housing communities, self storage facilities and
hotels. Typical transactions range in size from $1 million to $35 million,
with an average transaction size in 1997 of approximately $4 million.
 
                                      13
<PAGE>
 
  The following table sets forth certain information regarding Real Estate
Finance as of the end of, and for, each of the years in the three-year period
ended December 31, 1997:
 
<TABLE>
<CAPTION>
                                                        AS OF, OR FOR THE
                                                       YEAR ENDED, DECEMBER
                                                               31,
                                                       ----------------------
                                                        1997    1996    1995
                                                       ------  ------  ------
                                                           (DOLLARS IN
                                                            MILLIONS)
      <S>                                              <C>     <C>     <C>
      Lending assets and investments:
        CMBS lending assets and investments........... $1,092  $  459  $   99
        Other lending assets and investments..........  1,001   1,055   1,135
                                                       ------  ------  ------
          Total lending assets and investments........ $2,093  $1,514  $1,234
                                                       ======  ======  ======
      New business volume:
        CMBS new business volume...................... $1,163  $  549  $  196
        Other new business volume.....................    504     402     550
                                                       ------  ------  ------
          Total new business volume................... $1,667  $  951  $  746
                                                       ======  ======  ======
      Revenues........................................ $  252  $  192  $  185
      Revenues as a percentage of total revenues......   19.8%   19.5%   17.1%
      Ratio of net writedowns to average lending
       assets.........................................    0.1     0.1     --
      Ratio of nonearning assets to lending assets....    0.2     0.3     1.0
</TABLE>
   
  Real Estate Finance has ten offices throughout the United States which
generate new business by using a combination of direct calling on prospective
borrowers and calling on intermediaries and brokers who have relationships
with potential clients. Real Estate Finance also markets its products through
the use of trade advertising, direct marketing, newsletters, and trade show
attendance and sponsorship. In 1997, Real Estate Finance generated new
fundings of approximately $1.7 billion, the majority of which were related to
CMBS originations. The Company has made and expects to continue to make
significant investments in CMBS originations and securitization capabilities
to remain a leader in this business. In 1997, the Company terminated its
agreement with Belgravia Financial Services ("Belgravia"), whereby Belgravia
provided CMBS loans to the Company for approval and financing and shared in
CMBS loan and securitization profits. In 1997, Belgravia originated
approximately 35% of the Company's total CMBS volume. The Company expects that
the termination of this agreement will not have a material impact on the
Company's origination of new CMBS loans, due to the Company's investment in
loan origination capabilities.     
 
  Real Estate Finance has a credit philosophy that emphasizes selecting
properties that generate stable or increasing income cash flow streams and
that have strong asset quality and proven sponsorship with defined business
plans. Real Estate Finance's lending and investment philosophy emphasizes
portfolio liquidity, relatively small individual transaction sizes, and
maintenance of a diverse portfolio in terms of geographic location and
property type. The CMBS product is underwritten to rating agency guidelines
with the intent to sell through all credit risk at the time of securitization.
This strategy has resulted in low levels of nonearning assets at December 31,
1997 and 1996. There were minimal net writedowns of Real Estate Finance assets
during 1997, 1996 and 1995. The Real Estate Finance portfolio is diversified
across a wide range of property types and geographic areas. At December 31,
1997 and 1996, Real Estate Finance lending assets and investments were
distributed as follows:
 
<TABLE>
<CAPTION>
     PROPERTY TYPES
     --------------
                         1997 1996
                         ---- ----
<S>                      <C>  <C>
Apartments..............  20%  11%
Manufactured housing....  16   21
Retail..................  14    7
Self storage............  12   13
General purpose office
 buildings..............   8    6
Industrial..............   8   10
Hotels..................   6   14
Loan Portfolios.........   4    9
Other...................  12    9
                         ---  ---
                         100% 100%
                         ===  ===
</TABLE>
<TABLE>
<CAPTION>
    GEOGRAPHIC AREAS
    ----------------
                         1997 1996
                         ---- ----
<S>                      <C>  <C>
California..............  29%  28%
Southwest...............  19   13
Midwest.................  12   10
Florida.................   7   12
Mid-Atlantic States.....   6    8
New England.............   5    4
New York................   4    8
West....................   4    3
Other...................  14   14
                         ---  ---
                         100% 100%
                         ===  ===
</TABLE>
 
                                      14
<PAGE>
 
   
  During 1997, the Company securitized over $500 million of CMBS loans and did
not retain any residual interest in this transaction, as all of the receivable
backed securities were sold to third parties on a non-recourse basis. Real
Estate Finance also originated approximately $1.1 billion of CMBS loans which
were originated to be held for securitization at December 31, 1997, a 138%
increase over the prior year. The Company also securitized approximately $1.1
billion of these loans in March 1998 and did not retain any residual risk in
this transaction. Real Estate Finance syndicates 50% to 75% of junior
participation originations through a syndication arrangement with a real
estate fund sponsored by a nationally known investment banking firm. The use
of syndications has enabled the Company to reduce its average individual
retained position in this portfolio to approximately $1 million.     
 
  At December 31, 1997, Real Estate Finance was contractually committed to
finance an additional $102 million to new and existing borrowers, generally
contingent upon the maintenance of specific credit standards. Since many of
the commitments are expected to remain unused, the total commitment amounts do
not necessarily represent future cash requirements. No significant commitments
exist to provide additional financing related to nonearning assets.
 
INTERNATIONAL GROUP
 
  International Group has a significant international presence in factoring
and asset based financing, and has had subsidiaries and joint ventures in many
international markets for more than 25 years. International Group currently
consists of four majority owned subsidiaries and joint ventures with
operations in 15 countries in Europe, Asia/Pacific and Latin America.
International Group had total lending assets and investments of $2.4 billion,
or 20% of the Company's total lending assets and investments, at December 31,
1997, and total revenues (including the Company's share of income from
international joint ventures) of $187 million, or 15% of the Company's total
revenues, for 1997. International Group provides factoring and receivables
management services, asset based financing, acquisition financing, leasing and
vendor finance and/or trade finance programs. The largest of the Company's
consolidated subsidiaries is Factofrance, which is the leading factoring
company in France and the third largest factor in the world, with factoring
volume of approximately $8 billion in 1997. The largest of the Company's joint
ventures is NMB-Heller Holding N.V., which has operations primarily in the
United Kingdom, Holland and Germany and accounted for 54% of the year-end 1997
investments in international joint ventures balance. The Company believes that
International Group's subsidiaries and joint ventures provide a solid base for
consistent growth in international earnings and also provide the Company with
the opportunity to meet the international financing needs of its domestic
client base.
 
                                      15
<PAGE>
 
  The following table sets forth certain information regarding International
Group as of the end of, and for, each of the years in the three-year period
ended December 31, 1997:
 
<TABLE>
<CAPTION>
                                           AS OF, OR FOR THE YEAR ENDED,
                                                   DECEMBER 31,
                                          -----------------------------------
                                             1997          1996       1995
                                          -----------    ---------  ---------
                                               (DOLLARS IN MILLIONS)
      <S>                                 <C>            <C>        <C>
      Lending assets and investments of
       consolidated subsidiaries:
        Europe........................... $     1,860(1) $     --   $     --
        Asia/Pacific.....................         223          257        212
        Latin America....................          80           80         61
                                          -----------    ---------  ---------
                                                2,163          337        273
      Investments in international joint
       ventures:
        Europe...........................         160          238        216
        Asia/Pacific.....................          16           14         12
        Latin America....................          22           20          5
                                          -----------    ---------  ---------
                                                  198          272        233
                                          -----------    ---------  ---------
          Total lending assets and
           investments................... $     2,361    $     609  $     506
                                          ===========    =========  =========
      Revenues of consolidated
       subsidiaries:
        Europe........................... $       121(1) $     --   $     --
        Asia/Pacific.....................          25           26         23
        Latin America....................           5           12          6
                                          -----------    ---------  ---------
                                                  151           38         29
      Income of international joint
       ventures:
        Europe...........................          32           42         35
        Asia/Pacific.....................           1            2          1
        Latin America....................           3          --          (1)
                                          -----------    ---------  ---------
                                                   36           44         35
                                          -----------    ---------  ---------
          Total international revenues... $       187    $      82  $      64
                                          ===========    =========  =========
      Total international revenues as a
       percentage of total revenues......        14.7%         8.3%       5.9%
      Ratio of net writedowns to average
       lending assets....................         1.8           --         --
      Ratio of nonearning assets to
       lending assets....................         0.9          8.2        3.7
</TABLE>
     --------
     (1) Reflects the consolidation of Factofrance in April 1997 due to the
         acquisition of the interest of International Group's joint venture
         partner, which increased International Group's ownership of
         Factofrance from 48.8% to 97.6%.
 
  International Group has broad, worldwide access to mid-sized and small
businesses with operations in 19 countries. Each subsidiary and joint venture
of International Group operates independently, with its own well-developed
methods of originating business, and the majority of the international joint
ventures are self-financed. International Group manages its investments
through offices located in London, Singapore and Chicago. Each subsidiary and
joint venture has its own well-developed credit philosophy, risk management
policies and procedures and portfolio management processes, which are
monitored by the Company through participation on their boards of directors,
credit committees and other executive and administrative bodies. Net
writedowns in consolidated subsidiaries totalled $23 million in 1997 and
related primarily to the Company's Mexican subsidiary and the consolidation of
Factofrance.
 
CORPORATE FINANCE
 
  Corporate Finance is a leading provider of middle market financing to
private equity-sponsored companies. Corporate Finance had total lending assets
and investments of $2.0 billion, or 17% of the
 
                                      16
<PAGE>
 
Company's total lending assets and investments, as of December 31, 1997 and
total revenues of $245 million, or 19% of the Company's total revenues, for
1997. Corporate Finance primarily provides secured financing for leveraged
buyouts, acquisitions, recapitalizations, refinancings, expansion and growth
of publicly and privately held entities in a wide variety of industries. In
almost all cases, these transactions involve professional or private equity
investors ("equity sponsors"), who acquire businesses for financial or
strategic purposes. Corporate Finance provides secured term and revolving
credit facilities, with durations of up to ten years, and to a lesser extent
provides unsecured or subordinated financings and invests in private equity
buy-out funds. Corporate Finance also from time to time makes modest non-
voting equity investments in conjunction with senior debt facilities, receives
warrants or equity interests as a result of providing financing, and makes
stand-alone equity co-investments, primarily with known equity sponsors.
Corporate Finance also serves as co-lender or participant in larger senior
secured cash flow transactions originated by other lenders. The Corporate
Finance portfolio has loans outstanding in a wide range of industries,
including manufacturing, services, metals, plastics, consumer products, health
care and defense. The portfolio is diversified among 26 industries with
concentrations of 12% in both chemicals/plastics and general industrial
machinery at December 31, 1997. No other industry represented more than 10% of
the total portfolio.
 
  The following table sets forth certain information regarding Corporate
Finance as of the end of, and for, each of the years in the three-year period
ended December 31, 1997:
 
<TABLE>
<CAPTION>
                                           AS OF, OR FOR THE YEAR ENDED,
                                                    DECEMBER 31,
                                          ---------------------------------
                                            1997      1996      1995
                                          --------  --------  --------
                                               (DOLLARS IN MILLIONS)
      <S>                                 <C>       <C>       <C>       <C>
      Total lending assets and
       investments....................... $  2,010  $  2,016  $  2,328
      New business volume................    1,378       858     1,412
      Revenues...........................      245       257       310
      Revenues as a percentage of total
       revenues..........................     19.3%     26.1%     28.6%
      Ratio of net writedowns to average
       lending assets....................      1.3       1.0       0.7
      Ratio of nonearning assets to
       lending assets....................      0.3       2.1       0.8
</TABLE>
 
  Corporate Finance serves its clients with teams of senior level originators
located in five regional offices. Corporate Finance has developed and
maintains close relationships with approximately 200 equity sponsors, many of
whom have been clients of the Company for ten or more years and who have
financed several transactions with this business group.
 
  The commitment to finance by this business group is predicated on the
Company's assessment of the borrower's ability to generate cash flow to repay
the loan based on the borrower's equity sponsor, market position,
relationships with clients and suppliers and ability to withstand competitive
challenges. Corporate Finance assets are generally cross-collateralized and
secured by liens on the borrower's current and fixed assets and capital stock.
Corporate Finance manages its portfolio centrally to ensure consistent
application of credit policy and efficient documentation and approval of
transaction modifications. Portfolio quality was demonstrated at December 31,
1997 by nonearning assets of $7 million, or 0.3% of lending assets. The
portfolio had net writedowns of $25 million in 1997 versus $21 million in
1996.
 
  In 1997, Corporate Finance functioned as agent for 29 syndicated
transactions. The Company believes its level of agented transactions makes it
the fourth largest syndicator of private equity-sponsored deals in the United
States. Total syndication activity in 1997 amounted to $602 million in funds.
Although Corporate Finance can provide commitments of up to $150 million per
transaction, the group generally syndicates its ultimate retained position to
less than $20 million. As of December 31, 1997, the average retained
transaction size was approximately $14 million in commitments and
approximately $8 million of fundings, which reflects the group's significant
use of the syndication market.
 
                                      17
<PAGE>
 
  As of December 31, 1997, Corporate Finance was contractually committed to
finance an additional $950 million to new and existing borrowers, generally
contingent upon the maintenance of specific credit standards. Since many of
the commitments are expected to remain unused, the total commitment amounts do
not necessarily represent future cash requirements. No significant commitments
exist to provide additional financing related to nonearning assets.
 
PROJECT FINANCE
 
  Project Finance is a specialized financing business, which provides
structured financing for individual projects to domestic independent oil and
gas, coal, mining and power companies. Financing is provided in the form of
senior and junior secured loans and equity investments. Project Finance had
total lending assets and investments of $144 million, or 1.2% of the Company's
total lending assets and investments, as of December 31, 1997 and revenues of
$19 million, or 1.5% of the Company's revenues, for 1997. Transaction sizes
generally range from $2 million to $20 million, and terms range from six to 17
years. Project Finance originates its financing opportunities primarily
through intermediaries with which it has established long-standing
relationships in its targeted industries. In 1997, Project Finance generated
$36 million in new business volume, with an average transaction size of $5
million. The credit approval process involves a detailed financial and legal
review of the contract and underlying project economic projections, together
with a review of all industry relevant data. Portfolio management procedures
involve the regular receipt of project status reports together with related
financial and operating information, as well as periodic site visits. The
Company expects Project Finance to remain a small percentage of its assets,
relative to its other business units.
 
  The following table sets forth certain information concerning Project
Finance as of the end of, and for, each of the years in the three-year period
ended December 31, 1997:
 
<TABLE>
<CAPTION>
                                              AS OF, OR FOR THE YEAR ENDED,
                                                      DECEMBER 31,
                                             -------------------------------
                                              1997      1996     1995
                                             -------- --------  --------
                                                  (DOLLARS IN MILLIONS)
      <S>                                    <C>      <C>       <C>      <C>
      Total lending assets and
       investments.........................  $   144  $    160  $   186
      New business volume..................       36        23       52
      Revenues.............................       19         9       27
      Revenues as a percentage of total
       revenues............................      1.5%      0.9%     2.5%
      Ratio of net writedowns to average
       lending assets......................      --        4.8      --
      Ratio of nonearning assets to lending
       assets..............................     14.2      11.5      4.5
</TABLE>
 
  The nonearning assets in Project Finance at December 31, 1997 and 1996
consisted of one transaction which the Company expects to liquidate in 1998
with little or no net writedown.
 
  At December 31, 1997, Project Finance was contractually committed to finance
an additional $54 million to new and existing borrowers, generally contingent
upon the maintenance of specific credit standards. Since many of the
commitments are expected to remain unused, the total commitment amounts do not
necessarily represent future cash requirements. No significant commitments
exist to provide additional financing related to nonearning assets.
 
PRE-1990 PORTFOLIO
 
  The lending philosophy of Corporate Finance and Real Estate Finance prior to
1990 emphasized larger, less liquid transactions and transactions with lower
levels of cash flow and collateral coverage. Subsequent to 1990, the Company
has developed a credit strategy which focuses on transactions with lower
lending multiples, smaller retained positions and greater liquidity. As a
result, the Company has separately managed the pre-1990 portfolio over the
last several years in its effort to closely monitor
 
                                      18
<PAGE>
 
credit quality and effectively reduce this exposure. During this period, the
Company has substantially reduced its pre-1990 portfolio from $2.5 billion, or
33% of lending assets and investments, at December 31, 1993 to $492 million,
or 4% of lending assets and investments, at December 31, 1997. Approximately
70% of the remaining pre-1990 portfolio consists of real estate assets which
have been independently appraised and written down to the appraised value. The
net writedowns related to working out of the pre-1990 assets have been
significant, with $1.1 billion of writedowns on pre-1990 accounts since 1991.
The Company believes it has dealt with the negative effect of this portfolio
and expects the impact of the pre-1990 portfolio to be insignificant beginning
in 1998. See "--Risk Management--Portfolio Quality--Pre-1990 Portfolio".
 
  The following table sets forth certain information concerning the pre-1990
Corporate Finance and Real Estate Finance portfolio as of the end of, and for,
each of the years in the three-year period ended December 31, 1997:
 
<TABLE>
<CAPTION>
                                             AS OF, OR FOR THE YEAR ENDED,
                                                      DECEMBER 31,
                                             -------------------------------
                                              1997     1996      1995
                                             -------- -------- --------
                                                 (DOLLARS IN MILLIONS)
      <S>                                    <C>      <C>      <C>       <C>
      Total lending assets and
       investments.........................  $   492  $   979  $  1,526
      Revenues.............................       40       30       148
      Revenues as a percentage of total
       revenues............................      3.1%     3.0%     13.7%
      Ratio of net writedowns to average
       lending assets......................     11.5      5.9      11.3
      Ratio of nonearning assets to lending
       assets..............................     15.5     17.8      14.2
</TABLE>
 
  Net writedowns as a percentage of average lending assets were higher in 1997
than 1996 due to a lower level of recoveries in 1997 than the prior year.
 
SALES AND MARKETING
 
  The Company originates transactions in the United States through a dedicated
sales force of over 260 employees in over 40 locations and through its network
of wholly-owned and joint venture commercial finance companies with operations
in 19 other countries around the world. These sales people have industry-
specific experience that enables them to effectively structure commercial
finance transactions to companies in the industries and market segments served
by the Company.
 
  The Company's sales force originates business through a combination of (i)
direct calling on prospective borrowers, (ii) relationships with
manufacturers, dealers, and distributors, (iii) relationships with a wide
variety of private equity investors, business brokers, investment bankers, and
other intermediaries and referral sources, and (iv) relationships with
financial institutions. The Company has invested in expanding and broadening
its market coverage in several of its businesses, particularly Small Business
Lending and CMBS, and expects these investments to enhance the Company's
ability to generate new transactions and income.
 
  Sales force compensation encourages active, profitable new business
development, client retention, credit quality, pricing margins and cross-
referral of business opportunities to other business groups.
 
  The Company also markets its products and services through the use of
general market advertising, trade advertising, direct mail, a web site, public
relations, newsletters, trade show attendance and sponsorship, educational
seminars, and a variety of other market- and industry-specific events. The
Company maintains several proprietary databases for the purpose of generating
targeted, customized direct marketing campaigns and for the purpose of
tracking relationship history with certain of its clients and prospects. The
Company regularly conducts client satisfaction surveys and other market
research studies designed to assess its competitive position and to identify
unfulfilled needs of its clients and prospects.
 
                                      19
<PAGE>
 
SECURITIZATION, SYNDICATION AND LOAN SALE ACTIVITIES
 
  The Company has developed strong capabilities in the areas of
securitization, syndication and loan sales. These capital markets activities
provide the Company with the ability to (i) maximize its origination strength
by providing broader market access to higher quality credits, (ii) manage
customer and asset concentrations, (iii) generate income growth in competitive
markets through syndication fees and securitization gains and (iv) meet a
broader array of the financial needs of its current clients. The Company also
uses securitizations and syndications to provide attractive financial returns
on high-quality, lower yielding assets. The Company believes that additional
benefits are realized by its credit, operations and underwriting processes
being subjected to capital markets disciplines. The following table sets forth
certain information with respect to the Company's capital market activities in
1997, 1996 and 1995:
 
<TABLE>
<CAPTION>
                                                         1997   1996   1995
                                                        ------ ------ ------
                                                             (IN MILLIONS)
      <S>                                               <C>    <C>    <C>    <C>
      New business volume.............................. $5,970 $4,052 $3,854
      Securitizations..................................    774     --    220
      Syndications and loan sales......................    964    757    708
</TABLE>
 
 SECURITIZATIONS
 
  The Company securitizes assets to generate fee income and to manage client
and industry concentrations and leverage its origination capabilities. In
1997, the Company securitized $774 million of assets through the completion of
a CMBS and an equipment based securitization. The Company did not retain any
credit risk in either of these transactions, as all of the receivable backed
notes were sold to third parties on a non-recourse basis.
   
 SYNDICATIONS AND LOAN SALES     
 
  The Company syndicates assets and sells loans to manage client
concentrations and generate fees, and has established syndication and loan
sale capabilities in nearly all of its business categories. To facilitate its
syndication activity, the Company has established and maintains relationships
with a wide variety of financial institutions throughout the United States. In
1997, the Company completed syndications and sales of $964 million in
receivables, investments and loans.
 
COMPETITION
 
  The Company's markets are highly fragmented and extremely competitive and
are characterized by competitive factors that vary by product and geographic
region. The Company's competitors include other commercial finance companies,
national and regional banks and thrift institutions, investment banks, leasing
companies, investment companies, manufacturers and vendors. Competition from
both traditional competitors and new market entrants has been intensified in
recent years by an improving economy, growing marketplace liquidity and
increasing recognition of the attractiveness of the commercial finance
markets. In addition, the rapid expansion of the securitization markets is
dramatically reducing the difficulty in obtaining access to capital, which is
the principal barrier to entry into these markets. This is further
intensifying competition in certain market segments, including competition
from specialized securitization lenders that offer aggressive pricing terms.
 
  The Company competes primarily on the basis of pricing, terms, structure and
service in many of its markets. Competitors of the Company often seek to
compete aggressively on the basis of these factors and the Company may lose
market share to the extent it is unwilling to match its competitors' pricing,
terms and structure in order to maintain its spreads or to maintain its credit
discipline. To the extent that the Company matches competitors' pricing, terms
or structure, it may experience decreased spreads and/or increased risk of
credit losses. Many of the Company's competitors are large companies that have
substantial capital, technological and marketing resources, and some of these
 
                                      20
<PAGE>
 
competitors are larger than the Company and may have access to capital at a
lower cost than the Company. Further, the size and access to capital of
certain of the Company's competitors are being enhanced by the recent surge in
consolidation activity in the commercial and investment banking industries.
Also, the Company's competitors include businesses that are not affiliated
with bank holding companies and therefore are not subject to the same
extensive federal regulations that govern bank holding companies. As a result,
such non-banking competitors may engage in certain activities which currently
are prohibited to the Company.
 
REGULATION
   
  Fuji Bank is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"), and is
registered as such with the Board of Governors of the Federal Reserve System
(the "Federal Reserve"). As a result, the Company is subject to the Bank
Holding Company Act and is subject to examination by the Federal Reserve. In
general, the Bank Holding Company Act limits the activities in which the
Company may engage to those which the Federal Reserve has generally determined
to be "so closely related to banking . . . as to be a proper incident thereto"
and generally requires the approval of the Federal Reserve before the Company
may engage directly or through a subsidiary in such activities. To obtain the
Federal Reserve's approval, Fuji Bank must submit a notice that provides
information both about the proposed activity or acquisition and about the
financial condition and operations of Fuji Bank and the Company. The Bank
Holding Company Act will continue to apply to the Company for as long as Fuji
Bank holds 25% or more of any class of the Company's voting stock or otherwise
is deemed to control the management or operations of the Company under the
Bank Holding Company Act and the Federal Reserve's regulations and
interpretations thereunder. The Company's current business activities
constitute permitted activities or have been authorized by the Federal
Reserve.     
 
  SBA loans made by the Company are governed by the Small Business Act and the
Small Business Investment Act of 1958, as amended, and may be subject to the
same regulations by certain states as are other commercial finance operations.
The federal statutes and regulations specify the types of loans and loan
amounts which are eligible for the SBA's guaranty as well as the servicing
requirements imposed on the lender to maintain SBA guarantees.
   
  The operations of the Company are subject, in certain instances, to
supervision and regulation by state and federal governmental authorities and
may be subject to various laws and judicial and administrative decisions
imposing various requirements and restrictions, which, among other things, (i)
regulate credit granting activities, (ii) establish maximum interest rates,
finance charges and other charges, (iii) require disclosures to customers,
(iv) govern secured transactions and (v) set collection, foreclosure,
repossession and claims handling procedures and other trade practices.
Although most states do not regulate commercial finance, certain states impose
limitations on interest rates and other charges and on certain collection
practices and creditor remedies and require licensing of lenders and
financiers and adequate disclosure of certain contract terms. The Company is
also required to comply with certain provisions of the Equal Credit
Opportunity Act that are applicable to commercial loans. Additionally, the
Company is subject to regulation in those countries in which the Company has
operations and in most cases has been required to obtain central governmental
approval before commencing business.     
 
  In the judgment of management, existing statutes and regulations have not
had a material adverse effect on the business conducted by the Company.
However, it is not possible to forecast the nature of future legislation,
regulations, judicial decisions, orders or interpretations, nor their impact
upon the future business, financial condition or results of operations or
prospects of the Company.
 
EMPLOYEES
   
  As of March 31, 1998, the Company had 2,362 employees. The Company is not
subject to any collective bargaining agreements and believes that its employee
relations are good.     
 
                                      21
<PAGE>
 
RISK MANAGEMENT
 
  The Company's business activities contain elements of risk. The Company
considers the principal types of risk to be credit risk and asset/liability
risk (including interest rate and liquidity risk). The Company considers the
management of risk essential to conducting its businesses and to maintaining
profitability. Accordingly, the Company's risk management systems and
procedures are designed to identify and analyze the Company's risks, to set
appropriate policies and limits and to continually monitor these risks and
limits by means of reliable administrative and information systems and other
policies and programs.
 
 CREDIT RISK MANAGEMENT
 
  The Company manages credit risk through its underwriting procedures,
centralized approval of individual transactions and active portfolio and
account management. Underwriting procedures have been developed for each
business line, enabling the Company to assess a prospective borrower's ability
to perform in accordance with established loan terms. These procedures may
include analyzing business or property cash flows and collateral values,
performing financial sensitivity analyses and assessing potential exit
strategies. For transactions originated with the intent of reducing the
Company's ultimate retained asset size, the Company's syndication units assign
a risk rating prior to approval of the underlying transaction, reflecting its
confidence level, prior to funding, in syndicating the proposed transaction.
Financing and restructuring transactions exceeding designated amounts are
reviewed and approved by an independent corporate credit function, and larger
transactions require approval by a centralized credit committee. During 1997,
the Company further strengthened its credit risk management function through
the appointment of a Chief Credit Officer, who reports to the Company's
Chairman. Each business group is subject to a quarterly portfolio review of
its significant assets with the Chief Credit Officer and, in some cases, the
Chairman.
 
  The Company manages its portfolio by monitoring transaction size and
diversification by industry, geographic area, property type and borrower.
Through these methods, management identifies and limits exposure to
unfavorable risks and seeks favorable financing opportunities. Loan grading
systems are used to monitor the performance of loans by product category, and
an overall risk classification system is used to monitor the risk
characteristics of the total portfolio. These systems generally consider debt
service coverage, the relationship of the loan to underlying business or
collateral value, industry characteristics, principal and interest risk, and
credit enhancements such as guarantees, irrevocable letters of credit and
recourse provisions. When a problem account is identified, professionals that
specialize in the relevant industry are brought in to more closely monitor the
account and formulate strategies to optimize and accelerate the resolution
process. Since 1994, the Internal Audit Department, independent of operations,
has performed an independent review to evaluate the risk identification and
credit management processes, as well as validate the loan grading of assets in
such portfolios and reports its findings to senior management and the Audit
Committee of the Company's Board of Directors.
 
 ASSET/LIABILITY MANAGEMENT
 
  INTEREST RATE AND FOREIGN CURRENCY RISK MANAGEMENT. The Company uses
derivatives as an integral part of its asset/liability management program to
reduce its overall level of financial risk arising from normal business
operations. These derivatives, particularly interest rate swap agreements, are
used to manage liquidity, diversify sources of funding, alter interest rate
exposure arising from mismatches between assets and liabilities and manage
exposures to foreign exchange fluctuations. The Company is not an interest
rate swap dealer nor is it a trader in derivative securities, and it has not
used speculative derivative products for the purpose of generating earnings
from changes in market conditions.
 
                                      22
<PAGE>
 
  Before entering into a derivative agreement, management determines that an
inverse correlation exists between the value of a hedged item and the value of
the derivative. At the inception of each agreement, management designates the
derivative to specific assets, pools of assets or liabilities. The risk that a
derivative will become an ineffective hedge is generally limited to the
possibility that an asset being hedged will prepay before the related
derivative expires. Accordingly, after inception of a hedge, asset/liability
managers monitor the effectiveness of derivatives through an ongoing review of
the amounts and maturities of assets, liabilities and swap positions. This
information is reported to the Financial Risk Management Committee ("FRMC"),
the members of which include the Company's Chairman, Chief Financial Officer
and Treasurer. The FRMC determines the direction the Company will take with
respect to its financial risk position. This position and the related
activities of the FRMC are reported regularly to the Company's Executive
Committee and Board of Directors.
 
  The Company uses interest rate swaps as an important tool for financial risk
management, which enables it to match more closely the interest rate and
maturity characteristics of its assets and liabilities. As such, interest rate
swaps are used to change the characteristics of fixed rate debt to that of
variable rate liabilities, to alter the characteristics of specific fixed rate
asset pools to more closely match the interest terms of the underlying
financing and to modify the variable rate basis of a liability to more closely
match the variable rate basis used for variable rate receivables. At December
31, 1997, the Company had $6.6 billion in notional amount of swap agreements
with commercial banks and investment banking firms. The average interest rates
paid by the Company on its outstanding indebtedness, before and after the
effect of swap agreements, as of December 31, 1997 and 1996 are summarized
below:
 
<TABLE>
<CAPTION>
                                                   DECEMBER 31,
                                    --------------------------------------------
                                            1997                   1996
                                    ---------------------  ---------------------
                                    YEAR-END BEFORE AFTER  YEAR-END BEFORE AFTER
                                    BALANCE  SWAPS  SWAPS  BALANCE  SWAPS  SWAPS
                                    -------- ------ -----  -------- ------ -----
                                               (DOLLARS IN MILLIONS)
   <S>                              <C>      <C>    <C>    <C>      <C>    <C>
   Commercial paper--
    domestic and foreign...........  $2,560   5.71%  N/A    $2,576   5.63%  N/A
   Fixed rate debt.................   3,951   6.90  6.67%    2,905   7.02  6.62%
   Variable rate debt..............   2,051   5.44  6.01     1,859   4.85  5.78
                                     ------                 ------
     Total.........................  $8,562   6.19  6.44    $7,340   5.98  6.29
                                     ======                 ======
</TABLE>
 
  The swap agreements had the effect of increasing interest expense by $8
million during 1997. At December 31, 1997, balance sheet assets that mature or
reprice over the next three months exceeded balance sheet liabilities that
mature or reprice over the same period by $1.1 billion. After the effect of
off-balance sheet instruments, liabilities that mature or reprice over the
next three months exceeded assets that mature or reprice over the same period
by $158 million. The largest such difference at a month end during 1997 was
$695 million.
 
  The Company's sensitivity to changes in interest rates is regularly
monitored and analyzed by measuring the repricing and amortization
characteristics of assets, liabilities and off-balance sheet derivatives. The
Company utilizes various models to assess interest rate risk in terms of the
potential effect on net interest income, the market value of net assets and
the value at risk of the firm in an effort to ensure that the Company is
insulated from any significant adverse effects from changes in interest rates.
The results of these models are reviewed each month with the FRMC. Based on
the model used for the sensitivity of net interest income, if the balance
sheet, when the month-end difference between the repricing of assets and
liabilities was at its greatest during 1997, were to remain constant and no
actions were taken to alter the existing interest rate sensitivity, a
hypothetical immediate 100 basis point change in interest rates would have
affected net interest income and net income by less than 1% over a six month
horizon. Although management believes that this measure is indicative of the
Company's sensitivity to interest rate changes, it does not adjust for
potential
 
                                      23
<PAGE>
 
changes in credit quality, size and composition of the balance sheet and other
business developments that could affect net income. Accordingly, no assurance
can be given that actual results would not differ materially from the
potential outcome simulated by this model.
 
  In order to minimize the effect of fluctuations in foreign currency exchange
rates on its financial results, the Company periodically enters into forward
contracts or purchases options. These financial instruments serve as hedges of
its foreign investment in international subsidiaries and joint ventures or
effectively hedge the translation of the related foreign currency income. The
Company held $623 million of forward contracts, $74 million of purchased
options and $106 million of cross currency swap agreements at December 31,
1997. Through these contracts, the Company primarily sells the local currency
and buys U.S. dollars. The Company also periodically enters into forward
contracts to hedge receivables denominated in foreign currencies or may
purchase foreign currencies in the spot market to settle a foreign currency
denominated liability. In addition, the Company held $506 million of cross
currency swap agreements used to hedge debt instruments issued in foreign
currencies at December 31, 1997. The Company invests in and operates
commercial finance companies throughout the world. Over the course of time,
reported results from the operations and investments in foreign countries may
fluctuate in response to exchange rate movements in relation to the U.S.
dollar. While the Western European operations and investments are the largest
areas of the Company's activities, reported results will be influenced to a
lesser extent by the exchange rate movements in the currencies of other
countries in which the Company's subsidiaries and investments are located.
   
  LIQUIDITY RISK MANAGEMENT. The Company manages liquidity risk primarily by
monitoring the relative maturities of assets and liabilities and by borrowing
funds through the U.S. and international money and capital markets and bank
credit markets. Such cash is used to fund asset growth and to meet debt
obligations and other commitments on a timely and cost-effective basis. The
Company's primary sources of funds are commercial paper borrowings, issuances
of medium-term notes and other term debt securities and the syndication,
securitization or sale of certain lending assets. At December 31, 1997,
commercial paper borrowings were $2.6 billion and amounts due on term debt
within one year were $2.0 billion. If the Company is unable to access such
markets at acceptable terms, it could utilize its bank credit and asset sale
facilities and cash flow from operations and portfolio liquidations to satisfy
its liquidity needs. At December 31, 1997, the Company had committed liquidity
support through its bank credit and asset sale facilities totalling $4.0
billion, including a 364-day facility which has been renewed and will expire
April 6, 1999, representing, on a consolidated basis, 122% of outstanding
commercial paper and short-term borrowings. The Company believes that such
credit lines should provide sufficient liquidity to the Company under
foreseeable conditions. See also "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" for further information concerning the liquidity of the Company.
    
                                      24
<PAGE>
 
 PORTFOLIO QUALITY
 
  The credit quality of the Company's portfolio in 1997 reflected the
effectiveness of the Company's credit strategies, underwriting and portfolio
management and disciplined credit approval process. As of December 31, 1997
nonearning assets were at their lowest level in over 10 years, having been
reduced to $155 million, or 1.4% of lending assets, from $278 million, or 3.3%
of lending assets, at the end of 1996. In addition, the Company's allowance
for losses of receivables represented 185% of nonearning impaired receivables
as of December 31, 1997. The following table presents certain information with
respect to the credit quality of the Company's portfolio:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                          ---------------------
                                                           1997    1996   1995
                                                          ------- ------ ------
                                                              (IN MILLIONS)
   <S>                                                    <C>     <C>    <C>
   LENDING ASSETS AND INVESTMENTS:
     Receivables......................................... $10,722 $8,529 $8,085
     Repossessed assets..................................      14     14     28
                                                          ------- ------ ------
       Total lending assets..............................  10,736  8,543  8,113
     Equity and real estate investments..................     488    419    428
     Debt securities.....................................     311    251    152
     Operating leases....................................     195    135    113
     Investments in international joint ventures.........     198    272    233
                                                          ------- ------ ------
       Total lending assets and investments.............. $11,928 $9,620 $9,039
                                                          ======= ====== ======
</TABLE>
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                            -----------------
                                                            1997   1996  1995
                                                            -----  ----  ----
                                                              (DOLLARS IN
                                                               MILLIONS)
   <S>                                                      <C>    <C>   <C>
   NONEARNING ASSETS:
     Impaired receivables.................................. $ 141  $264  $261
     Repossessed assets....................................    14    14    28
                                                            -----  ----  ----
       Total nonearning assets.............................  $155  $278  $289
                                                            =====  ====  ====
     Ratio of nonearning impaired receivables to
      receivables..........................................   1.3%  3.1%  3.2%
     Ratio of total nonearning assets to total lending
      assets...............................................   1.4%  3.3%  3.6%
     Nonearning assets in current portfolio................ $  81  $115  $ 87
     Ratio of nonearning assets in current portfolio to
      total lending assets.................................   0.8%  1.3%  1.1%
   ALLOWANCES FOR LOSSES:
     Allowance for losses of receivables................... $ 261  $225  $229
     Valuation allowance for repossessed assets............   --    --      2
                                                            -----  ----  ----
       Total allowance for losses.......................... $ 261  $225  $231
                                                            =====  ====  ====
     Ratio of allowance for losses of receivables to
      receivables..........................................   2.4%  2.6%  2.8%
     Ratio of allowances for losses of receivables to net
      writedowns...........................................   1.8x  2.1x  1.0x
     Ratio of allowance for losses of receivables to
      nonearning impaired receivables...................... 185.1% 85.2% 87.7%
   DELINQUENCIES:
     Earning loans delinquent 60 days or more.............. $ 151  $143  $117
     Ratio of earning loans delinquent 60 days or more to
      receivables..........................................   1.4%  1.7%  1.4%
</TABLE>
 
                                      25
<PAGE>
 
<TABLE>
<CAPTION>
                                                        FOR THE YEAR ENDED
                                                           DECEMBER 31,
                                                       ----------------------
                                                        1997    1996    1995
                                                       ------  ------  ------
                                                           (DOLLARS IN
                                                            MILLIONS)
   <S>                                                 <C>     <C>     <C>
   NET WRITEDOWNS OF LENDING ASSETS:
     Net writedowns on receivables.................... $  139  $  104  $  215
     Net writedowns on repossessed assets.............      7       4      16
                                                       ------  ------  ------
       Total net writedowns........................... $  146  $  108  $  231
                                                       ======  ======  ======
     Ratio of net writedowns to average lending
      assets..........................................    1.5%    1.3%    2.9%
     Net writedowns on current portfolio lending
      assets.......................................... $   62  $   41  $   45
     Ratio of current portfolio net writedowns to
      average total lending assets....................    0.6%    0.5%    0.6%
</TABLE>
 
  PRE-1990 PORTFOLIO. While building its current portfolio, the Company has
substantially eliminated its Corporate Finance and Real Estate Finance pre-
1990 portfolio and expects such portfolio's impact to be insignificant
beginning in 1998. The pre-1990 portfolio experienced a significant decline of
$487 million or 50% in 1997 and now comprises 4% of the Company's total
portfolio. Approximately 70% of the remaining pre-1990 portfolio consists of
real estate assets which have been independently appraised and then written
down to the appraised value. The following table provides a profile of the
pre-1990 portfolio in 1997, 1996 and 1995.
 
<TABLE>
<CAPTION>
                                                             FOR THE YEAR
                                                            ENDED DECEMBER
                                                                 31,
                                                           ------------------
                                                           1997  1996   1995
                                                           ----  ----  ------
                                                             (DOLLARS IN
                                                              MILLIONS)
   <S>                                                     <C>   <C>   <C>
   Pre-1990 lending assets and investments................ $492  $979  $1,526
   Ratio of pre-1990 lending assets and investments to
    total lending assets and investments..................  4.1% 10.2%   16.9%
   Pre-1990 nonearning assets............................. $ 74  $163  $  202
   Net writedowns on pre-1990 lending assets..............   84    67     186
   Ratio of pre-1990 net writedowns to average total
    lending assets........................................  0.9%  0.8%    2.3%
</TABLE>
 
  NONEARNING ASSETS. Receivables are classified as nonearning when there is
significant doubt as to the ability of the debtor to meet current contractual
terms, as evidenced by loan delinquency, reduction of cash flows,
deterioration in the loan to value relationship and other relevant
considerations. Nonearning assets decreased from 3.3% of total lending assets
at December 31, 1996 to 1.4% of total lending assets at December 31, 1997.
This decrease reflects the credit performance of the current portfolio,
combined with the continued resolution of the pre-1990 Corporate Finance and
Real Estate Finance accounts. The table below presents nonearning assets by
business line in 1997, 1996 and 1995:
 
<TABLE>
<CAPTION>
                                        FOR THE YEAR ENDED DECEMBER 31,
                                  --------------------------------------------
                                       1997           1996           1995
                                  -------------- -------------- --------------
                                  AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
                                  ------ ------- ------ ------- ------ -------
                                             (DOLLARS IN MILLIONS)
   <S>                            <C>    <C>     <C>    <C>     <C>    <C>
   Asset Based Finance...........  $ 32     21%   $ 18      7%   $ 16      5%
   International asset based
    finance......................    19     12      25      9       9      3
   Project Finance...............    18     12      18      6       8      3
   Corporate Finance.............     7      4      39     14      19      7
   Real Estate Finance...........     3      2       3      1      10      3
   Other.........................     2      1      12      4      25      9
   Pre-1990 portfolio............    74     48     163     59     202     70
                                   ----    ---    ----    ---    ----    ---
   Nonearning assets.............  $155    100%   $278    100%   $289    100%
                                   ====    ===    ====    ===    ====    ===
</TABLE>
 
                                      26
<PAGE>
 
  The current portfolio had nonearning assets of $81 million, or 0.8% of total
lending assets, in 1997. The low level of nonearning assets in the current
portfolio is the result of the credit quality of the domestic and
international asset based portfolios and the current Corporate Finance and
Real Estate Finance portfolios.
 
  ALLOWANCE FOR LOSSES. The allowance for losses of receivables is a general
reserve available to absorb losses in the entire portfolio. This allowance is
established through direct charges to income, and losses are charged to the
allowance when all or a portion of a receivable is deemed uncollectible. The
allowance is reviewed periodically and adjusted when appropriate given the
size and loss experience of the overall portfolio, the effect of current
economic conditions and the collectibility and workout potential of identified
risk and nonearning accounts. For repossessed assets, if the fair value
declines after the time of repossession, a writedown is recorded to reflect
this reduction in value.
 
  The allowance for losses of receivables totalled $261 million, or 2.4% of
receivables, at December 31, 1997 versus $225 million, or 2.6% of receivables,
at December 31, 1996. The decrease as a percentage of receivables was
consistent with the strong credit profile of the Company's portfolio, as
evidenced by the ratio of allowance for losses of receivables to nonearning
impaired receivables of 185% at December 31, 1997, compared to 85% at December
31, 1996.
 
  DELINQUENT EARNING ACCOUNTS AND LOAN MODIFICATIONS. The level of delinquent
earning accounts changes between periods based on the timing of payments and
the effects of changes in general economic conditions on the Company's
borrowers. Troubled debt restructurings were $13 million at December 31, 1997,
compared to $14 million at December 31, 1996.
 
  The Company had $13 million of receivables at December 31, 1997 that were
restructured at market rates of interest, written down from the original loan
balance and returned to earning status. The recorded investment of these
receivables is expected to be fully recoverable.
 
  WRITEDOWNS. Net writedowns, as detailed below for the years ended December
31, 1997, 1996 and 1995, increased in 1997 due to a lower level of recoveries
compared to 1996.
 
<TABLE>
<CAPTION>
                                       FOR THE YEAR ENDED DECEMBER 31,
                                 --------------------------------------------
                                      1997           1996           1995
                                 -------------- -------------- --------------
                                 AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
                                 ------ ------- ------ ------- ------ -------
                                            (DOLLARS IN MILLIONS)
   <S>                           <C>    <C>     <C>    <C>     <C>    <C>
   NET WRITEDOWNS OF LENDING
    ASSETS:
     Asset Based Finance........  $ 11      8%   $  7      7%   $ 11      5%
     Corporate Finance..........    25     17      21     19      16      7
     International Group........    23     16     --     --      --     --
     Real Estate Finance........   --     --      --     --      --     --
     Project Finance............   --     --        8      7     --     --
     Other......................     3      1       5      5      18      7
     Pre-1990 portfolio.........    84     58      67     62     186     81
                                  ----    ---    ----    ---    ----    ---
       Total net writedowns.....  $146    100%   $108    100%   $231    100%
                                  ====    ===    ====    ===    ====    ===
</TABLE>
 
  Gross writedowns were slightly higher than 1996 at $169 million in 1997
compared to $163 million in the prior year, while gross recoveries totalled
only $23 million in 1997 compared to $55 million in 1996. The increase in net
writedowns for Corporate Finance was the result of lower recoveries in 1997
compared to 1996. The increase in net writedowns for the Company's
international asset based finance business in 1997 was the result of
writedowns in Mexico and the impact of the consolidation of Factofrance. Gross
writedowns of pre-1990 lending assets represented 53% and 69% of total gross
writedowns in 1997 and 1996, respectively.
 
                                      27
<PAGE>
 
ITEM 2. PROPERTIES
 
  The Company leases office space for its corporate headquarters at 500 West
Monroe Street, Chicago, Illinois 60661 and leases other offices throughout the
United States, Europe, Asia/Pacific, and Latin America. For information
concerning the Company's lease obligations, see Note 8 to the Consolidated
Financial Statements. The Company does not own any material real property.
 
ITEM 3. LEGAL PROCEEDINGS
 
  The Company is a party to a number of legal proceedings as plaintiff and
defendant, all arising in the ordinary course of its business. The Company
believes that the amounts, if any, which may ultimately be funded or paid with
respect to these matters will not have a material adverse effect on the
Company's business, financial condition or results of operations, but there
can be no assurance that an adverse decision in any such legal proceeding
would not have such a material adverse effect.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  No matters were submitted to a vote of the security holders of the Company
in the fourth quarter of 1997.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
  In June 1997, HIC converted all of its shares of the Company's Cumulative
Convertible Preferred Stock, Series D ("Series D Preferred Stock") into Common
Stock of the Company. The shares of Common Stock were issued by the Company in
reliance upon the exemption from registration provided by Section 3(a)(9) of
the Securities Act of 1933, as amended (the "Securities Act").
 
  In June 1997, the Company privately issued 1,500,000 shares of its Fixed
Rate Noncumulative Perpetual Senior Preferred Stock, Series B ("Series B
Preferred Stock"), liquidation value $100 per share. These shares of Series B
Preferred Stock were issued by the Company to Lehman Brothers Inc., Chase
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
initial purchasers, in reliance upon the exemption from registration provided
by Section 4(2) of the Securities Act and were resold by such initial
purchasers to certain "qualified institutional buyers" in reliance upon the
exemption from registration provided by Rule 144A under the Securities Act.
The Company received consideration of $147 million ($150 million liquidation
value, less a discount of $3 million) from the initial purchasers. Effective
January 1998, the Company exchanged 1,500,000 shares of its Fixed Rated
Noncumulative Perpetual Senior Preferred Stock, Series C ("Series C Preferred
Stock") for all of the then outstanding shares of Series B Preferred Stock.
The issuance of the Series C Preferred Stock was registered under the
Securities Act of 1933, as amended. All 1,500,000 shares of Series C Preferred
Stock are currently outstanding.
 
  Also, in August 1997, the Company privately issued $200,000,000 aggregate
principal amount of its 6.35% Notes due August 15, 2009 to a trust, which in
turn issued certificates representing fractional undivided beneficial
interests therein to UBS Securities LLC, as initial purchaser, in reliance
upon the exemption from registration provided by Section 4(2) of the
Securities Act. The certificates were resold by such initial purchaser to
certain "qualified institutional buyers" in reliance upon the exemption from
registration provided by Rule 144A under the Securities Act. The trust
received cash consideration of $199,918,000 ($200,000,000 principal amount,
less a discount of $82,000) from the initial purchaser, and the trust
distributed this cash consideration to the Company.
 
                                      28
<PAGE>
 
  At December 31, 1997, the Company had outstanding borrowings under a
commercial paper program of approximately $2.3 billion. Under such program,
the Company from time to time issues, primarily to institutional investors,
notes having a maturity of nine months or less, which notes are exempt from
the registration requirements of the Securities Act pursuant to Section
3(a)(3) thereof.
 
  There is currently no public trading market for the Company's Common Stock.
The Company is prohibited from paying dividends on Common Stock unless all
declared dividends on all outstanding shares of Series C Preferred Stock have
been paid and full cumulative dividends on all outstanding shares of the
Company's Cumulative Perpetual Senior Preferred Stock, Series A have been
paid. All such preferred stock dividends have been paid to date. In 1997 and
1996, the Company declared and paid dividends of $69 million and $58 million,
respectively, on the Common Stock to HIC. Of the dividends paid in 1997, the
Company paid $43 million in cash and $26 million in preferred stock issued by
International Group.
 
                                      29
<PAGE>
 
ITEM 6. SELECTED FINANCIAL DATA
 
  The results of operations and balance sheet data of the Company for each of
the years in the three-year period ended December 31, 1997 and as of December
31, 1997 and 1996, respectively, were derived from the audited Consolidated
Financial Statements of the Company, and the notes thereto, appearing
elsewhere in this Form 10-K. The results of operations and balance sheet data
for each of the years in the two-year period ended December 31, 1994 and as of
December 31, 1995, 1994 and 1993, respectively, except 1994 and 1993 net
income applicable to common stock, were derived from audited consolidated
financial statements of the Company, and the notes thereto, which are not
presented herein. The data presented below should be read in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements, and the
notes thereto, appearing elsewhere in this Form 10-K.
 
<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31,
                                       ---------------------------------------
                                       1997(1)   1996    1995    1994    1993
                                       -------  ------  ------  ------  ------
                                                  (IN MILLIONS)
<S>                                    <C>      <C>     <C>     <C>     <C>
RESULTS OF OPERATIONS:
Interest income....................... $   924  $  807  $  851  $  702  $  620
Interest expense......................     516     452     464     336     264
                                       -------  ------  ------  ------  ------
  Net interest income.................     408     355     387     366     356
Fees and other income.................     206      79     148     117      88
Factoring commissions.................     104      55      50      53      50
Income of international joint
 ventures.............................      36      44      35      21      23
                                       -------  ------  ------  ------  ------
  Operating revenues..................     754     533     620     557     517
Operating expenses....................     357     247     216     195     174
Provision for losses..................     164     103     223     188     210
                                       -------  ------  ------  ------  ------
  Income before income taxes and
   minority interest..................     233     183     181     174     133
Income tax provision..................      66      43      49      51      11
Minority interest.....................       9       7       7       5       5
                                       -------  ------  ------  ------  ------
  Net income.......................... $   158  $  133  $  125  $  118  $  117
                                       =======  ======  ======  ======  ======
  Net income applicable to common
   stock.............................. $   144  $  123  $  115  $  108  $  107
<CAPTION>
                                                  DECEMBER 31,
                                       ---------------------------------------
                                       1997(1)   1996    1995    1994    1993
                                       -------  ------  ------  ------  ------
                                                  (IN MILLIONS)
<S>                                    <C>      <C>     <C>     <C>     <C>
BALANCE SHEET DATA:
Receivables........................... $10,722  $8,529  $8,085  $7,616  $7,062
Allowance for losses of receivables...    (261)   (225)   (229)   (231)   (221)
Equity and real estate investments....     488     419     428     399     167
Debt securities.......................     311     251     152      69      55
Operating leases......................     195     135     113     166     148
Investment in international joint
 ventures.............................     198     272     233     174     144
Total assets..........................  12,861   9,926   9,638   8,476   7,913
                                       =======  ======  ======  ======  ======
Commercial paper and short-term
 borrowings...........................   3,432   2,745   2,223   2,451   1,981
Long-term debt........................   6,004   4,761   5,145   3,930   3,968
                                       -------  ------  ------  ------  ------
Total debt............................ $ 9,436  $7,506  $7,368  $6,381  $5,949
                                       =======  ======  ======  ======  ======
Total liabilities..................... $11,096  $8,402  $8,208  $7,107  $6,625
Preferred stock.......................     275     125     125     125     125
Common equity.........................   1,403   1,342   1,259   1,205   1,128
                                       -------  ------  ------  ------  ------
    Total stockholders' equity........ $ 1,678  $1,467  $1,384  $1,330  $1,253
                                       =======  ======  ======  ======  ======
</TABLE>
 
                                      30
<PAGE>
 
<TABLE>
<CAPTION>
                                          AS OF, OR FOR THE YEAR ENDED,
                                                  DECEMBER 31,
                                       ---------------------------------------
                                       1997(1)   1996    1995    1994    1993
                                       -------  ------  ------  ------  ------
                                              (DOLLARS IN MILLIONS)
<S>                                    <C>      <C>     <C>     <C>     <C>
SELECTED DATA AND RATIOS:
PROFITABILITY
  Net interest income as a percentage
   of AFE(2)..........................     4.0%    4.1%    4.6%    4.7%    4.7%
  Non-interest operating revenues as a
   percentage of AFE(2)...............     3.5     2.0     2.7     2.5     2.2
  Operating revenues as a percentage
   of AFE(2)..........................     7.5     6.1     7.3     7.2     6.9
  Return on average common
   stockholders' equity(3)............    10.5     9.4     9.3     9.2    10.0
  Return on AFE(2)....................     1.6     1.5     1.5     1.5     1.6
  Ratio of earnings to combined fixed
   charges and preferred stock
   dividends(4).......................    1.39x   1.36x   1.34x   1.45x   1.44x
  Salaries and general operating
   expenses as a percentage of
   AFE(2).............................     3.5%    2.8%    2.6%    2.5%    2.3%
  Ratio of operating expenses to
   operating revenues.................    47.3    46.3    34.8    35.0    33.7
  Common dividend payout ratio(5).....    47.7    47.2    47.0    20.4     1.9
CREDIT QUALITY
  Ratio of earning loans delinquent 60
   days or more to receivables........     1.4%    1.7%    1.4%    1.4%    2.1%
  Ratio of net writedowns to average
   lending assets.....................     1.5     1.3     2.9     2.4     2.8
  Ratio of total nonearning assets to
   total lending assets...............     1.4     3.3     3.6     4.0     5.9
  Ratio of allowance for losses of
   receivables to receivables.........     2.4     2.6     2.8     3.0     3.1
  Ratio of allowance for losses of
   receivables to net writedowns......     1.8x    2.1x    1.0x    1.3x    1.1x
  Ratio of allowance for losses of
   receivables to nonearning impaired
   receivables........................   185.1%   85.2%   87.7%   81.3%   83.7%
LEVERAGE
  Ratio of debt (net of short-term
   investments) to total stockholders'
   equity.............................     5.2x    5.0x    5.0x    4.7x    4.7x
  Ratio of commercial paper and short-
   term borrowings to total debt......    36.4%   36.6%   30.2%   38.4%   33.3%
OTHER
  Total lending assets and
   investments(6)..................... $11,928  $9,620  $9,039  $8,443  $7,742
  Funds employed(2)...................  10,673   9,030   8,542   7,991   7,309
  Total managed assets(7).............  11,800   9,574   9,137   8,414   7,422
  Number of employees.................   2,339   1,527   1,487   1,404   1,307
  Number of office locations..........      63      52      36      33      24
</TABLE>
--------
   
(1) The financial data presented for 1997 reflect the Company's purchase
    (through its subsidiary, International Group) of its joint venture
    partner's interest in Factofrance in April 1997 for $174 million, which
    resulted in Factofrance being reported on a consolidated basis with the
    Company as of the date of acquisition. The Company financed this
    acquisition through the issuance of senior debt. The premium related to
    this purchase was allocated as follows: $78 million to goodwill and $18
    million to a noncompetition agreement. The consolidation of Factofrance
    resulted in increases of $2.0 billion, $94 million, $59 million and 570 in
    total assets, operating revenues, operating expenses and number of
    employees, respectively, during 1997 as compared     
 
                                      31
<PAGE>
 
       
    to 1996. This acquisition had a modest favorable impact on the Company's
    1997 net income, as earnings from the Company's increased ownership
    interest in Factofrance were partially offset by costs related to the
    acquisition (including interest on the senior debt issued to finance the
    acquisition).     
(2)  Funds employed include lending assets and investments, less credit
     balances of factoring clients. The Company believes funds employed are
     indicative of the dollar amount which it has loaned to borrowers. Average
     funds employed ("AFE") reflect the average of lending assets and
     investments, less credit balances of factoring clients.
(3) Return on average common stockholders' equity is computed as net income
    less preferred stock dividends paid divided by average total stockholders'
    equity net of preferred stock.
(4) The ratio of earnings to combined fixed charges and preferred stock
    dividends is calculated by dividing (i) income before income taxes,
    minority interest and fixed charges by (ii) fixed charges plus preferred
    stock dividends.
(5) Common dividend payout ratio is computed as common dividends paid, divided
    by net income applicable to common stock.
(6) Total lending assets and investments consist of receivables, repossessed
    assets, equity and real estate investments, operating leases, debt
    securities and investments in international joint ventures.
(7) Total managed assets include funds employed, plus receivables previously
    securitized or sold and currently managed by the Company.
 
                                      32
<PAGE>
 
   
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION     
       
    AND RESULTS OF OPERATIONS     
 
  The following discussion and analysis should be read in conjunction with the
Selected Financial Data and Consolidated Financial Statements, including the
notes thereto, appearing elsewhere in this Form 10-K. The following discussion
and analysis contains certain "forward-looking statements" (as defined in
Section 21E of the Exchange Act), which are generally identified by the words
"anticipates", "believes", "estimates", "expects", "plans", "intends" and
similar expressions. Such statements are subject to certain risks,
uncertainties and contingencies, which could cause the Company's actual
results, performance or achievements to differ materially from those expressed
in, or implied by, such statements. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Special Note
Regarding Forward-Looking Statements".
 
GENERAL
 
  The Company is in the commercial finance business, providing primarily
collateralized financing and leasing products and related services to mid-
sized and small businesses in the United States and selected international
markets. The Company's operating revenues can be classified in two broad
categories: (i) net interest income and (ii) non-interest income. Net interest
income represents the total interest income earned by the Company, principally
through its financing and leasing activities, less the total interest expense
paid by the Company on its interest bearing liabilities, which largely relate
to the funding of these financing and leasing activities. Non-interest income
consists of factoring commissions, income from investments in international
joint ventures, and fees and other income. Fees include loan servicing income,
late fees, structuring fees, syndication fees and prepayment fees. Other
income includes real estate participation income, gains from investments and
from sales and securitizations of lending assets, and equipment residual
gains. The Company's primary expenses, other than interest expense, are
operating expenses, including employee compensation and general and
administrative expenses, and provisions for credit losses.
 
  Prior to 1990, the Company's portfolio was not well-diversified with regard
to client concentration and consisted primarily of highly leveraged Corporate
Finance and Real Estate Finance assets. The pre-1990 portfolio contained
assets with a substantial amount of risk, which resulted in a significant
amount of net writedowns. The aggregate net writedowns on the lending assets
in the pre-1990 portfolio were $1.1 billion between 1991 and 1997. Since 1990,
the Company has changed its strategy and focused its efforts on decreasing the
risk of its Corporate Finance and Real Estate Finance businesses through
higher cash flow and collateral coverages, smaller retained positions and
greater liquidity, while building its Asset Based Finance businesses which
rely on more liquid collateral with more predictable value. As a result, the
Company has built a lower risk, though lower margin, well-diversified
portfolio, with stronger collateralization. For these reasons, the Company
categorizes its pre-1990 portfolio and its current portfolio separately. While
building its current portfolio, the Company has substantially reduced its pre-
1990 portfolio by over $5 billion since December 31, 1990 to $492 million at
December 31, 1997 and expects such portfolio's impact to be insignificant
beginning in 1998.
   
  In April 1997, the Company's subsidiary, International Group, completed its
acquisition of Factofrance, the leading factoring company in France, from the
Company's joint venture partner. Through this acquisition, International Group
increased its ownership interest in Factofrance from 48.8% to 97.6%, which
resulted in Factofrance being reported on a consolidated basis with the
Company as of the date of purchase. Operating revenues, operating expenses,
factoring commissions and fees and other income increased by $94 million, $59
million, $51 million and $20 million, respectively, for the year ended
December 31, 1997 as a result of the Company's accounting for Factofrance's
results on a consolidated basis. In addition, income of international joint
ventures declined by $8 million, primarily due to this consolidation of
Factofrance. This acquisition had a modest favorable impact on the Company's
1997 net income, as earnings from the Company's increased ownership interest
in Factofrance were partially offset by related costs (including interest on
senior debt issued to finance the acquisition).     
 
                                      33
<PAGE>
 
   
  On February 26, 1998, the Company filed a registration statement in
connection with a contemplated initial public offering of its Class A Common
Stock (the "Offering"). Fuji Bank will maintain majority ownership of the
Company immediately following the Offering. The timing and the terms of the
Offering have not yet been determined.     
   
  In connection with the contemplated Offering, the Company's Board of
Directors has authorized the Company to purchase the 21% interest of Fuji Bank
in International Group for total cash consideration of approximately $83
million. The Company intends to finance this acquisition through the issuance
of senior debt, which will bear interest at a market rate and have such other
terms as are determined at the time of issuance. This acquisition is expected
to be accounted for using the purchase method of accounting, and the Company's
net income will no longer be reduced by a minority interest in International
Group, which totalled $10 million in 1997. Subsequent to the acquisition, the
Company will incur ongoing costs associated with this acquisition, including
interest expense related to the purchase price and certain income tax expenses
that will be incurred due to the inclusion of International Group in the
Company's consolidated U.S. federal income tax return. The Company currently
estimates that the effect on net income of these costs and expenses will be
approximately $5 million per year. See "Item 13. Certain Relationships and
Related Transactions--Purchase of Interest in International Group from Fuji
Bank".     
 
  On February 24, 1998, the Company declared and paid to FAHI a $450 million
dividend in the form of a promissory note. This note, which is subordinated to
all senior indebtedness of the Company, bears interest at a rate of LIBOR plus
0.50% per annum and matures on February 24, 2004. This note may be prepaid at
any time without premium or penalty. The Company anticipates repaying this
note with net proceeds from the Offering.
   
  The Company's results of operations may vary significantly from quarter to
quarter based upon the timing of certain events, such as securitizations and
net investment gains. For example, the Company securitized approximately $1.1
billion of CMBS receivables in March 1998. The Company realized a gain on this
securitization that may cause operating revenues and net income in the first
quarter of 1998 to be higher than those in certain other quarters of 1998. See
"--Recent Developments" and "Item 1. Business--Real Estate Finance" and Note
18 to the Consolidated Financial Statements.     
 
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
 
 RESULTS OF OPERATIONS
 
 
  OVERVIEW. For the year ended December 31, 1997, the Company's net income
totalled $158 million compared with $133 million for the prior year, an
increase of 19%, representing the Company's fifth consecutive year of record
net income. Net income applicable to common stock was $144 million for the
year ended December 31, 1997, which represented an increase of 17%, from $123
million for the prior year. This reflected an increase of $221 million, or
41%, in operating revenues, due to growth in both net interest income and non-
interest income. Of the increase in operating revenues, $94 million, or 43%,
related to the consolidation of Factofrance. Operating revenues as a
percentage of AFE rose to 7.5% in 1997 from 6.1% in 1996. See "--Operating
Revenues--Non-Interest Income". For the year ended December 31, 1997, new
business volume, which does not include factoring volume, totalled a record
$6.0 billion, an increase of 47% over the prior year. This increase was the
result of the Company's significant investment in building leadership
positions in its businesses and in expanding market coverage. The Company's
factoring volume totalled $15.5 billion in 1997, an $8.5 billion increase from
the prior year, primarily due to the consolidation of Factofrance. The credit
quality of the Company's portfolio was demonstrated by the low level of
nonearning assets, which totalled $155 million, or 1.4% of lending assets, at
December 31, 1997. In addition, the Company's allowance for losses of
receivables at year end was significantly in excess of 100% of nonearning
impaired receivables. The Company's pre-1990 portfolio was substantially
reduced during 1997 and, as of December 31, 1997, represented 4% of total
lending assets and investments. See "Item 1. Business--Risk Management--
Portfolio Quality--Pre-1990 Portfolio".
 
                                      34
<PAGE>
 
  OPERATING REVENUES. The following table summarizes the Company's operating
revenues for the years ended December 31, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                   FOR THE YEAR ENDED DECEMBER
                                                               31,
                                                  -----------------------------
                                                       1997           1996
                                                  -------------- --------------
                                                         PERCENT        PERCENT
                                                  AMOUNT OF AFE  AMOUNT OF AFE
                                                  ------ ------- ------ -------
                                                      (DOLLARS IN MILLIONS)
      <S>                                         <C>    <C>     <C>    <C>
      Net interest income........................  $408    4.0%   $355    4.1%
      Non-interest income:
        Fees and other income....................   206    2.1      79    0.9
        Factoring commissions....................   104    1.0      55    0.6
        Income of international joint ventures...    36    0.4      44    0.5
                                                   ----    ---    ----    ---
          Total operating revenues...............  $754    7.5%   $533    6.1%
                                                   ====    ===    ====    ===
</TABLE>
 
  Excluding the impact of the consolidation of Factofrance, operating revenues
increased by 24% in 1997 from the prior year.
 
  Net Interest Income. The following table summarizes the Company's net
interest income for the years ended December 31, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                              FOR THE
                                               YEAR
                                               ENDED
                                             DECEMBER
                                                31,      INCREASE/(DECREASE)
                                             ----------  ---------------------
                                             1997  1996   AMOUNT     PERCENT
                                             ----  ----  ---------  ----------
                                                 (DOLLARS IN MILLIONS)
      <S>                                    <C>   <C>   <C>        <C>
      Interest income......................  $924  $807   $     117       14.5%
      Interest expense.....................   516   452          64       14.2
                                             ----  ----   ---------
        Net interest income................  $408  $355   $      53       14.9
                                             ====  ====   =========
        Net interest income as a percentage
         of AFE............................   4.0%  4.1%
</TABLE>
 
  Net interest income totalled $408 million for the year ended December 31,
1997, an increase of $53 million, or 15%, from the comparable prior year
period. This increase reflected growth in lending assets and investments and
the consolidation of Factofrance, which contributed $28 million to this
increase. Net interest margin as a percentage of AFE decreased to 4.0% at
December 31, 1997 from 4.1% at December 31, 1996. This decline reflected the
continued growth of the Company's lower risk, but lower yielding, Asset Based
Finance products, competitive pricing pressures in certain product groups and
higher originations of CMBS, which carry a lower yield than other products of
the Company.
 
  Interest rates charged by the Company vary depending on risks and maturities
of loans, competition, current costs of borrowing to the Company, state usury
laws and other governmental regulations. The Company's portfolio of
receivables earns interest at both variable and fixed rates. The variable
rates float in accordance with various agreed upon reference rates, including
LIBOR, the Prime Rate, the Treasury Bill Rate and corporate based lending
rates.
 
  The Company uses interest rate swaps as an important tool for financial risk
management, which enables it to match more closely the interest rate and
maturity characteristics of its assets and liabilities. As such, interest rate
swaps are used to change the characteristics of fixed rate debt to that of
variable rate liabilities, to alter the characteristics of specific fixed rate
asset pools to more closely match the interest terms of the underlying
financing and to modify the variable rate basis of a liability to more closely
match the variable rate basis used for variable rate receivables. A
comparative analysis of the year-end principal outstanding and average
interest rates paid by the Company on its
 
                                      35
<PAGE>
 
debt as of December 31, 1997 and 1996, before and after giving effect to
interest rate swaps, is shown in the following table:
 
<TABLE>
<CAPTION>
                                                 DECEMBER 31,
                                  --------------------------------------------
                                          1997                   1996
                                  ---------------------  ---------------------
                                  YEAR-END BEFORE AFTER  YEAR-END BEFORE AFTER
                                  BALANCE  SWAPS  SWAPS  BALANCE  SWAPS  SWAPS
                                  -------- ------ -----  -------- ------ -----
                                             (DOLLARS IN MILLIONS)
      <S>                         <C>      <C>    <C>    <C>      <C>    <C>
      Commercial paper--domestic
       and foreign..............   $2,560   5.71%  N/A    $2,576   5.63%  N/A
      Fixed rate debt...........    3,951   6.90  6.67%    2,905   7.02  6.62%
      Variable rate debt........    2,051   5.44  6.01     1,859   4.85  5.78
                                   ------                 ------
        Total...................   $8,562   6.19  6.44    $7,340   5.98  6.29
                                   ======                 ======
</TABLE>
 
  Non-Interest Income. The following table summarizes the Company's non-
interest income for the years ended December 31, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                           FOR THE
                                         YEAR ENDED
                                          DECEMBER
                                             31,        INCREASE/(DECREASE)
                                         ------------  ----------------------
                                         1997   1996    AMOUNT      PERCENT
                                         -----  -----  ---------   ----------
                                              (DOLLARS IN MILLIONS)
      <S>                                <C>    <C>    <C>         <C>
      Factoring commissions............  $ 104  $  55   $      49         89.1%
      Income of international joint
       ventures........................     36     44          (8)       (18.2)
      Fees and other income:
        Fee income and other (1).......     84     52          32         61.5
        Net investment gains...........     69      3          66          N/M
        Real estate participation
         income........................     27     24           3         12.5%
        Securitization gains...........     26      0          26          --
                                         -----  -----   ---------
          Total fees and other income..  $ 206  $  79   $     127        160.8
                                         -----  -----   ---------
            Total non-interest income..  $ 346  $ 178   $     168         94.4
                                         =====  =====   =========
      Non-interest income as a
       percentage of AFE...............    3.5%   2.0%
</TABLE>
     --------
     (1) Fee income and other consists primarily of loan servicing income,
         late fees, prepayment fees, other miscellaneous fees and equipment
         residual gains.
 
  The Company's non-interest income is composed of factoring commissions,
income of international joint ventures and fees and other income. Factoring
commissions increased $49 million, or 89%, from 1996 to 1997 due primarily to
the consolidation of Factofrance in 1997, as a result of which the Company
believes it became the largest factor in the world.
 
  Income of international joint ventures represents the Company's share of the
annual earnings or losses of joint ventures. The Company includes this income
as part of operating revenues because these joint ventures have been, and will
continue to be, an integral part of the Company's strategy, as evidenced by
investments in joint ventures with operations in 15 countries, many of which
have been operating for over 25 years. The $8 million decrease in income from
international joint ventures from 1996 to 1997 was due primarily to the
consolidation of Factofrance.
 
  Fees and other income totalled $206 million for 1997, an increase of $127
million from the prior year, due to increases in net investment gains,
securitization gains and fee income and other. Fee income and other increased
due to $20 million from the consolidation of Factofrance, and a $10 million
gain resulting from the termination of the Company's agreement with Belgravia.
See "Item 1. Business--Real Estate Finance".
 
  Net investment gains increased $66 million during 1997 due to a lower level
of losses and writedowns in 1997, as compared to 1996. Gross investment gains
were $119 million and $106 million, while losses and writedowns on investments
were $50 million and $103 million, in 1997 and 1996, respectively. Losses and
writedowns on equity investments were higher in 1996 primarily due to
 
                                      36
<PAGE>
 
writedowns during the year totalling $53 million on one pre-1990 Corporate
Finance investment. Net investment gains are generated primarily from
investment activity by Corporate Finance and junior participating lending
activity by Real Estate Finance. The Company also has certain investments from
its pre-1990 portfolio and from direct equity investment activities, an area
in which the Company is no longer pursuing new transactions, which
historically have added significant volatility to the level of net investment
gains. As a result of the pursuit of smaller individual transaction sizes by
Corporate Finance and Real Estate Finance and the significant liquidation of
the pre-1990 and direct equity portfolios, the Company expects that, while net
investment gains will vary from year to year, the level of this volatility
will be reduced. The Company also recognized a $7 million gain in 1997 as a
result of changing to the equity method of accounting for limited partnerships
and fund investments.
 
  During 1997, the Company generated $26 million of securitization gains,
primarily through a CMBS securitization in the second quarter. The Company did
not retain any residual risk in this securitization transaction, as all of the
securities were sold to third parties on a non-recourse basis. The Company
expects to periodically securitize CMBS and other receivables in the future.
See "Item 1. Business--Real Estate Finance".
 
  OPERATING EXPENSES. The following table summarizes the Company's operating
expenses for the years ended December 31, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                            FOR THE
                                          YEAR ENDED
                                           DECEMBER
                                              31,        INCREASE/(DECREASE)
                                          ------------  ---------------------
                                          1997   1996    AMOUNT     PERCENT
                                          -----  -----  ---------  ----------
                                               (DOLLARS IN MILLIONS)
      <S>                                 <C>    <C>    <C>        <C>
      Salaries and other compensation.... $ 214  $ 154   $      60       39.0%
      General and administrative
       expenses..........................   143     93          50       53.8
                                          -----  -----   ---------
        Total............................  $357   $247   $     110       44.5
                                          =====  =====   =========
      Operating expenses as a percentage
       of AFE............................   3.5%   2.8%
</TABLE>
 
  Operating expenses, excluding the impact of the Factofrance consolidation,
increased by $51 million, or 21%, in 1997, as compared to 1996. This increase
was primarily due to the Company's continued investment in developing
leadership positions for its Asset Based Finance businesses and expansion of
loan origination and portfolio management resources in the Company's CMBS loan
area, the opening of 11 new offices, increased investment in technology and
higher costs associated with record new business originations.
 
  ALLOWANCE FOR LOSSES. The following table summarizes the changes in the
Company's allowance for losses of receivables, including the Company's
provision for losses of receivables and repossessed assets, for the years
ended December 31, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                         FOR THE
                                       YEAR ENDED
                                        DECEMBER
                                           31,        INCREASE/(DECREASE)
                                       ------------  ----------------------
                                       1997   1996    AMOUNT      PERCENT
                                       -----  -----  ---------   ----------
                                            (DOLLARS IN MILLIONS)
      <S>                              <C>    <C>    <C>         <C>
      Balance at the beginning of the
       year..........................  $ 225  $ 231   $      (6)        (2.6)%
        Provision for losses.........    164    103          61         59.2
        Writedowns...................   (169)  (163)         (6)        (3.7)
        Recoveries...................     23     55         (32)       (58.2)
        Factofrance consolidation....     18    --           18          N/M
        Transfers and other..........    --      (1)          1          N/M
                                       -----  -----   ---------
      Balance at the end of the
       year..........................  $ 261  $ 225   $      36         16.0%
                                       =====  =====   =========
</TABLE>
 
  The provision for losses increased to $164 million in 1997 from $103 million
in 1996. This increase primarily resulted from provisions due to growth in
lending assets, combined with lower levels of recoveries in 1997. Gross
writedowns were slightly higher than the prior year at $169 million for 1997
versus $163 million for 1996, while recoveries totalled $23 million in 1997
versus $55 million for 1996.
 
                                      37
<PAGE>
 
   
Net writedowns on the current portfolio totalled $62 million, or 0.6% of total
average lending assets, in 1997 versus $41 million, or 0.5% of total average
lending assets, in 1996. The Company expects lower levels of writedowns in
future periods due to significantly lower writedowns on the pre-1990
portfolio. As of December 31, 1997, the ratio of the Company's allowance for
losses of receivables to receivables was 2.4%, compared to 2.6% as of December
31, 1996. This decrease in such ratio reflected the continued improvement of
the credit quality of the Company's portfolio. The Company intends to continue
to systematically evaluate the appropriateness of the allowance for losses of
receivables and to adjust the allowance to reflect any changes in the credit
quality of the Company's portfolio.     
 
  INCOME TAXES. The Company's effective income tax rate was 28% for 1997 and
23% for 1996, in each case below the statutory rate due to the use of foreign
tax credits, the effect of earnings from international joint ventures and
certain favorable tax issue resolutions. The effective tax rates for 1997 and
1996 were reduced by the effects of nonrecurring items, including $15 million
of net foreign tax credit carryover utilization in 1997. In future periods,
the Company expects its effective tax rate to more closely approximate the
statutory rate.
 
 LENDING ASSETS AND INVESTMENTS
 
  Total lending assets and investments increased $2.3 billion, or 24%, during
1997 reflecting record new business originations of $6.0 billion, a $1.5
billion increase from the consolidation of Factofrance and $5.3 billion of
paydowns, loan sales, syndications and securitizations. During 1997, new
business volume represented a 47% increase over 1996, as the Company realized
the benefit of the market positions held by Asset Based Finance, Corporate
Finance and Real Estate Finance. In addition, the Company liquidated 50% of
the remaining portion of its pre-1990 portfolio, which as of December 31, 1997
represented 4% of total lending assets and investments. The following table
presents the Company's lending assets (which consist of receivables and
repossessed assets) and investments by business line and asset type as of
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                            ----------------------------------
                                                 1997                1996
                                            ------------------  --------------
                                            AMOUNT     PERCENT  AMOUNT PERCENT
                                            -------    -------  ------ -------
                                                (DOLLARS IN MILLIONS)
   <S>                                      <C>        <C>      <C>    <C>
   BY BUSINESS CATEGORY:
     Asset Based Finance................... $ 4,726       40%   $4,258    44%
     International Group (1)...............   2,361(2)    20(2)    609     6
     Real Estate Finance...................   2,093       18     1,514    16
     Corporate Finance.....................   2,010       17     2,016    21
     Project Finance.......................     144        1       160     2
     Pre-1990 portfolio....................     492        4       979    10
     Other.................................     102      --         84     1
                                            -------      ---    ------   ---
       Total lending assets and
        investments........................ $11,928      100%   $9,620   100%
                                            =======      ===    ======   ===
   BY ASSET TYPE:
     Receivables........................... $10,722       90%   $8,529    89%
     Repossessed assets....................      14      --         14   --
                                            -------      ---    ------   ---
       Total lending assets................  10,736(2)    90(2)  8,543    89
     Equity and real estate investments....     488        4       419     4
     Debt securities.......................     311        3       251     3
     Operating leases......................     195        1       135     1
     International joint ventures..........     198        2       272     3
                                            -------      ---    ------   ---
       Total lending assets and
        investments........................ $11,928      100%   $9,620   100%
                                            =======      ===    ======   ===
       Total managed assets................ $11,800             $9,574
       Funds employed...................... $10,673             $9,030
</TABLE>
--------
  (1) Includes $198 million in investments in international joint ventures,
      representing 2% of total lending assets and investments, in 1997, and
      $272 million in investments in international joint ventures,
      representing 3% of total lending assets and investments, in 1996.
  (2) Reflects the consolidation of Factofrance in April 1997.
 
                                      38
<PAGE>
 
   
  The Company's portfolio is concentrated in secured asset based lending, as
the combined domestic and consolidated international asset based finance
portfolios totalled nearly $7 billion in lending assets and investments, or
58% of total lending assets and investments, at December 31, 1997. During
1997, the Asset Based Finance portfolio, substantially all of which is
domestic, grew to $4.7 billion in lending assets and investments, or 40% of
total lending assets and investments, at December 31, 1997, due to a 32%
increase in new business originations. Real Estate Finance grew to $2.1
billion in lending assets and investments at December 31, 1997, as
originations of CMBS receivables totalled $1.1 billion in 1997 versus $500
million in 1996. The Company securitized approximately $1.1 billion of its
CMBS receivables in March 1998, and, as a result, Real Estate Finance assets
declined in the first quarter of 1998. Corporate Finance generated new
business volume of over $1.3 billion in 1997, but its lending assets and
investments remained unchanged as compared to 1996, due primarily to
syndications and runoff in the portfolio.     
 
  Concentrations of lending assets of 5% or more at December 31, 1997 and
1996, based on the standard industrial classifications of the borrowers, were
as follows:
 
<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                 -----------------------------
                                                      1997           1996
                                                 -------------- --------------
                                                 AMOUNT PERCENT AMOUNT PERCENT
                                                 ------ ------- ------ -------
                                                     (DOLLARS IN MILLIONS)
      <S>                                        <C>    <C>     <C>    <C>
      General industrial machines...............  $637      6%   $500      6%
      Food, grocery and miscellaneous retail....   603      6     669      8
      Business services.........................   556      5     435      5
      Department and general merchandise retail
       stores...................................   511      5     987     12
</TABLE>
 
  The general industrial machines classification is distributed among
machinery used for many different industrial applications. The majority of
lending assets in the food, grocery and miscellaneous retail category are
revolving and term facilities with borrowers that are primarily in the
business of manufacturing and retailing of food products. The business
services category is primarily comprised of computer and data processing
services, credit reporting and collection and miscellaneous business services.
The department and general merchandise retail stores category is primarily
comprised of factored accounts receivable, which represent short-term trade
receivables from numerous customers. The reduction in department and general
merchandise retail stores lending assets in 1997 reflected the sale of $500
million of factored accounts receivable under a $550 million factored accounts
receivable facility. See "--Liquidity and Capital Resources".
 
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
 
 RESULTS OF OPERATIONS
 
  OVERVIEW. During 1996, the Company made significant progress in developing
the market positions and operating platforms of its Asset Based Finance
businesses and strengthening asset quality through the addition of lower risk
assets and the significant reduction of pre-1990 Corporate Finance and Real
Estate Finance assets. Despite the costs of these efforts, the Company was
able to increase net income to $133 million for the year ended December 31,
1996, representing a 6% increase over the prior year. This increase was due to
a significantly lower provision for losses, which more than offset the
reduction in operating revenues and the increase in spending for developing
businesses. The decline in the provision for losses was a result of the
continued strong credit quality of the newer Asset Based Finance businesses
and the current Corporate Finance and Real Estate Finance portfolios,
significant decrease in gross writedowns on the pre-1990 portfolio and the
recognition of several large recoveries on the pre-1990 portfolio. The
reduction in operating revenues reflected the shift in the Company's portfolio
to lower risk, but also lower yielding, assets, coupled with lower net
investment gains and a decline in the level of fee accelerations.
 
                                      39
<PAGE>
 
  OPERATING REVENUES. The following table summarizes the Company's operating
revenues for the years ended December 31, 1996 and 1995:
 
<TABLE>
<CAPTION>
                                                       FOR THE YEAR ENDED
                                                          DECEMBER 31,
                                                  -----------------------------
                                                       1996           1995
                                                  -------------- --------------
                                                         PERCENT        PERCENT
                                                  AMOUNT OF AFE  AMOUNT OF AFE
                                                  ------ ------- ------ -------
                                                      (DOLLARS IN MILLIONS)
      <S>                                         <C>    <C>     <C>    <C>
      Net interest income........................  $355    4.1%   $387    4.6%
      Non-interest income:
        Fees and other income....................    79    0.9     148    1.7
        Factoring commissions....................    55    0.6      50    0.6
        Income of international joint ventures...    44    0.5      35    0.4
                                                   ----    ---    ----    ---
          Total operating revenues...............  $533    6.1%   $620    7.3%
                                                   ====    ===    ====    ===
</TABLE>
 
  Net Interest Income. The following table summarizes the Company's net
interest income for the years ended December 31, 1996 and 1995:
 
<TABLE>
<CAPTION>
                                FOR THE YEAR ENDED
                                   DECEMBER 31,        INCREASE/(DECREASE)
                                --------------------  ----------------------
                                  1996       1995      AMOUNT      PERCENT
                                ---------  ---------  ---------   ----------
                                         (DOLLARS IN MILLIONS)
      <S>                       <C>        <C>        <C>         <C>
      Interest income.......... $     807  $     851   $     (44)       (5.2)%
      Interest expense.........       452        464         (12)       (2.6)
                                ---------  ---------   ---------
        Net interest income.... $     355  $     387   $     (32)       (8.3)
                                =========  =========   =========
        Net interest income as
         a percentage of AFE...       4.1%       4.6%
</TABLE>
 
  Net interest income decreased by 8.3% in 1996 as compared to 1995,
reflecting the continued shift of the portfolio to lower risk, but also lower
yielding, Asset Based Finance products, competitive pricing pressures and
lower levels of fee accelerations. Interest income yields decreased to 10.8%
during 1996 from 11.7% in 1995. Interest expense decreased to 6.5% in 1996
from 6.9% in 1995 due to the decline in the average borrowing rate.
 
  A comparative analysis of the year-end principal outstanding and average
interest rates paid by the Company on its debt as of December 31, 1996 and
1995, before and after giving effect to interest rate swaps, is shown in the
following table:
 
<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                 --------------------------------------------
                                         1996                   1995
                                 ---------------------  ---------------------
                                 YEAR-END BEFORE AFTER  YEAR-END BEFORE AFTER
                                 BALANCE  SWAPS  SWAPS  BALANCE  SWAPS  SWAPS
                                 -------- ------ -----  -------- ------ -----
                                            (DOLLARS IN MILLIONS)
      <S>                        <C>      <C>    <C>    <C>      <C>    <C>
      Commercial paper--
       domestic and foreign.....  $2,576   5.63%  N/A    $2,067   5.96%  N/A
      Fixed rate debt...........   2,905   7.02  6.62%    2,699   7.26  6.91%
      Variable rate debt........   1,859   4.85  5.78     2,449   5.59  6.36
                                  ------                 ------
        Total...................  $7,340   5.98  6.29    $7,215   6.32  6.65
                                  ======                 ======
</TABLE>
 
                                      40
<PAGE>
 
  Non-Interest Income. The following table summarizes the Company's non-
interest income for the years ended December 31, 1996 and 1995:
 
<TABLE>
<CAPTION>
                                         FOR THE
                                       YEAR ENDED
                                        DECEMBER
                                           31,        INCREASE/(DECREASE)
                                       ------------  ----------------------
                                       1996   1995    AMOUNT      PERCENT
                                       -----  -----  ---------   ----------
                                            (DOLLARS IN MILLIONS)
      <S>                              <C>    <C>    <C>         <C>
      Factoring commissions........... $  55  $  50   $       5         10.0%
      Income of international joint
       ventures.......................    44     35           9         25.7
                                       -----  -----   ---------
      Fees and other income:
        Fee income and other(1).......    52     49           3          6.1
        Net investment gains..........     3     74         (71)         N/M
        Real estate participation
         income.......................    24     24         --           --
        Securitization gains..........   --       1          (1)         N/M
                                       -----  -----   ---------
          Total fees and other
           income..................... $  79  $ 148   $     (69)       (46.6)%
                                       =====  =====   =========
            Total non-interest
             income................... $ 178  $ 233   $     (55)       (23.6)
                                       =====  =====   =========
      Non-interest income as a
       percentage of AFE..............   2.0%   2.7%
</TABLE>
     --------
(1) Fee income and other consists primarily of loan servicing income, late
           fees, prepayment fees, other miscellaneous income and equipment
           residual gains.
 
  Factoring commissions during 1996 totalled $55 million, increasing 10% from
1995 due to an increase in factoring volume. Income of international joint
ventures increased by 26% during 1996, primarily due to earnings growth from
European joint ventures in the Netherlands and France. Net investment gains
were $3 million for 1996, as compared to $74 million in 1995. Gross investment
gains were $106 million and $133 million, while losses and writedowns were
$103 million and $59 million, in 1996 and 1995, respectively. Losses and
writedowns on equity investments were higher in 1996 primarily due to
writedowns during the year totalling $53 million on one pre-1990 Corporate
Finance investment.
 
  OPERATING EXPENSES. The following table summarizes the Company's operating
expenses for the years ended December 31, 1996 and 1995:
 
<TABLE>
<CAPTION>
                                           FOR THE
                                         YEAR ENDED
                                          DECEMBER
                                             31,        INCREASE/(DECREASE)
                                         ------------  ----------------------
                                         1996   1995    AMOUNT      PERCENT
                                         -----  -----  ---------   ----------
                                              (DOLLARS IN MILLIONS)
      <S>                                <C>    <C>    <C>         <C>
      Salaries and other compensation..  $ 154  $ 135   $      19         14.1%
      General and administrative
       expenses........................     93     81          12         14.8
                                         -----  -----   ---------
        Total..........................  $ 247  $ 216   $      31         14.4
                                         =====  =====   =========
      Operating expenses as a
       percentage of AFE...............    2.8%   2.6%
</TABLE>
 
  During 1996, operating expenses grew 14% versus 1995 primarily due to the
Company's continued investments in developing the products and services of its
Asset Based Finance businesses.
 
                                      41
<PAGE>
 
  ALLOWANCE FOR LOSSES. The following table summarizes the changes in the
Company's allowance for losses of receivables, including the Company's
provision for losses of receivables and repossessed assets, for the years
ended December 31, 1996 and 1995:
 
<TABLE>
<CAPTION>
                                         FOR THE
                                       YEAR ENDED
                                        DECEMBER
                                           31,        INCREASE/(DECREASE)
                                       ------------  ----------------------
                                       1996   1995    AMOUNT      PERCENT
                                       -----  -----  ---------   ----------
                                            (DOLLARS IN MILLIONS)
      <S>                              <C>    <C>    <C>         <C>
      Balance at the beginning of the
       year........................... $ 231  $ 237  $      (6)        (2.5)%
        Provision for losses..........   103    223       (120)       (53.8)
        Writedowns....................  (163)  (259)       (96)         N/M
        Recoveries....................    55     28         27         96.4%
        Transfers and other...........    (1)     2         (3)         N/M
                                       -----  -----  ---------
      Balance at end of the year...... $ 225  $ 231  $      (6)        (2.6)%
                                       =====  =====  =========
</TABLE>
 
  The provision for losses decreased dramatically from 1995 to 1996 as a
result of the lower writedowns and increased recoveries, primarily from the
pre-1990 portfolio. Gross writedowns were $163 million and $259 million, while
recoveries totalled $55 million and $28 million, for 1996 and 1995,
respectively. The credit quality of the current portfolio was demonstrated by
net writedowns on the current portfolio totalling $41 million, or 0.50% of
total average lending assets, in 1996 versus $45 million, or 0.60% of total
average lending assets, in 1995.
 
  INCOME TAXES. The Company's effective income tax rate was 23% for 1996 and
27% for 1995, in each case below the statutory rate due to the effect of
earnings from international joint ventures, the use of foreign tax credits and
favorable tax issue resolutions.
 
 LENDING ASSETS AND INVESTMENTS
 
  Total lending assets and investments increased $581 million, or 6%, during
1996, as the Company continued to grow its lower risk Asset Based Finance
businesses and reduce its pre-1990 portfolio. As of December 31, 1996, the
domestic Asset Based Finance portfolio continued to be the largest business
category, representing 44% of lending assets and investments. The following
tables present lending assets and investments by business category and asset
type as of December 31, 1996 and 1995:
 
<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                  -----------------------------
                                                       1996           1995
                                                  -------------- --------------
                                                  AMOUNT PERCENT AMOUNT PERCENT
                                                  ------ ------- ------ -------
                                                      (DOLLARS IN MILLIONS)
   <S>                                            <C>    <C>     <C>    <C>
   BY BUSINESS CATEGORY:
     Asset Based Finance......................... $4,258    44%  $3,147    35%
     Corporate Finance...........................  2,016    21    2,328    26
     Real Estate Finance.........................  1,514    16    1,234    14
     International Group(1)......................    609     6      506     5
     Project Finance.............................    160     2      186     2
     Pre-1990 portfolio..........................    979    10    1,526    17
     Other.......................................     84     1      112     1
                                                  ------   ---   ------   ---
       Total lending assets and investments...... $9,620   100%  $9,039   100%
                                                  ======   ===   ======   ===
</TABLE>
  --------
  (1)  Includes $272 million in investments in international joint ventures,
       representing 3% of total lending assets and investments, in 1996, and
       $233 million in investments in international joint ventures,
       representing 2% of total lending assets and investments, in 1995.
 
                                      42
<PAGE>
 
<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                  -----------------------------
                                                       1996           1995
                                                  -------------- --------------
                                                  AMOUNT PERCENT AMOUNT PERCENT
                                                  ------ ------- ------ -------
                                                      (DOLLARS IN MILLIONS)
   <S>                                            <C>    <C>     <C>    <C>
   BY ASSET TYPE:
     Receivables................................. $8,529    89%  $8,085    89%
     Repossessed assets..........................     14   --        28     1
                                                  ------   ---   ------   ---
       Total lending assets......................  8,543    89    8,113    90
     Equity and real estate investments..........    419     4      428     5
     Debt securities.............................    251     3      152     2
     Operating leases............................    135     1      113     1
     International joint ventures................    272     3      233     2
                                                  ------   ---   ------   ---
       Total lending assets and investments...... $9,620   100%  $9,039   100%
                                                  ======   ===   ======   ===
       Total managed assets...................... $9,574         $9,137
       Funds employed............................ $9,030         $8,542
</TABLE>
 
  The Company continued to develop a more balanced, lower risk asset based
portfolio in 1996 while maintaining the strong market positions of Corporate
Finance and Real Estate Finance. Asset diversification was improved with asset
growth of over $1 billion in the Asset Based Finance businesses in 1996, with
all five Asset Based Finance business groups contributing to this growth. None
of the Company's business groups represented more than 21% of the Company's
total portfolio at December 31, 1996. Corporate Finance had fundings of
approximately $900 million in 1996, but its assets and investments decreased
by $312 million in 1996, due primarily to syndications and runoff in the
portfolio.
 
  The Company's investment in international joint ventures increased due to
the impact of undistributed income and an investment made in a factoring
company in Chile.
 
  Concentrations of lending assets of 5% or more at December 31, 1996 and
1995, based on the standard industrial classifications of the borrowers, were
as follows:
 
<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                 -----------------------------
                                                      1996           1995
                                                 -------------- --------------
                                                 AMOUNT PERCENT AMOUNT PERCENT
                                                 ------ ------- ------ -------
                                                     (DOLLARS IN MILLIONS)
      <S>                                        <C>    <C>     <C>    <C>
      Department and general merchandise retail
       stores..................................   $987     12%   $774     10%
      Food, grocery and miscellaneous retail...    669      8     568      7
      General industrial machines..............    500      6     392      5
      Business services........................    435      5     387      5
      Textile and apparel manufacturing........    403      5     529      7
</TABLE>
 
  The department and general merchandise retail stores and the textiles and
apparel manufacturing categories were primarily comprised of factored accounts
receivable which represent short-term trade receivables from numerous
customers. The majority of lending assets in the food, grocery and
miscellaneous retail category were revolving and term facilities with
borrowers primarily in the business of manufacturing and retailing of food
products. The general industrial machines classification is distributed among
machinery used for many different industrial applications. The business
services category was primarily comprised of computer and data processing
services, credit reporting and collection, and miscellaneous business
services.
 
                                      43
<PAGE>
 
   
RECENT DEVELOPMENT     
   
  The Company securitized approximately $1.1 billion of its CMBS receivables
in March 1998. The Company realized a pre-tax gain of $11 million on this
securitization, which the Company anticipates may cause operating revenues and
net income in the first quarter of 1998 to be higher than those in certain
other quarters of 1998. The Company did not retain any residual risk in this
securitization, as all of the receivable-backed securities were sold to third
parties on a non-recourse basis. See "Item 1. Business--Real Estate Finance".
    
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company manages liquidity primarily by monitoring the relative
maturities of assets and liabilities and by borrowing funds through the U.S.
and international money and capital markets and bank credit markets to fund
asset growth and to meet debt obligations. The Company's primary sources of
funds are commercial paper borrowings, issuances of medium-term notes and
other debt securities and the securitizations, syndications and sales of
lending assets. During 1997, the Company's major funding requirements included
$6.0 billion of longer-term loans, leases and investments funded, $526 million
of short-term loans funded, the retirement of $1.4 billion of senior notes,
the acquisition of its joint venture partner's interest in Factofrance for
$174 million and common and preferred dividends of $57 million. The Company's
major sources of funding these requirements, other than $406 million of cash
flows from operations, included loan repayments and investment proceeds of
$3.1 billion, the sale, securitization or syndication of $1.7 billion of loans
and investments, and the issuance of $2.6 billion of senior notes and $150
million of Series B Preferred Stock. These sales reflected the Company's
strategy to limit the size of retained positions and to securitize, retaining
minimal to no residual risk, certain asset types, such as commercial mortgages
and equipment leases. These financing activities also enabled the Company to
reduce short-term debt by $279 million, excluding the effect of consolidating
Factofrance, and left the Company with $821 million in cash and short-term
investments at the end of 1997.
 
  While the portfolio demonstrated increasing liquidity in both its longer
term loans and in the increased proportion of factored receivables and
revolving loans, the Company continued to maintain a conservative funding
posture, with commercial paper and short-term borrowings amounting to 36% of
total debt at December 31, 1997 compared to 37% at the end of 1996.
   
  As of December 31, 1997, committed bank credit and asset sale facilities of
the Company totalled $4.0 billion and represented 122% of the Company's
outstanding commercial paper and short-term borrowings. Committed bank credit
and asset sale facilities in the United States also were well in excess of
100% of U.S. commercial paper borrowings at December 31, 1997. In April 1997,
the Company extended and increased its primary committed bank credit facility,
which provides $3.0 billion of liquidity support under two equal credit
agreements, a 364-day facility, which has been renewed and will expire April
6, 1999, and a 5-year facility expiring April 8, 2002. In addition, the
consolidated international subsidiaries are funded primarily through short-
term money market and bank borrowings, which are supported by $625 million of
committed foreign bank credit facilities in local currencies.     
 
  The Company's factored accounts receivable facility allows the Company to
sell an undivided interest of up to $550 million in a designated pool of its
factored accounts receivable to five bank-supported conduits. As part of its
array of financing options, the Company utilized this facility during the
fourth quarter so that, as of December 31, 1997, the Company had sold
approximately $500 million of factored accounts receivable.
 
  During the fourth quarter of 1997, the Company established a $400 million
committed warehouse line, which expires in June 1998, to finance CMBS. As of
December 31, 1997, the Company had borrowed $200 million under this facility,
which borrowings were paid off in January 1998.
 
                                      44
<PAGE>
 
  In an effort to maintain a sound capital structure, in June 1997 the Company
privately issued $150 million of its Series B Preferred Stock at a purchase
price of $100 per share. Pursuant to registration rights of the holders of
Series B Preferred Stock, as of January 1998, all of the shares of the Series
B Preferred Stock had been exchanged for an equal number of shares of Series C
Preferred Stock, and the Series B Preferred Stock was subsequently retired as
a class. The Series C Preferred Stock is substantially identical to the Series
B Preferred Stock, except that the issuance of the Series C Preferred Stock
was registered under the Securities Act and therefore the certificates for the
shares of Series C Preferred Stock do not bear restrictive legends.
 
  In addition to these alternate sources of liquidity, the Company has access
to $500 million of additional liquidity support under the Keep Well Agreement
between the Company and Fuji Bank, dated as of April 23, 1983 and as
subsequently amended (the "Keep Well Agreement"). This agreement, which cannot
be terminated by either party prior to December 31, 2002, also provides that
Fuji Bank will maintain the net worth of the Company at an amount equal to
$500 million. Fuji Bank has never been required to make any capital
contribution or advance any funds to the Company under the Keep Well
Agreement. See "Item 13. Certain Relationships and Related Transactions--
Relationship with Fuji Bank--Keep Well Agreement".
 
  The Company's ratio of debt (net of short-term investments) to total
stockholders' equity remained conservative relative to commercial finance
industry peers at 5.2 times at December 31, 1997 compared to 5.0 times at
December 31, 1996. Leverage and the level of commercial paper and short-term
borrowings continued to remain within ranges targeted by the Company to
maintain a strong financial position.
 
ACCOUNTING DEVELOPMENTS
 
  The Company adopted Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"), as amended by Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125" ("SFAS 127") on January 1, 1997.
SFAS 125 uses a "financial components" approach that focuses on control to
determine the proper accounting for financial asset transfers and addresses
the accounting for servicing rights on financial assets in addition to
mortgage loans. Securitizations of finance receivables are accounted for as
sales when legal and effective control over the related receivables is
surrendered. Servicing assets or liabilities are recognized when the servicing
rights are retained by the seller, provided that a market rate servicing fee
is received which is above or below the costs of servicing.
 
  In June 1997, the Financial Accounting Standards Board released Statement of
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which the Company has adopted effective January 1, 1998. This statement
establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.
Statement of Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131") was also released in June
1997 and has also been adopted effective January 1, 1998. SFAS 131 requires
segments to be reported based on the way management organizes segments within
the Company for making operating decisions and assessing performance. SFAS 130
and SFAS 131 address financial statement disclosures and, as a result, will
not have an impact on the financial results of the Company.
 
YEAR 2000 COMPLIANCE
 
  The Company has made, and will continue to make, certain investments in its
software applications and systems to ensure the Company's systems function
properly through and beyond the year 2000. The Company has three loan
processing systems, a lease processing system, a factoring
 
                                      45
<PAGE>
 
system, and systems for general ledger processing, payroll, accounts payable,
fixed assets, treasury and other smaller applications. The Company has
established plans to modify, upgrade or replace each of these systems for
compliance with year 2000 and has established an overall plan to bring all of
these systems into compliance by the end of 1999. The Company continues to
assess the impact of the year 2000 issue on its consolidated international
subsidiaries, which includes the performance of risk assessments and the
evaluation of the extent of programming changes required to address the issue.
The Company currently estimates that the total costs of year 2000 compliance
for the Company will be below $25 million. Maintenance or modification costs
will be expensed as incurred, while the costs of new software will be
capitalized and amortized over the software's estimated useful life.
 
  The Company is also in the process of performing a risk assessment of its
joint venture companies' plans for year 2000 compliance and of the resulting
potential impact on the Company's investments in international joint ventures.
This assessment is expected to be completed in 1998.
 
  The Company continues to bear some risk related to the year 2000 issue and
could be adversely affected if other entities (e.g., vendors and borrowers)
not affiliated with the Company do not appropriately address their own year
2000 compliance issues. The Company is working with its mainframe provider to
validate its plans for year 2000 compliance. In addition, the Company is
incorporating a year 2000 risk assessment into its underwriting and portfolio
management activities in order to evaluate its exposure due to any lack of
compliance on the part of its clients.
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
  This Form 10-K contains, and the documents incorporated by reference herein
contain, certain "forward-looking statements" (as defined in Section 21E of
the Exchange Act) that are based on the beliefs of the Company's management,
as well as assumptions made by, and information currently available to, the
Company's management. The words "anticipates", "believes", "estimates",
"expects", "plans", "intends" and similar expressions are intended to identify
these forward-looking statements, but are not the exclusive means of
identifying them. These forward-looking statements reflect the current views
of the Company or its management and are subject to certain risks,
uncertainties and contingencies which could cause the Company's actual
results, performance or achievements to differ materially from those expressed
in, or implied by, these statements. These risks, uncertainties and
contingencies include, but are not limited to, the following: (i) the success
or failure of the Company's efforts to implement its business strategy; (ii)
effects of economic conditions in the real estate markets, the capital markets
or certain other markets or industries served by the Company and the
performance of borrowers; (iii) changes in the volume and mix of earning
assets, the level of interest rates earned on those assets, the volume of
interest-bearing liabilities and the level of interest rates paid on those
interest-bearing liabilities; (iv) currency exchange rate fluctuations,
economic conditions and competition in international markets, and other
international factors; (v) actions of the Company's competitors and the
Company's ability to respond to such actions; (vi) the cost of the Company's
capital, which depends in part on the Company's portfolio quality, ratings,
prospects and outlook and general market conditions; (vii) the adequacy of the
Company's allowance for losses of receivables; (viii) the Company's ability to
attract and retain qualified and experienced management, sales and credit
personnel; and (ix) changes in governmental regulations, tax rates and similar
matters. The Company assumes no obligation to update publicly any forward-
looking statements, whether as a result of new information, future events or
otherwise.
 
 
                                      46
<PAGE>
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
          MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
 
  The management of Heller Financial, Inc. and its subsidiaries (the
"Company") is responsible for the preparation, integrity and objectivity of
the accompanying consolidated financial statements. The statements were
prepared in accordance with generally accepted accounting principles
reflecting, where applicable, management's best estimates and judgments. The
other financial information in the December 31, 1997 annual report filed on
Form 10-K is consistent with that contained in the consolidated financial
statements.
 
  The Company's consolidated financial statements have been audited by Arthur
Andersen LLP, independent public accountants, selected by the holder of the
Company's common stock. Arthur Andersen LLP is engaged to audit the
consolidated financial statements and conducts such tests and related
procedures as it deems necessary in conformity with generally accepted
auditing standards. The opinion of the independent auditors, based upon their
audits of the consolidated financial statements, is contained in this Form 10-
K. Management has made available to Arthur Andersen LLP all the Company's
financial records and related data, as well as the minutes of the
stockholders' and directors' meetings.
 
  Management is responsible for establishing and maintaining a system of
internal accounting controls and procedures to provide reasonable assurance
that assets are safeguarded and that transactions are authorized, recorded and
reported properly. The internal accounting control system is augmented by a
program of internal audits and appropriate reviews by management, written
policies and guidelines and careful selection and training of qualified
personnel. Management considers the internal auditors' and Arthur Andersen
LLP's recommendations concerning the Company's system of internal accounting
controls and takes action in a cost effective manner to appropriately respond
to these recommendations. Management believes that the Company's internal
accounting controls provide reasonable assurance that assets are safeguarded
against material loss from unauthorized use or disposition and that the
financial records are reliable for preparing financial statements and other
data and for maintaining accountability of assets.
 
  Management also recognizes its responsibility for fostering a strong ethical
climate so that the Company's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's code of ethical business
practices, which is publicized throughout the Company. The code of ethical
business practices addresses, among other things, the necessity of ensuring
open communication within the Company, potential conflicts of interest,
compliance with all domestic and foreign laws, including those relating to
financial disclosure, and the confidentiality of proprietary information.
 
                                          Richard J. Almeida
                                          Chairman and Chief Executive Officer
 
                                          Lauralee E. Martin
                                          Executive Vice President and Chief
                                           Financial Officer
 
                                          Lawrence G. Hund
                                          Senior Vice President and Controller
 
                                      47
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Heller Financial, Inc.:
 
  We have audited the accompanying consolidated balance sheets of HELLER
FINANCIAL, INC. (a Delaware corporation) AND SUBSIDIARIES as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 financial position of Heller Financial, Inc. and
Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
 
                                          Arthur Andersen LLP
 
Chicago, Illinois
January 23, 1998
 (Except with respect to the
 matters discussed in Note 20,
 as to which the date is
 February 24, 1998)
 
                                      48
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                                 --------------
                             ASSETS                               1997    1996
                             ------                              ------- ------
                                                                 (IN MILLIONS)
<S>                                                              <C>     <C>
Cash and cash equivalents....................................... $   821 $  296
Receivables (Note 3)
  Commercial loans
    Term loans..................................................   2,597  2,434
    Revolving loans.............................................   1,674  1,493
  Real estate loans.............................................   2,238  1,994
  Factored accounts receivable..................................   2,223    994
  Equipment loans and leases....................................   1,990  1,614
                                                                 ------- ------
    Total receivables...........................................  10,722  8,529
  Less: Allowance for losses of receivables (Note 3)............     261    225
                                                                 ------- ------
    Net receivables.............................................  10,461  8,304
Equity and real estate investments (Note 4).....................     488    419
Debt securities (Note 4)........................................     311    251
Operating leases (Note 4).......................................     195    135
Investments in international joint ventures (Note 4)............     198    272
Other assets (Note 4)...........................................     387    249
                                                                 ------- ------
    Total assets................................................ $12,861 $9,926
                                                                 ======= ======
<CAPTION>
              LIABILITIES AND STOCKHOLDERS' EQUITY
              ------------------------------------
<S>                                                              <C>     <C>
Senior debt (Note 5)
  Commercial paper and short-term borrowings.................... $ 3,432 $2,745
  Notes and debentures..........................................   6,004  4,761
                                                                 ------- ------
    Total debt..................................................   9,436  7,506
Credit balances of factoring clients............................   1,255    590
Other payables and accruals.....................................     405    306
                                                                 ------- ------
    Total liabilities...........................................  11,096  8,402
Minority interest...............................................      87     57
Stockholders' equity (Notes 9 and 10)
  Cumulative Perpetual Senior Preferred Stock, Series A.........     125    125
  Noncumulative Perpetual Senior Preferred Stock, Series B......     150    --
  Class A Common Stock ($.25 par; 500,000,000 shares authorized;
   no shares issued or outstanding) (Note 20)...................     --     --
  Class B Common Stock ($.25 par; 300,000,000 shares authorized;
   51,050,000 shares issued and outstanding) (Notes 9 and 20)...      13     13
  Additional paid in capital....................................     672    675
  Retained earnings.............................................     718    654
                                                                 ------- ------
    Total stockholders' equity..................................   1,678  1,467
                                                                 ------- ------
    Total liabilities and stockholders' equity.................. $12,861 $9,926
                                                                 ======= ======
</TABLE>
 
  The accompanying Notes to Consolidated Financial Statements are an integral
                           part of these statements.
 
                                       49
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                                  FOR THE YEAR
                                                                 ENDED DECEMBER
                                                                      31,
                                                                 --------------
                                                                 1997 1996 1995
                                                                 ---- ---- ----
                                                                 (IN MILLIONS)
<S>                                                              <C>  <C>  <C>
Interest income................................................. $924 $807 $851
Interest expense................................................  516  452  464
                                                                 ---- ---- ----
  Net interest income...........................................  408  355  387
Fees and other income (Note 11).................................  206   79  148
Factoring commissions...........................................  104   55   50
Income of international joint ventures..........................   36   44   35
                                                                 ---- ---- ----
  Operating revenues............................................  754  533  620
Operating expenses (Note 12)....................................  357  247  216
Provision for losses (Note 3)...................................  164  103  223
                                                                 ---- ---- ----
  Income before taxes and minority interest.....................  233  183  181
Income tax provision (Note 14)..................................   66   43   49
Minority interest...............................................    9    7    7
                                                                 ---- ---- ----
  Net income.................................................... $158 $133 $125
                                                                 ==== ==== ====
  Dividends on preferred stock.................................. $ 14 $ 10 $ 10
                                                                 ==== ==== ====
  Net income applicable to common stock......................... $144 $123 $115
                                                                 ==== ==== ====
</TABLE>
 
 
  The accompanying Notes to Consolidated Financial Statements are an integral
                           part of these statements.
 
                                       50
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                       FOR THE YEAR ENDED
                                                          DECEMBER 31,
                                                     -------------------------
                                                      1997     1996     1995
                                                     -------  -------  -------
                                                          (IN MILLIONS)
<S>                                                  <C>      <C>      <C>
OPERATING ACTIVITIES
  Net income........................................ $   158  $   133  $   125
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Provision for losses............................     164      103      223
    Losses from equity investments..................      50      103       59
    Amortization and depreciation...................      23       14       11
    Provision for deferred tax asset (benefit)......     (19)      12      (50)
    Increase (decrease) in accounts payable and
     accrued liabilities............................      29       (1)      34
    Undistributed income of international joint
     ventures.......................................     (19)     (38)     (26)
    Increase (decrease) in interest payable.........      11      (11)      12
    Other...........................................       9      (36)      (4)
                                                     -------  -------  -------
      Net cash provided by operating activities.....     406      279      384
INVESTING ACTIVITIES
  Longer-term loans funded..........................  (5,311)  (3,372)  (3,202)
  Collections of principal..........................   2,904    2,521    2,248
  Loan sales, securitizations and syndications......   2,238      757      708
  Net increase in short-term loans and advances to
   factoring clients
    Due to consolidation of Factofrance.............  (1,018)     --       --
    Other...........................................    (526)    (427)    (510)
  Investment in operating leases....................    (119)     (33)     (14)
  Investment in equity interests and other
   investments......................................    (369)    (272)    (172)
  Sales of investments and equipment on lease.......     365      168      148
  Factofrance goodwill and noncompetition
   agreement........................................     (96)     --       --
  Other.............................................      26        3      (17)
                                                     -------  -------  -------
      Net cash used for investing activities........  (1,906)    (655)    (811)
FINANCING ACTIVITIES
  Senior note issues................................   2,599      976    1,674
  Retirement of notes and debentures................  (1,411)  (1,358)    (459)
  Increase (decrease) in commercial paper and other
   short-term borrowings
    Due to consolidation of Factofrance.............     966      --       --
    Other...........................................    (279)     522     (228)
  Proceeds from preferred stock issuance............     147      --       --
  Net decrease in advances to affiliates............      49        5        4
  Dividends paid on preferred and common stock......     (57)     (68)     (64)
  Other.............................................      11       (4)     --
                                                     -------  -------  -------
      Net cash provided by financing activities.....   2,025       73      927
Increase (decrease) in cash and cash equivalents....     525     (303)     500
Cash and cash equivalents at the beginning of the
 year...............................................     296      599       99
                                                     -------  -------  -------
Cash and cash equivalents at the end of the year.... $   821  $   296  $   599
                                                     =======  =======  =======
</TABLE>
 
  The accompanying Notes to Consolidated Financial Statements are an integral
                           part of these statements.
 
                                       51
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                    NONCUM.
                                     PERP.  CLASS  CLASS
                                      SR.     A      B
                          PERPETUAL  PREF.  COMMON COMMON
                          SR. PREF.  STOCK  STOCK  STOCK   ADD'L
                            STOCK   SERIES  (NOTE  (NOTE  PAID IN RETAINED
                          SERIES A     B     20)    20)   CAPITAL EARNINGS TOTAL
                          --------- ------- ------ ------ ------- -------- ------
                                               (IN MILLIONS)
<S>                       <C>       <C>     <C>    <C>    <C>     <C>      <C>
BALANCE AT DECEMBER 31,
 1994...................    $125      --      --    $13    $675     $517   $1,330
Net income..............     --       --      --    --      --       125      125
Preferred stock
 dividends (Notes 9 and
 10)....................     --       --      --    --      --       (10)     (10)
Common stock dividends
 (Note 10)..............     --       --      --    --      --       (54)     (54)
Changes in unrealized
 gains and losses on
 securities available
 for sale, net of tax
 (Note 4)...............     --       --      --    --      --       (10)     (10)
Change in deferred
 translation adjustment,
 net of tax.............     --       --      --    --      --         3        3
                            ----     ----    ----   ---    ----     ----   ------
BALANCE AT DECEMBER 31,
 1995...................    $125      --      --    $13    $675     $571   $1,384
Net income..............     --       --      --    --      --       133      133
Preferred stock
 dividends (Notes 9 and
 10)....................     --       --      --    --      --       (10)     (10)
Common stock dividends
 (Note 10)..............     --       --      --    --      --       (58)     (58)
Changes in unrealized
 gains and losses on
 securities available
 for sale, net of tax
 (Note 4)...............     --       --      --    --      --        18       18
Change in deferred
 translation adjustment,
 net of tax.............     --       --      --    --      --       --       --
                            ----     ----    ----   ---    ----     ----   ------
BALANCE AT DECEMBER 31,
 1996...................    $125      --      --    $13    $675     $654   $1,467
Net income..............     --       --      --    --      --       158      158
Issuance of
 Noncumulative Perpetual
 Senior Preferred Stock,
 Series B (Note 9)......     --       150     --    --       (3)     --       147
Preferred stock
 dividends (Notes 9 and
 10)....................     --       --      --    --      --       (14)     (14)
Common stock dividends
 (Note 10)..............     --       --      --    --      --       (69)     (69)
Changes in unrealized
 gains and losses on
 securities available
 for sale, net of tax
 (Note 4)...............     --       --      --    --      --        (5)      (5)
Change in deferred
 translation adjustment,
 net of tax.............     --       --      --    --      --        (6)      (6)
                            ----     ----    ----   ---    ----     ----   ------
BALANCE AT DECEMBER 31,
 1997...................    $125     $150    $--    $13    $672     $718   $1,678
                            ====     ====    ====   ===    ====     ====   ======
</TABLE>
 
  The retained earnings balance included $8 of unrealized gains, $13 of
unrealized gains and $5 of unrealized losses on securities available for sale
at December 31, 1997, 1996 and 1995, respectively. Retained earnings also
included deferred foreign currency translation adjustments, net of tax, of
$(20), $(14) and $(14) at December 31, 1997, 1996 and 1995, respectively.
 
  The accompanying Notes to Consolidated Financial Statements are an integral
                           part of these statements.
 
                                      52
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Description of the Reporting Entity--
 
  Heller Financial, Inc. and its subsidiaries (the "Company") are engaged
principally in furnishing commercial finance services to businesses in the
United States and investing in and operating commercial finance companies
throughout the world. The Company operates in the middle and emerging middle
market segments of the commercial finance industry, which generally includes
entities in the manufacturing and service sectors with annual sales in the
range of $5 million to $250 million and in the real estate sector with
property values generally in the range of $1 million to $40 million. The
Company currently provides services in five product categories: 1) asset based
finance, 2) corporate finance, 3) real estate finance, 4) international asset
based finance and factoring and 5) project finance.
 
  During 1997, all of the common stock of the Company was owned by Heller
International Corporation ("HIC"), which is a wholly-owned subsidiary of The
Fuji Bank, Limited ("Fuji Bank"), of Tokyo, Japan. Fuji Bank directly owned
21% of the outstanding shares of Heller International Group, Inc.
("International Group"), a consolidated subsidiary, through which the Company
holds its international operations. The remaining 79% of the outstanding
shares of International Group were owned by the Company. See Note 20 for the
potential purchase by the Company of Fuji Bank's 21% interest in International
Group.
 
  Effective January 2, 1998, Fuji Bank formed Fuji America Holdings, Inc.
("FAHI"), to combine Fuji Bank's United States non-bank operations under one
holding company. On that day, Fuji Bank transferred ownership of the Company
from HIC to FAHI. As of January 2, 1998, all of the outstanding Common Stock
of the Company is owned by FAHI.
 
 Basis of Presentation--
 
  The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Investments
in affiliated companies owned 50% or less are accounted for by the equity
method. Certain temporary interests are included in investments and carried at
cost.
 
 Use of Estimates--
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 Cash and Cash Equivalents--
 
  Cash and cash equivalents consist of cash deposits maintained in banks and
short-term debt securities with original maturities of less than 60 days.
 
 
                                      53
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 Receivables--
 
  Receivables are presented net of unearned income which generally includes
deferred loan origination and commitment fees, direct loan origination costs
and other amounts attributed to the fair value of equity interests and other
investments received in connection with certain financings. These amounts are
amortized to interest income using the effective interest method over the life
of the related loan or commitment period.
 
  The Company originates certain loans which may be syndicated or portions
sold to participants to manage borrower, industry or product concentrations.
These receivables are also presented net of unearned income. In the event the
Company sells a portion of a loan that it had originated, any deferred fees or
discounts relating to the portion of the loan sold are recognized in interest
income. For loan sales that qualify as participations, income is recognized,
subject to certain yield tests, when the participation is complete.
 
  Income recognition is reviewed on an account by account basis. Collateral is
evaluated regularly, primarily by assessing the related current and future
cash flow streams. Loans are classified as nonearning and all interest and
unearned income amortization is suspended when there is significant doubt as
to the ability of the debtor to meet current contractual terms. Numerous
factors including loan covenant defaults, deteriorating loan-to-value
relationships, delinquencies greater than 90 days, the sale of major income
generating assets or other major operational or organizational changes may
lead to income suspension. An account taken nonearning may be restored to
earning status either when all delinquent principal and interest have been
paid under the original contractual terms or the account has been restructured
and has demonstrated both the capacity to service the amended terms of the
debt and has adequate loan to value coverage.
 
 Allowance for Losses--
 
  The allowance for losses of receivables is established through direct
charges to income. Losses are charged to the allowance when all or a portion
of a receivable is deemed impaired and uncollectible as determined by account
management procedures. These procedures include assessing how the borrower is
affected by economic and market conditions, evaluating operating performance
and reviewing loan-to-value relationships. Impaired receivables are measured
based on the present value of expected future cash flows discounted at the
receivable's effective interest rate, at the observable market price of the
receivable or at the fair value of the collateral if the receivable is
collateral dependent. When the recorded balance of an impaired receivable
exceeds the relevant measure of value, impairment is recorded through an
increase in the provision for losses.
 
  Management evaluates the allowance for losses on a quarterly basis.
Nonearning assets and loans with certain loan grading characteristics are
reviewed to determine if there is a potential risk of loss under varying
scenarios of performance. The estimates of potential loss for these individual
loans are aggregated and added to a general allowance requirement, which is
based on the total of all other loans in the portfolio. This total allowance
requirement is then compared to the existing allowance for losses and
adjustments are made, if necessary.
 
 Securitized Receivables--
 
  Certain commercial mortgage and equipment loans have been securitized and
sold to investors. In the securitization process, loans are originated and
sold to trusts which, in turn, issue asset-backed securities to investors.
Upon the sale of the loans in a securitization, a gain is recognized for the
 
                                      54
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
difference between the carrying value of the receivables and the fair value of
the securities sold, in accordance with Statement of Financial Accounting
Standards 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("SFAS 125"). If the Company does not retain
any risk in the transaction and sells all of the securities to third party
investors on a nonrecourse basis, the gain recorded equals the proceeds on the
transaction less the carrying value of the securities sold. If the Company
retains any of the securities, then the gain on sale is reduced by any reserve
established for estimated future losses. Retained securities, if any, are
recorded as debt securities available for sale. The gain recognized is
recorded in fees and other income. In general, the Company does not establish
servicing assets or liabilities because in securitization transactions to date
the servicing fees earned are considered consistent with market rates and the
Company's cost of servicing. Income from the acceleration of discounts and
deferred fees attributed to the loans sold is recorded as interest income.
 
  The Company adopted SFAS 125 as amended by Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125" on January 1, 1997, collectively referred to as SFAS
125. Under this Statement, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control has been
surrendered and derecognizes liabilities when extinguished. This Statement
provides standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. Securitizations of finance
receivables are accounted for as sales when legal and effective control over
the related receivables is surrendered. Servicing assets or liabilities are
recognized when the servicing rights are retained by the seller. The adoption
of this pronouncement did not have a material impact on the Company's
consolidated financial statements.
 
 Investments in Joint Ventures--
 
  Investments in unconsolidated joint ventures represent investments in
companies with operations in 15 foreign countries. The Company accounts for
its investments in joint ventures under the equity method of accounting. Under
this method, the Company recognizes its share of the earnings or losses of the
joint venture in the period in which they are earned by the joint venture.
These amounts are recorded as income of international joint ventures in the
consolidated statements of income. Dividends received from joint ventures
reduce the carrying amount of the investment.
 
 Investments--
 
  Equity interests and investments--Investments in warrants, certain common
and preferred stocks and certain equity investments, which are not subject to
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," are
carried at cost. The valuation of all of these investments is periodically
reviewed and the investment balance is written down to reflect declines in
value determined to be other than temporary. Gains or losses recognized upon
sale or write-down of these investments are recorded as a component of fees
and other income. Certain other equity investments in limited partnership
funds are accounted for under the equity method of accounting in accordance
with Accounting Principles Board Opinion No. 18, "The Equity Method of
Accounting for Investments in Common Stock". These investments in limited
partnerships were previously carried at cost. The impact of this change in
accounting method, net of tax, was $4 million in 1997. The Company changed its
policy to be consistent with industry practice.
 
 
                                      55
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Equipment on lease--Aircraft and equipment under operating lease are
recorded at cost and depreciated over their estimated useful lives using the
straight line method for financial reporting purposes and accelerated methods
for tax purposes. Rental revenue is reported over the lease term as it becomes
receivable according to the provisions of the lease.
 
  Available for sale, trading, and held to maturity securities--Investments
designated as available for sale securities are carried at fair value using
the specific identification method with unrealized gains or losses included in
stockholders' equity, net of related taxes. Trading securities, if any, are
carried at fair value with the related unrealized gains or losses included
currently in fees and other income. Securities that are held to maturity are
recorded at amortized cost. Available for sale and held to maturity securities
may be written down to fair value to reflect declines in value determined to
be other than temporary. The amount of the writedown is included in fees and
other income.
 
  Real Estate Investments--The Company provides financing through certain real
estate loan arrangements that are recorded as acquisition, development and
construction investment transactions by the Company. Income is generally
recognized only to the extent that cash received exceeds the investment
carrying amount.
 
 Other Assets--
 
  Repossessed Assets--Assets which have been legally acquired in satisfaction
of receivables are carried at fair value less selling costs and are included
in other assets. After repossession, operating costs are expensed and cash
receipts are applied to reduce the asset balance.
 
  Goodwill--The excess of the cost of an acquisition of an entity over the
book value of the acquired entity's net assets is recorded as goodwill and
amortized on a straight line basis over the expected beneficial period of the
acquisition not to exceed 25 years.
 
 Income Taxes--
 
  The Company and its wholly-owned domestic subsidiaries are included in the
consolidated United States federal income tax return of HIC. International
Group files a separate United States federal income tax return. The Company
reports income tax expense as if it were a separate taxpayer and records
future tax benefits as soon as it is more likely than not that such benefits
will be realized.
 
 Derivative Financial Instruments--
 
  Derivatives are used as an integral part of asset/liability management to
reduce the overall level of financial risk arising from normal business
operations. These derivatives, particularly interest rate swap agreements, are
used to lower funding costs, diversify sources of funding or alter interest
rate exposure arising from mismatches between assets and liabilities. The swap
agreements are generally held to maturity and the differential paid or
received under these agreements is recognized over the life of the related
agreement. Gains or losses on terminated interest rate swaps that were hedges
of underlying obligations are amortized to interest income or interest expense
over the remaining life of the related underlying obligation. If the
underlying asset or obligation is sold, the gain or loss related to closing
the swap is recognized currently in income. The Company is not an interest
rate swap dealer nor is it a trader in derivative securities, and it has not
used speculative derivative products for the purpose of generating earnings
from changes in market conditions. Unrealized gains and receivables and
unrealized losses and payables on derivative financial instruments are
immaterial and are reported as other payables in the consolidated balance
sheet.
 
                                      56
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The Company periodically enters into forward currency exchange contracts
which are designated as hedges of its exposure to foreign currency
fluctuations from the translation of its foreign currency denominated
investments in certain European, Asian and Latin American joint ventures and
subsidiaries. Through these contracts, the Company primarily sells the local
currency and buys U.S. dollars. Gains or losses resulting from translation of
foreign currency financial statements and the related effects of the hedges of
net investments in joint ventures and subsidiaries outside the United States
are accumulated in stockholders' equity, net of related taxes, until the
international investment is sold or substantially liquidated. Gains or losses
on terminated foreign currency exchange contracts which were hedges of net
investments in a foreign subsidiary or joint venture continue to be deferred
and are recognized when the international investment is sold or is
substantially liquidated. Unrealized gains and receivables and unrealized
losses and payables on derivative financial instruments are immaterial and are
reported as other payables in the consolidated balance sheet.
 
  The Company also periodically enters into forward contracts or purchases
options. These financial instruments serve as hedges of its foreign investment
in international subsidiaries and joint ventures or effectively hedge the
translation of the related foreign currency income. The contracts which serve
as hedges of investments in international subsidiaries and joint ventures are
carried at fair value with gains or losses deferred and included in the
stockholders' equity section of the consolidated balance sheets. The change in
fair value of contracts which serve to effectively hedge the translation of
foreign currency income is included in the determination of net income.
 
 Reclassifications--
 
  Certain prior year amounts have been reclassified to conform to the current
year's presentation.
 
2. ACQUISITION OF FACTOFRANCE
 
  On April 2, 1997, International Group purchased the interest of its joint
venture partner in Factofrance Heller, S.A. ("Factofrance") for $174 million.
As a result, International Group increased its ownership interest in
Factofrance from 48.8% to 97.6%. International Group has held an interest in
Factofrance for over 30 years, using the equity method of accounting for its
previous ownership position. Factofrance, founded in 1965, is the leading
factoring company in the French marketplace. Factofrance is headquartered in
Paris and has seven regional sales offices covering local markets.
 
  The Factofrance acquisition was accounted for using the purchase method of
accounting in accordance with Accounting Principles Board Opinion (APB) No.
16, "Business Combinations." Under this method of accounting, the purchase
price was allocated to assets acquired and liabilities assumed based on their
estimated fair values at the date of purchase. Goodwill related to the
acquisition was $78 million and is being amortized over 25 years. The
acquisition price included $18 million for a noncompetition agreement which is
being amortized over the five year life of the agreement.
 
  The following table presents unaudited pro forma combined income statements
of the Company and Factofrance and its subsidiaries for the years ended
December 31, 1997 and 1996. The pro forma combined income statements are
presented as if the acquisition had been effective January 1, 1996. The
combined historical results of operations of the Company and Factofrance for
1997 and 1996 have been adjusted to reflect the amortization of goodwill, the
amortization of the noncompetition agreement and the costs of financing for
the transaction.
 
 
                                      57
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  This information is intended for informational purposes only and is not
necessarily indicative of the future results of operations of the Company or
of the results of operations of the Company that would have occurred had the
acquisition been effective in the periods presented.
 
<TABLE>
<CAPTION>
                                                                      FOR THE
                                                                    YEAR ENDED
                                                                     DECEMBER
                                                                        31,
                                                                    -----------
                                                                    1997  1996
                                                                    ----- -----
                                                                        (IN
                                                                     MILLIONS)
                                                                    (UNAUDITED)
      <S>                                                           <C>   <C>
      Interest income.............................................. $ 940 $ 889
      Interest expense.............................................   526   497
                                                                    ----- -----
        Net interest income........................................   414   392
      Fees and other income........................................   215   108
      Factoring commissions........................................   118   128
      Income of international joint ventures.......................    33    28
                                                                    ----- -----
        Operating revenues.........................................   780   656
      Operating expenses...........................................   377   338
      Provision for losses.........................................   167   114
                                                                    ----- -----
        Income before income taxes and minority interest...........   236   204
      Income tax provision.........................................    67    55
      Minority interest............................................    10    12
                                                                    ----- -----
        Net income................................................. $ 159 $ 137
                                                                    ===== =====
</TABLE>
 
3. LENDING ASSETS
 
  Lending assets include receivables and repossessed assets.
 
  Total receivables at December 31, 1997 consist of $8.6 billion of domestic
receivables and $2.1 billion of foreign receivables. Of the foreign
receivables, $2.0 billion represent factored accounts receivable of which $1.8
billion relate to Factofrance and $0.2 billion are from the other foreign
consolidated subsidiaries. Total receivables at December 31, 1996 consist of
$8.2 billion of domestic receivables and $301 million of foreign receivables.
 
 Diversification of Credit Risk--
 
  Concentrations of lending assets of 5% or more at December 31, 1997 and
1996, based on the standard industrial classification of the borrower, are as
follows:
 
<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                 -----------------------------
                                                      1997           1996
                                                 -------------- --------------
                                                 AMOUNT PERCENT AMOUNT PERCENT
                                                 ------ ------- ------ -------
                                                     (DOLLARS IN MILLIONS)
      <S>                                        <C>    <C>     <C>    <C>
      General industrial machines...............  $637      6%   $500      6%
      Food, grocery and other miscellaneous
       retail...................................   603      6     669      8
      Business services.........................   556      5     435      5
      Department and general merchandise retail
       stores...................................   511      5     987     12
</TABLE>
 
                                      58
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The general industrial machines classification is distributed among
machinery used for many different industrial applications. The majority of
lending assets in the food, grocery and miscellaneous retail category are
revolving and term facilities with borrowers primarily in the business of
manufacturing and retailing of food products. Business services is primarily
comprised of computer and data processing services, credit reporting and
collection, and miscellaneous business services. The department and general
merchandise retail stores category is primarily comprised of factored accounts
receivable which represent short-term trade receivables from numerous
customers.
 
 Contractual Maturity of Loan Receivables--
 
  The contractual maturities of the Company's receivables at December 31,
1997, which are presented in the table below, should not be regarded as a
forecast of cash flows (in millions):
 
<TABLE>
<CAPTION>
                                                                AFTER
                                  1998   1999   2000  2001 2002  2002   TOTAL
                                 ------ ------ ------ ---- ---- ------ -------
   <S>                           <C>    <C>    <C>    <C>  <C>  <C>    <C>
   Commercial loans............. $  677 $  650 $  571 $494 $621 $1,258 $ 4,271
   Real estate loans............    375    179    158  205  100  1,221   2,238
   Factored accounts
    receivable..................  2,223    --     --   --   --     --    2,223
   Equipment loans and leases...    504    398    321  266  171    330   1,990
                                 ------ ------ ------ ---- ---- ------ -------
     Total...................... $3,779 $1,227 $1,050 $965 $892 $2,809 $10,722
                                 ====== ====== ====== ==== ==== ====== =======
</TABLE>
 
  Commercial loans consist principally of asset based and corporate finance
receivables. Asset based receivables are collateralized by receivables,
inventory, or property, plant and equipment owned by the borrowers. Real
estate loans are principally collateralized by first mortgages on commercial
and residential real estate. Corporate finance receivables are predominantly
collateralized by senior liens on the borrower's assets. Factored accounts
receivable are purchased from clients and the Company provides credit and
collection services in return for a commission. Equipment loans and leases are
secured by the underlying equipment and the Company may have at least partial
recourse to the equipment vendor. Of the loans maturing after 1998, $2.7
billion have fixed interest rates and $4.2 billion have floating interest
rates.
 
 Impaired Receivables, Repossessed Assets, and Troubled Debt Restructurings--
 
  The Company does not recognize interest and fee income on impaired
receivables classified as nonearning and on repossessed assets, which are set
forth in the following table:
 
<TABLE>
<CAPTION>
                                                                     DECEMBER
                                                                        31,
                                                                     ----------
                                                                     1997  1996
                                                                     ----  ----
                                                                     (DOLLARS
                                                                        IN
                                                                     MILLIONS)
      <S>                                                            <C>   <C>
      Impaired receivables.......................................... $141  $264
      Repossessed assets............................................   14    14
                                                                     ----  ----
        Total nonearning assets..................................... $155  $278
                                                                     ====  ====
      Ratio of total nonearning assets to total lending assets......  1.4%  3.3%
      Ratio of allowance for losses to nonearning assets............  168    81
</TABLE>
 
  Nonearning assets include $19 million and $25 million in 1997 and 1996,
respectively, for consolidated international subsidiaries.
 
 
                                      59
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  The average investment in impaired receivables was $236 million and $283
million for the years ended December 31, 1997 and 1996 respectively.
 
  The Company had $13 million and $14 million of loans that are considered
troubled debt restructurings at December 31, 1997 and December 31, 1996,
respectively. The following table indicates the effect on income if interest
on nonearning impaired receivables and troubled debt restructurings
outstanding at year-end had been recognized at original contractual rates
during the year:
 
<TABLE>
<CAPTION>
                                 FOR THE YEAR ENDED      FOR THE YEAR ENDED
                                    DECEMBER 31,            DECEMBER 31,
                                ----------------------  ----------------------
                                 1997    1996    1995    1997    1996    1995
                                ------  ------  ------  ------  ------  ------
                                      DOMESTIC                FOREIGN
                                ----------------------  ----------------------
                                              (IN MILLIONS)
      <S>                       <C>     <C>     <C>     <C>     <C>     <C>
      Interest income which
       would have been
       recorded................ $   16  $   40  $   40  $   12  $    6  $    3
      Interest income
       recorded................      3      13      20       1       1       1
                                ------  ------  ------  ------  ------  ------
      Effect on interest
       income.................. $   13  $   27  $   20  $   11  $    5  $    2
                                ======  ======  ======  ======  ======  ======
</TABLE>
 
 Loan Modifications--
 
  The Company had $13 million of receivables at December 31, 1997 that were
restructured at a market rate of interest and written down from the original
loan balance. The recorded investment of these receivables is expected to be
fully recoverable. Interest income of approximately $1 million has been
recorded on these receivables under modified terms, along with approximately
$1 million of cash interest collections during 1997. At December 31, 1997, the
Company was not committed to lend significant additional funds under the
restructured agreements.
 
 Allowance for Losses--
 
  The changes in the allowance for losses of receivables and repossessed
assets were as follows:
 
<TABLE>
<CAPTION>
                                                                FOR THE YEAR
                                                               ENDED DECEMBER
                                                                    31,
                                                               ----------------
                                                               1997  1996  1995
                                                               ----  ----  ----
                                                               (IN MILLIONS)
      <S>                                                      <C>   <C>   <C>
      Balance at the beginning of the year.................... $225  $231  $237
        Provision for losses..................................  164   103   223
        Writedowns............................................ (169) (163) (259)
        Recoveries............................................   23    55    28
        Factofrance consolidation.............................   18   --    --
        Transfers and other...................................  --     (1)    2
                                                               ----  ----  ----
      Balance at the end of the year.......................... $261  $225  $231
                                                               ====  ====  ====
</TABLE>
 
  A valuation allowance for repossessed assets of $2 million at December 31,
1995 is included in other assets on the balance sheet. Writedowns occurring at
the time of repossession are considered writedowns of receivables.
 
                                      60
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Impaired receivables with identified reserve requirements were $62 million
and $176 million at December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
                                                                   DECEMBER
                                                                      31,
                                                                   ----------
                                                                   1997  1996
                                                                   ----  ----
                                                                   (DOLLARS
                                                                      IN
                                                                   MILLIONS)
      <S>                                                          <C>   <C>
      Identified reserve requirements for impaired receivables.... $ 27  $ 57
      Additional allowance for losses of receivables..............  234   168
                                                                   ----  ----
        Total allowance for losses of receivables................. $261  $225
                                                                   ====  ====
      Ratio of total allowance for losses of receivables to
       nonearning impaired receivables............................  185%   85%
                                                                   ====  ====
</TABLE>
 
  The Company maintains an allowance for losses of receivables based upon
management's estimate of future possible losses in the portfolio of
receivables. Management's estimate is based upon current and forecasted
economic conditions, previous loss history and knowledge of clients' financial
positions and values of underlying collateral. Changes in these estimates
could result in an increase or decrease in the reserve maintained.
 
4. INVESTMENTS AND OTHER ASSETS
 
 Investments in International Joint Ventures--
 
  The following table sets forth a summary of the financial results of the
international joint ventures on a combined basis:
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                                 ---------------
                                                                  1997    1996
                                                                 ------- -------
                                                                   (DOLLARS IN
                                                                    MILLIONS)
      <S>                                                        <C>     <C>
      Total receivables......................................... $ 3,356 $ 5,161
      Factoring volume..........................................  18,154  29,501
      Net income................................................      55      90
</TABLE>
 
  The following table shows the investment in international joint ventures by
geographic region:
 
<TABLE>
<CAPTION>
                                                                       DECEMBER
                                                                          31,
                                                                       ---------
                                                                       1997 1996
                                                                       ---- ----
                                                                       (DOLLARS
                                                                          IN
                                                                       MILLIONS)
      <S>                                                              <C>  <C>
      Europe.......................................................... $160 $238
      Latin America...................................................   22   20
      Asia-Pacific....................................................   16   14
                                                                       ---- ----
        Total......................................................... $198 $272
                                                                       ==== ====
</TABLE>
 
  The decrease in total receivables, factoring volume, net income and
investment in European joint ventures is due to the consolidation of
Factofrance.
 
  The Company owns interests of from 40% to 50% of these joint ventures. The
Company's largest investment in international joint ventures is NMB-Heller
Holding N.V., which accounts for 54% of the total investments in international
joint ventures. NMB-Heller Holding N.V. operates finance companies primarily
located in the Netherlands, Germany and the United Kingdom. NMB-Heller Holding
N.V. had total assets of $2.3 billion and $1.8 billion, total liabilities of
$2.1 billion and $1.6 billion and
 
                                      61
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
total stockholders' equity of $0.2 billion at December 31, 1997 and 1996. NMB-
Heller Holding N.V. had revenues of $151 million and $157 million, operating
expenses of $42 million and $43 million and net income of $35 million and $36
million, for the years ended December 31, 1997 and 1996, respectively.
 
 Other Investments--
 
  The following table sets forth a summary of the major components of
investments (in millions):
 
<TABLE>
<CAPTION>
                                                                      DECEMBER
                                                                         31,
                                                                      ---------
                                                                      1997 1996
                                                                      ---- ----
      <S>                                                             <C>  <C>
      Investments:
        Real estate investments...................................... $268 $205
        Equity interests and investments.............................  205  171
        Available for sale equity securities.........................   15   43
                                                                      ---- ----
          Equity and real estate investments......................... $488 $419
                                                                      ==== ====
        Available for sale debt securities........................... $311 $223
        Trading securities...........................................  --    28
                                                                      ---- ----
          Debt securities............................................ $311 $251
                                                                      ==== ====
        Equipment on lease........................................... $195 $135
                                                                      ==== ====
</TABLE>
 
  Real estate investments are acquisition, development and construction
investment transactions. At December 31, 1997, the Company held investments in
176 projects with balances ranging up to $10 million.
 
  Equity interests and investments principally include common and preferred
stock and investments in limited partnerships and warrants.
 
  The available for sale equity securities are principally comprised of shares
of common stock. Net unrealized holding gains on these securities were $7
million at December 31, 1997, net unrealized holding gains were $28 million at
December 31, 1996 and net unrealized holding losses were $2 million at
December 31, 1995. These amounts are recorded in stockholders' equity on a net
of tax basis.
 
  The available for sale debt securities consist of purchased investments in
debt securities which mature on various dates through 2015 as well as $79
million of subordinated securities retained in connection with the 1994 and
1995 securitizations of certain receivables on mobile home parks, self storage
facilities and limited service hotels. The subordinated securities mature on
various dates through 2005 based on the related stated maturity dates of the
underlying receivables. The Company has established a reserve of $2 million
for possible losses related to the subordinated securities, which is included
in other payables and accruals on the consolidated balance sheet. No losses
have been realized on these securities to date. Net unrealized holding gains
on total available for sale debt securities were $6 million at December 31,
1997 and net unrealized holding losses were $7 million at December 31, 1996
and 1995. These amounts are recorded in stockholder's equity on a net of tax
basis. Cash and cash equivalents includes $3 million of short-term debt
securities at December 31, 1997, which are available for sale.
 
  The Company had realized gains from sales of total investment securities of
$119 million, $106 million and $133 million during the year ended December 31,
1997, 1996 and 1995, respectively, and
 
                                      62
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
had realized losses and writedowns totaling $50 million, $103 million and $59
million for 1997, 1996 and 1995, respectively. Proceeds from the sale of
equity investments may be subject to normal post-closing adjustments, the
impact of which is estimated at the time of closing.
 
  Included in cash and cash equivalents at December 31, 1997 and 1996,
respectively, are $664 million and $198 million of short-term debt securities
that are held to maturity.
 
  In 1996, the Company held certain dollar denominated investments in debt and
equity securities in Brazil which were classified as trading securities. Net
gains of $3 million, $3 million and $4 million related to these investments
were recorded in income for the years ended December 31, 1997, 1996 and 1995,
respectively. These investments were liquidated during 1997.
 
  Equipment on lease is comprised of aircraft and related equipment.
Noncancellable future minimum rental receipts under the leases are $24
million, $21 million, $21 million, $16 million and $9 million for 1998 through
2002. All equipment was under lease as of December 31, 1997.
 
 Other Assets--
 
  The following table sets forth a summary of the major components of other
assets:
 
<TABLE>   
<CAPTION>
                                                                      DECEMBER
                                                                         31,
                                                                      ---------
                                                                      1997 1996
                                                                      ---- ----
                                                                         (IN
                                                                      MILLIONS)
      <S>                                                             <C>  <C>
      Other Assets:
        Repossessed assets..........................................  $ 14 $ 14
        Deferred income tax benefits, net of allowance of $8 and $16
         in 1997 and 1996, respectively.............................   163  127
        Goodwill....................................................    82   13
        Non-Compete Agreement.......................................    15  --
        Prepaid expenses and other assets...........................    76   56
        Net advances to affiliates..................................   --    20
        Furniture, fixtures and equipment...........................    37   19
                                                                      ---- ----
          Total other assets........................................  $387 $249
                                                                      ==== ====
</TABLE>    
 
  Noncash investing activities which occurred during the period ended December
31, 1997 include $17 million of receivables which were classified as
repossessed assets. During 1996, $15 million of receivables were classified as
repossessed assets. See Note 14 for additional information on deferred income
tax benefits.
 
5. SENIOR DEBT
 
  Commercial paper and short-term borrowings--The Company uses commercial
paper to finance its domestic operations and short-term borrowings are used by
the consolidated international subsidiaries to finance international
operations. Total commercial paper borrowings represent 27% of total debt at
December 31, 1997. Combined commercial paper and short-term borrowings
represent 36% of total debt at December 31, 1997.
 
                                      63
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following table is a summary of the Company's commercial paper and
short-term borrowings as of December 31, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                                  -------------
                                                                   1997   1996
                                                                  ------ ------
                                                                  (IN MILLIONS)
      <S>                                                         <C>    <C>
      Domestic commercial paper.................................. $2,279 $2,576
      Factofrance commercial paper...............................    281    --
      Factofrance short-term borrowings..........................    685    --
      Other consolidated subsidiaries short-term borrowings......    187    169
                                                                  ------ ------
        Commercial paper and short-term borrowings............... $3,432 $2,745
                                                                  ====== ======
</TABLE>
 
  The table below sets forth information concerning the Company's domestic
commercial paper borrowings. The average interest rates and average borrowings
are computed based on the average daily balances during the year. The Company
issues commercial paper with maturities ranging up to 270 days.
<TABLE>
<CAPTION>
                                                        1997    1996    1995
                                                       ------  ------  ------
                                                           (DOLLARS IN
                                                            MILLIONS)
      <S>                                              <C>     <C>     <C>
      Commercial Paper--domestic:
        Average interest rate--
          During the year.............................   5.67%   5.50%   5.96%
          During the year, including the effect of
           commitment fees............................   5.78    5.65    6.10
          At year-end, including the effect of
           commitment fees............................   5.99    5.63    5.96
        Average borrowings............................ $2,917  $2,367  $2,483
        Maximum month-end borrowings..................  3,264   2,613   2,860
        End of period borrowings......................  2,279   2,576   2,067
</TABLE>
 
  Factofrance commercial paper issued as of December 31, 1997 had an average
interest rate of 3.46% and its short-term borrowings at December 31, 1997 had
an average interest rate of 3.72%. Factofrance uses primarily short-term debt
and commercial paper to fund its assets which are short-term in nature.
 
  Available credit and asset sale facilities--At December 31, 1997, the
Company had total committed credit and asset sale facilities of $4.0 billion,
and available credit and asset sale facilities of $3.5 billion. This includes
$267 million of additional alternative liquidity which is available by
discounting eligible French receivables with the French Central Bank since
Factofrance is a registered financial institution in France. In addition, the
Company has $36 million available credit under two foreign currency revolving
credit agreements.
   
  The Company has a bank credit facility which provides $3.0 billion of
liquidity support. This bank credit facility is comprised of two equal
facilities, a 364-day facility which has been renewed and will expire on April
6, 1999, and a 5-year facility expiring April 8, 2002. The one-year credit
facility includes a term loan option which expires one year after the option
exercise date. The terms of the revised bank credit facilities require the
Company to maintain stockholders' equity of $900 million until March 31, 1998
and $1 billion thereafter. Under the terms of the debt covenants of the
agreement, the Company could have borrowed an additional $6.1 billion of debt
at December 31, 1997.     
 
                                      64
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The Company has a factored accounts receivable sale facility which allows
the Company to sell an undivided interest of up to $550 million in a
designated pool of its factored accounts receivable to five bank-sponsored
conduits. The Company had sold approximately $500 million of receivables under
this facility as of December 31, 1997. The underlying liquidity support for
the conduits is provided by unaffiliated entities. One of the conduits has an
operating agreement with Fuji Bank.
 
  During December 1997, the Company established a $400 million secured
committed warehouse line, available to finance fixed rate commercial mortgage
loans which expires in June 1998. The Company drew down $200 million under
this facility which is included as part of the Company's domestic commercial
paper borrowings above. This amount was repaid during January, 1998.
 
  Notes and debentures--The scheduled maturities of debt outstanding at
December 31, 1997, other than commercial paper and short-term borrowings and
excluding the unamortized premium of $2 million, are as follows:
 
<TABLE>
<CAPTION>
                                     SCHEDULED MATURITIES AT DECEMBER 31,
                                 ---------------------------------------------
                                                                  AFTER
                                  1998   1999   2000  2001  2002  2002  TOTAL
                                 ------ ------ ------ ----- ----- ----- ------
                                             (DOLLARS IN MILLIONS)
   <S>                           <C>    <C>    <C>    <C>   <C>   <C>   <C>
   Various fixed rate notes and
    debentures.................. $1,050 $1,052 $  920 $ 213 $ 516 $ 200 $3,951
     Fixed weighted average
      rate......................  8.17%  7.28%  5.22% 6.54% 6.62% 6.98%  6.90%
   Various floating rate notes
    and debentures.............. $  952 $  860 $  152 $  25 $  45 $  17 $2,051
     Floating weighted average
      rate......................  4.84%  5.98%  6.08% 6.11% 6.11% 3.86%  5.44%
   Total notes and debentures... $2,002 $1,912 $1,072 $ 238 $ 561 $ 217 $6,002
</TABLE>
 
  Notes redeemable solely at the option of the Company prior to the final
maturity date are reflected in the table above as maturing on their
contractual maturity date. During the year, the Company issued $200 million of
fixed rate notes due August 15, 2009, which are callable or putable on August
15, 1999. These notes are reflected in the table above as maturing after 2002.
 
  The Company's various fixed and floating rate notes and debentures are
denominated in U.S. dollars, Japanese yen and French francs. In order to fix
the exchange rate of Japanese yen to U.S. dollars on the yen denominated debt,
the Company has entered into cross currency interest rate swap agreements. In
order to convert certain of the Company's fixed rate debt to floating rate
debt and vice-versa, the Company has entered into interest rate swap
agreements. The following table provides the year-end weighted average
interest rate of the U.S. dollar and Japanese yen denominated debt before and
after the effect of the swap agreements. The Company has $31 million of French
franc denominated fixed rate debt and $17 million of French franc denominated
variable rate debt which support French franc denominated assets.
 
                                      65
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
<TABLE>
<CAPTION>
                                            WEIGHTED AVERAGE INTEREST RATE
                            ---------------------------------------------------------------
                                        BEFORE AFTER              BEFORE AFTER
                                        EFFECT EFFECT  VARIABLE   EFFECT EFFECT
                            FIXED DEBT    OF     OF      DEBT       OF     OF   TOTAL DEBT
                            OUTSTANDING  SWAP   SWAP  OUTSTANDING  SWAP   SWAP  OUTSTANDING
                            ----------- ------ ------ ----------- ------ ------ -----------
                                                 (DOLLARS IN MILLIONS)
   <S>                      <C>         <C>    <C>    <C>         <C>    <C>    <C>
   1997:
   United States dollar....   $3,614     7.22%  6.72%   $1,834     5.94%  5.95%   $5,448
   Japanese yen............      306     3.26   6.10       200     1.07   6.59       506
                              ------                    ------                    ------
     Total.................   $3,920     6.91%  6.67%   $2,034     5.46%  6.01%   $5,954
                              ======                    ======                    ======
   1996:
   United States dollar....   $2,453     7.68%  6.76%   $1,531     5.70%  5.71%   $3,984
   Japanese yen............      452     3.43   5.87       328     0.87   6.12       780
                              ------                    ------                    ------
     Total.................   $2,905     7.02%  6.62%   $1,859     4.85%  5.78%   $4,764
                              ======                    ======                    ======
</TABLE>
 
  The contractual interest rates for the U.S. dollar denominated fixed rate
debt range between 5.63% and 9.63% at December 31, 1997 and 1996. The
contractual rates on the U.S. dollar denominated floating rate debt are based
primarily on indices such as the Constant Maturity Treasury Index less a range
of .12% to .40%, the Federal Funds rate plus .40%, the three-month Treasury
Bill rate plus .46%, the one-month London Inter-Bank Offered Rate ("LIBOR")
plus .07% to .14%, three-month LIBOR plus .02% to .75%, six-month LIBOR plus
 .25% or the Prime rate less 2.59% to 2.80%.
 
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
 
  The Company is a party to several types of agreements involving financial
instruments with off-balance sheet risk. These instruments are used to meet
the financing needs of borrowers and to manage the Company's own exposure to
interest rate and currency exchange rate fluctuations. These instruments
principally include interest rate swap agreements, forward currency exchange
contracts, purchased options, loan commitments, letters of credit and
guarantees.
 
  Derivative financial instruments used for risk management purposes--The
Company utilizes derivatives as an integral part of its asset/liability
management program to reduce its overall level of financial risk. These
derivatives, particularly interest rate swap agreements, are used to lower
funding costs, diversify sources of funding or alter interest rate exposure
arising from mismatches between assets and liabilities. The Company's
derivative instruments are entirely related to accomplishing these risk
management objectives, which arise from normal business operations. The
Company is not an interest rate swap dealer nor is it a trader in derivative
securities, and it has not used speculative derivative products for the
purpose of generating earnings from changes in market conditions.
 
  Before entering into a derivative agreement, management determines that an
inverse correlation exists between the value of the hedged item and the value
of the derivative. At the inception of each agreement, management designates
the derivative to specific assets, pools of assets or liabilities. The risk
that a derivative will become an ineffective hedge is generally limited to the
possibility that an asset or liability being hedged will prepay before the
related derivative expires. Accordingly, after inception of a hedge,
asset/liability managers monitor its effectiveness through an ongoing review
of the amounts and maturities of assets, liabilities and swap positions. This
information is reported to the Company's Financial Risk Management Committee
("FRMC") whose members include the Company's Chairman, Chief Financial Officer
and Treasurer. The FRMC determines the direction the Company will take with
respect to its asset/liability position. The asset/liability position of the
Company and the related activities of the FRMC are reported regularly to the
Executive Committee of the Board of Directors and to the Board of Directors.
 
                                      66
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following table summarizes the notional amounts of the Company's
interest rate swap agreements, foreign exchange contracts, purchased options
and interest rate cap agreements as of December 31, 1997 and 1996. The credit
risk associated with these instruments is limited to amounts earned but not
collected and to any additional amounts which may be incurred to replace the
instrument under then current market conditions. These amounts will increase
or decrease during the life of the instruments as interest rates and foreign
exchange rates fluctuate, and are substantially less than the notional amounts
of these agreements. The Company manages this risk by establishing minimum
credit ratings for each counterparty and by limiting the exposure to
individual counterparties as measured by the total notional amount and the
current replacement cost of existing agreements. The Company has not
experienced nonperformance by any counterparty related to its derivative
financial instruments.
 
<TABLE>
<CAPTION>
                                                                   CONTRACT OR
                                                                    NOTIONAL
                                                                     AMOUNT
                                                                  -------------
                                                                   1997   1996
                                                                  ------ ------
                                                                  (IN MILLIONS)
      <S>                                                         <C>    <C>
      Interest rate swap agreements.............................. $4,553 $2,634
      Cross currency interest rate swap agreements...............    612    780
      Basis swap agreements......................................  1,470  1,255
      Spot and forward currency exchange contracts...............    623    262
      Purchased options..........................................     74     42
      Interest rate cap agreements...............................    --       2
</TABLE>
 
  Interest rate swaps are primarily used to convert fixed rate financings to
variable rate debt. Less frequently, when the issuance of debt denominated in
a foreign currency is deemed more cost effective, cross currency interest rate
swaps are employed to convert foreign currency denominated debt to U.S. dollar
denominated debt and U.S. based indices. The Company also uses swap agreements
to alter the characteristics of specific asset pools to more closely match the
interest terms of the underlying financing. These agreements enhance the
correlation of the interest rate and currency characteristics of the Company's
assets and liabilities and thereby mitigate its exposure to interest rate
volatility. Basis swap agreements involve the exchange of two different
floating rate interest payment obligations and are used to manage the risk
between different floating rate indices. The Company has entered into $160
million of interest rate swaps effective during 1998 which have the effect of
converting fixed rate obligations to a variable rate. The amount of these
interest rate swaps is not included in the table above.
 
  Forwards are contracts for the delivery of an item in which the buyer agrees
to take delivery of an instrument or currency at a specified price and future
date. To minimize the effect of exchange rate movements in the currencies of
foreign countries, in which certain of its subsidiaries and investments are
located, the Company will periodically enter into forward currency exchange
contracts or purchase options. These financial instruments serve as hedges of
its foreign investment in international subsidiaries and joint ventures or
effectively hedge the translation of the related foreign currency income. The
Company also periodically enters into forward contracts to hedge receivables
denominated in foreign currencies or may purchase foreign currencies in the
spot market to settle a foreign currency denominated liability.
 
  Commitments, letters of credit and guarantees--The Company generally enters
into various commitments, letters of credit and guarantees in response to the
financing needs of its customers. As many of the agreements are expected to
expire unused, the total commitment amount does not necessarily represent
future cash requirements. The credit risk involved in issuing these
instruments is
 
                                      67
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
essentially the same as that involved in extending loans to borrowers and the
credit quality and collateral policies for controlling this risk are similar
to those involved in the Company's normal lending transactions. The
contractual amount of the Company's commitments, letters of credit and
guarantees are shown below:
 
<TABLE>
<CAPTION>
                                                                    CONTRACT
                                                                     AMOUNT
                                                                  -------------
                                                                   1997   1996
                                                                  ------ ------
                                                                  (IN MILLIONS)
      <S>                                                         <C>    <C>
      Loan commitments........................................... $2,154 $1,959
      Letters of credit and financial guarantees.................    754    561
      Factoring credit guarantees................................    285    286
      Investment commitments.....................................    130    106
</TABLE>
 
  Commitments to fund new and existing borrowers generally have fixed
expiration dates and termination clauses and typically require payment of a
fee. Letters of credit and financial guarantees are conditional commitments
issued by the Company to guarantee the performance of a borrower or an
affiliate to a third party. At December 31, 1997, the contractual amount of
guarantees includes $7 million related to affiliates. For factoring credit
guarantees, the Company receives a fee for guaranteeing the collectibility of
certain factoring clients' accounts receivable. Under this arrangement,
clients generally retain the responsibility for collection and bookkeeping.
Losses related to these services historically have not been significant.
 
7. LEGAL PROCEEDINGS
 
  The Company is party to a number of legal proceedings as plaintiff and
defendant, all arising in the ordinary course of its business. Although the
ultimate amount for which the Company may be held liable, if any, is not
ascertainable, the Company believes that the amounts, if any, which may
ultimately be funded or paid with respect to these matters will not have a
material adverse effect on the financial condition or results of operations of
the Company.
 
8. RENTAL COMMITMENTS
 
  The Company and its consolidated subsidiaries have minimum rental
commitments under noncancellable operating leases at December 31, 1997, as
follows (in millions):
 
<TABLE>
             <S>                                   <C>
             1998................................. $17
             1999.................................  15
             2000.................................  14
             2001.................................  13
             2002.................................  12
             Thereafter...........................  20
                                                   ---
                                                   $91
                                                   ===
</TABLE>
 
  The total rent expense, net of rental income from subleases, was $30
million, $23 million and $18 million for the years ended December 31, 1997,
1996 and 1995, respectively.
 
9. PREFERRED STOCK
 
  Cumulative Perpetual Senior Preferred Stock ($.01 Par Value; stated value,
$25; 8.125%; 5,000,000 shares authorized and outstanding)--The Company's
Cumulative Perpetual Senior
 
                                      68
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
Preferred Stock, Series A ("Series A Preferred Stock") is not redeemable prior
to September 22, 2000. On or after that date, the Perpetual Preferred Stock
will be redeemable at the option of the Company, in whole or in part, at a
redemption price of $25 per share, plus accrued and unpaid dividends. The
Series A Preferred Stock has an annual dividend rate of 8.125%. Dividends are
cumulative and payable quarterly. The Series A Preferred Stock ranks senior
with respect to payment of dividends and liquidation to other preferred stock
of the Company that is not designated as Cumulative Senior Perpetual Preferred
Stock.
 
  Noncumulative Perpetual Senior Preferred Stock ($.01 Par Value; stated
value, $100; 6.687%; 1,500,000 shares authorized and outstanding)--In June,
1997, the Company issued 1,500,000 shares of 6.687% Noncumulative Perpetual
Senior Preferred Stock, Series B ("Series B Preferred Stock"), at $100 per
share and received proceeds of $150 million less underwriting costs of two
percent. The shares were initially sold to Lehman Brothers, Inc., Chase
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, each
of whom agreed to offer or sell such shares only to qualified institutional
buyers in reliance on Rule 144A under the Securities Act of 1933 and to a
limited number of institutional accredited investors pursuant to Regulation D
under the Securities Act. Effective January 1998, the Company exchanged 6.687%
Fixed Rate Noncumulative Perpetual Senior Preferred Stock, Series C ("Series C
Preferred Stock") for all formerly outstanding Series B Preferred Stock.
Series C Preferred Stock remains outstanding and is registered with the
Securities and Exchange Commission. The Series C Preferred Stock is not
redeemable prior to August 15, 2007. On or after such date, the Series C
Preferred Stock will be redeemable at the option of the Company, in whole or
in part, at a redemption price of $100 per share, plus any accrued and unpaid
dividends.
 
  Conversion of Convertible Preferred Stock--In May 1997, HIC converted all of
its shares of Cumulative Convertible Preferred Stock, Series D ("Series D
Preferred Stock"), no par value, 1/2% under prime, into common stock of the
Company. No shares of the Series D Preferred Stock remain outstanding. The
conversion was accounted for as a stock dividend and therefore has been
retroactively reflected in the consolidated financial statements. Also all
dividends paid on the Series D Preferred Stock have been retroactively
reclassified to common dividends.
 
  Redeemable Preferred Stock--The Company has authorized the issuance of
100,000 shares of a series of preferred stock designated NW Preferred Stock,
Class B (No Par Value) ("NW Preferred Stock"), pursuant to the Keep Well
Agreement between the Company and Fuji Bank, dated as of April 23, 1983 and as
subsequently amended (the "Keep Well Agreement"), wherein, among other things,
Fuji Bank has agreed to purchase NW Preferred Stock in an amount required to
maintain the Company's stockholders' equity at $500 million. The Company's
stockholders' equity was $1,678 million at December 31, 1997. If and when
issued, dividends will be paid quarterly on NW Preferred Stock at a rate per
annum equal to 1% over the three-month LIBOR. Subject to certain conditions,
NW Preferred Stock will be redeemable at the option of the holder within a
specified period of time after the end of a calendar quarter in an aggregate
amount not greater than the excess of the stockholders' equity of the Company
as of the end of such calendar quarter over $500 million and at a redemption
price equal to the price paid for such stock plus accumulated dividends. No
purchases of NW Preferred Stock have been made by Fuji Bank under the Keep
Well Agreement.
 
10. DIVIDEND RESTRICTIONS AND PAYMENTS
 
  Dividends may legally be paid only out of the Company's surplus, as
determined under the provisions of the Delaware General Corporation Law, or
net profits for either the current or preceding fiscal year, or both. In
addition, the Company is prohibited from paying dividends on Common Stock
 
                                      69
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
unless all current and full cumulative dividends on the Series A Preferred
Stock and the current dividends on the Series C Preferred Stock have been
paid. In addition, the Company is prohibited from paying dividends on any
other preferred stock that ranks, with respect to the payment of dividends,
equal or junior to the Series A Preferred Stock or the Series C Preferred
Stock, unless all current and full cumulative dividends on the Series A
Preferred Stock and Series C Preferred Stock have been paid.
 
  The Company declared and paid dividends on the Series A Preferred Stock of
$10 million in 1997 and 1996 and declared and paid dividends of $4 million on
the Series B Preferred Stock during 1997. Common Stock dividends paid in 1997
consisted of $43 million paid in cash and $26 million paid in the form of
International Group Preferred Stock. The Company paid cash dividends of $58
million in 1996.
 
11. FEES AND OTHER INCOME
   
  The following table summarizes the Company's fees and other income for the
years ended December 31, 1997, 1996 and 1995:     
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                                                  DECEMBER 31,
                                                                 --------------
                                                                 1997 1996 1995
                                                                 ---- ---- ----
                                                                 (IN MILLIONS)
      <S>                                                        <C>  <C>  <C>
      Fee income and other...................................... $ 84 $52  $ 49
      Net investment gains......................................   69   3    74
      Participation income......................................   27  24    24
      Gains on securitization of receivables....................   26 --      1
                                                                 ---- ---  ----
        Total................................................... $206 $79  $148
                                                                 ==== ===  ====
</TABLE>
 
  Fee income and other includes servicing income, late fees, prepayment fees,
other miscellaneous fees and equipment residual gains.
 
12. OPERATING EXPENSES
 
  The following table sets forth a summary of the major components of
operating expenses:
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                                                  DECEMBER 31,
                                                                 --------------
                                                                 1997 1996 1995
                                                                 ---- ---- ----
                                                                 (IN MILLIONS)
      <S>                                                        <C>  <C>  <C>
      Salaries and other compensation........................... $214 $154 $135
      Space costs...............................................   30   23   18
      Legal and consulting costs................................   26   12    9
      Equipment costs...........................................   17   12   13
      Travel and entertainment..................................   15   12   10
      Business acquisition costs................................   15    9    6
      Goodwill and noncompete agreement amortization............    6    1    1
      Other.....................................................   34   24   24
                                                                 ---- ---- ----
        Total................................................... $357 $247 $216
                                                                 ==== ==== ====
</TABLE>
 
  Of the increase in operating expenses in 1997, $59 million related to the
consolidation of Factofrance in April, 1997.
 
                                      70
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
13. BENEFIT PLANS AND OTHER POST RETIREMENT BENEFITS
 
  The Company has various incentive compensation plans and a savings and
profit-sharing plan which provide for annual contributions to eligible
employees based on the Company's achievement of certain financial objectives
and employee achievement of certain objectives.
 
  The Company has a noncontributory defined benefit pension plan covering
substantially all of its domestic employees and a supplemental retirement plan
in which certain employees participate. The Company's policy is to fund, at a
minimum, pension contributions as required by the Employee Retirement Income
Security Act of 1974. Benefits under the defined benefit and supplemental
retirement plans are based on an employee's years of service and average
earnings for the five highest consecutive years of compensation occurring
during the last ten years before retirement. The assets of the defined benefit
plan are held in a collective investment fund of the Multiple Fund Investment
Trust for Employee Benefit Plans. The assets are managed by American National
Bank Investment Management and Trust Company.
 
  The following table summarizes the funding status of the defined benefit and
supplemental retirement plans at the end of each year and identifies the
assumptions used to determine the projected benefit obligation.
 
<TABLE>
<CAPTION>
                                                              SUPPLEMENTAL
                                                               RETIREMENT
                                     DEFINED BENEFIT PLAN         PLAN
                                     ----------------------  ----------------
                                          YEAR ENDED           YEAR ENDED
                                         DECEMBER 31,         DECEMBER 31,
                                     ----------------------  ----------------
                                      1997    1996    1995   1997  1996  1995
                                     ------  ------  ------  ----  ----  ----
                                            (DOLLARS IN MILLIONS)
   <S>                               <C>     <C>     <C>     <C>   <C>   <C>
   Actuarial present value of
    benefit obligations
     Vested benefit obligation...... $   26  $   21  $   17  $  1  $  2  $  2
     Nonvested benefit obligation...      4       3       3   --    --    --
                                     ------  ------  ------  ----  ----  ----
   Accumulated benefit obligation...     30      24      20     1     2     2
   Effect of projecting future
    salary increases on past
    service.........................     17      14      12     3     2     2
                                     ------  ------  ------  ----  ----  ----
   Projected benefit obligation.....     47      38      32     4     4     4
   Plan assets at market value......     42      37      34   --    --    --
                                     ------  ------  ------  ----  ----  ----
   Plan assets in excess of (less
    than) projected benefit
    obligation...................... $   (5) $   (1) $    2  $ (4) $ (4) $ (4)
                                     ======  ======  ======  ====  ====  ====
   Assumptions:
   Discount rate....................   7.25%   7.75%   7.25% 7.25% 7.75% 7.25%
   Expected return on assets........   9.00    9.00    9.00   N/A   N/A   N/A
   Rate of salary increases.........   6.00    6.00    6.00  6.00  6.00  6.00
</TABLE>
 
  Components of net pension cost for the defined benefit plan for the
following periods are:
 
<TABLE>
<CAPTION>
                                                    DEFINED BENEFIT PLAN
                                                    ------------------------
                                                    YEAR ENDED DECEMBER
                                                            31,
                                                    ------------------------
                                                     1997     1996     1995
                                                    ------   ------   ------
                                                       (IN MILLIONS)
   <S>                                              <C>      <C>      <C>
   Service cost-benefits earned during the year.... $    3   $    3   $    2
   Interest accrued on projected benefit
    obligation.....................................      3        2        2
   Actual return on assets.........................     (6)      (3)      (6)
   Net amortization and deferral...................      2       --        3
                                                    ------   ------   ------
     Net periodic pension cost..................... $    2   $    2   $    1
                                                    ======   ======   ======
</TABLE>
 
                                      71
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The Supplemental Retirement Plan had a net periodic pension cost of
approximately $1 million in the years ended December 31, 1997, 1996 and 1995.
 
  The prepaid pension cost (liability) of the defined benefit and supplemental
retirement plans were as follows:
 
<TABLE>
<CAPTION>
                                                               SUPPLEMENTAL
                                               DEFINED          RETIREMENT
                                             BENEFIT PLAN          PLAN
                                            ----------------  ----------------
                                              YEAR ENDED        YEAR ENDED
                                             DECEMBER 31,      DECEMBER 31,
                                            ----------------  ----------------
                                            1997  1996  1995  1997  1996  1995
                                            ----  ----  ----  ----  ----  ----
                                                    (IN MILLIONS)
   <S>                                      <C>   <C>   <C>   <C>   <C>   <C>
   Plan assets in excess of (less than)
    projected benefit obligation........... $(5)  $(1)  $ 2   $ (4) $ (4) $ (4)
   Unrecognized prior service (asset)
    cost...................................  (1)   (1)   (1)     2     2     1
   Unrecognized net (gain) loss from past
    experience different from that
    assumed................................   4     2     2     (2)   (1)    1
   Unrecognized net asset from initial
    application............................  (1)   (1)   (1)   --    --    --
                                            ---   ---   ---   ----  ----  ----
     Pension (liability) prepaid cost...... $(3)  $(1)  $ 2   $ (4) $ (3) $ (2)
                                            ===   ===   ===   ====  ====  ====
</TABLE>
 
  The Company adjusts the discount and salary rates, as well as the rates of
return on assets, to reflect market conditions at the measurement date.
Changes in these assumptions will impact the amount of the pension expense in
future years. The change in the discount rate at December 31, 1997 is expected
to increase pension expense by $1 million in 1998. The change in the discount
rate at December 31, 1996 decreased 1997 pension expense by $1 million. The
Company maintained the salary rate assumption at 6% at December 31, 1997,
based on the Company's experience.
 
  The Company also provides health care benefits for eligible retired
employees and their eligible dependents. The following table presents the
funded status of the post-retirement benefits other than pensions of active
and retired employees as of December 31, 1997, 1996 and 1995.
 
<TABLE>
<CAPTION>
                                                           POST-RETIREMENT
                                                          HEALTH CARE PLAN
                                                          -------------------
                                                            DECEMBER 31,
                                                          -------------------
                                                          1997   1996   1995
                                                          -----  -----  -----
                                                             (DOLLARS IN
                                                              MILLIONS)
      <S>                                                 <C>    <C>    <C>
      Accumulated postretirement obligation:
        Retirees......................................... $   5  $   4  $   4
        Fully eligible active plan participants..........     2      1      1
        Other active plan participants...................     3      2      2
                                                          -----  -----  -----
          Total unfunded accumulated postretirement
           benefit obligation............................    10      7      7
      Unrecognized net gain (loss) from past experience
       different from that assumed.......................    (1)     1      1
      Unrecognized net asset from initial application....    (5)    (6)    (6)
                                                          -----  -----  -----
          Accrued postretirement benefit cost............ $   4  $   2  $   2
                                                          =====  =====  =====
      Assumptions:
        Discount rate....................................  7.25%  7.75%  7.25%
</TABLE>
 
                                      72
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The Company adjusts the discount, salary and health care cost trend rates to
reflect market conditions at the measurement date. Changes in these
assumptions will impact the amount of the benefit expense in future years. The
accumulated postretirement benefit obligation, under the terms of the amended
healthcare plan, was calculated using relevant actuarial assumptions and
health care cost trend rates projected at annual rates ranging from 9.0% in
1997 to 5.5% in 2004 and thereafter. The effect of a 1.0% annual increase in
these assumed cost trend rates would increase the accumulated postretirement
benefit obligation by $1 million, while annual service and interest cost
components in the aggregate would not be materially affected. The change in
the discount rate at December 31, 1997 had no effect on the 1997 expense and
is expected to increase 1998 expense by less than $1 million. The change in
the discount rate at December 31, 1996 decreased the 1997 expense by less than
$1 million. The unamortized balance of the transition asset was $5 million at
December 31, 1997 and $6 million at December 31, 1996 and 1995. The net
periodic postretirement benefit cost was $1 million for the years ended
December 31, 1997, 1996 and 1995.
 
  The Company has an Executive Deferred Compensation Plan (the "Plan"), a
nonqualified deferred compensation plan, in which certain employees of HIC and
the Company may elect to defer a portion of their annual compensation on a
pre-tax basis. The amount deferred remains an asset of the Company and may be
invested in any of certain mutual funds at the participant's direction.
Payment of amounts deferred are made in a lump sum or in annual installments
over a five, ten or fifteen year period as determined by the participant. Plan
assets were approximately $24 million and $13 million at December 31, 1997 and
1996, respectively. Earnings on plan assets totaled $5 million and $1 million
in 1997 and 1996, respectively, and are included as part of fees and other
income, while the offsetting compensation expense amount is included in
operating expenses.
 
  The Company has long-term incentive plans in which participants receive
performance units that are granted at the beginning of a three year
performance period. The value of a performance unit is based on the three year
average return on equity target for the Company. The total expense related to
the long-term incentive plans was $3 million in 1997 and $3 million in 1996
and $2 million in 1995.
 
14. INCOME TAXES
 
  The provision for income taxes is summarized in the following table:
 
<TABLE>
<CAPTION>
                                                              1997  1996  1995
                                                              ----  ----  ----
                                                              (IN MILLIONS)
      <S>                                                     <C>   <C>   <C>
      Current:
        Federal.............................................. $107  $ 60  $116
        Utilization of investment and foreign tax credits....  (46)  (29)  (22)
                                                              ----  ----  ----
          Net federal........................................   61    31    94
        State................................................    5    (4)    2
        Foreign..............................................   19     4     3
                                                              ----  ----  ----
          Total current......................................   85    31    99
                                                              ----  ----  ----
      Deferred:
        Federal..............................................  (17)   11   (43)
        State................................................   (2)    1    (7)
                                                              ----  ----  ----
          Total deferred.....................................  (19)   12   (50)
                                                              ----  ----  ----
                                                              $ 66  $ 43  $ 49
                                                              ====  ====  ====
</TABLE>
 
  Although the Company files a consolidated U.S. tax return with HIC, the
Company reports income tax expense as if it were a separate taxpayer and
records deferred tax benefits for deductible temporary differences if it is
more likely than not that these benefits will be realized. Included in income
tax expense are amounts relating to the International Group, which files a
separate United States
 
                                      73
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
federal income tax return. United States federal income taxes paid by
International Group amounted to $3 million in 1997 and $5 million in 1996.
 
  Under the terms of the tax allocation agreement between HIC and the Company,
as amended, each company covered by the agreement calculates its current and
deferred income taxes based on its separate company taxable income or loss,
utilizing separate company net operating losses, tax credits, capital losses
and deferred tax assets or liabilities. In accordance with the provisions of
the current tax allocation agreement, net payments of $73 million, $43 million
and $70 million were made to HIC in 1997, 1996 and 1995, respectively.
 
  The reconciliation between the statutory federal income tax provision and
the actual effective tax provision for each of the three years ended December
31 is as follows:
 
<TABLE>
<CAPTION>
                                                             1997  1996  1995
                                                             ----  ----  ----
                                                             (IN MILLIONS)
      <S>                                                    <C>   <C>   <C>
      Tax provision at statutory rate....................... $ 82  $ 64  $ 63
      State and foreign income taxes, net of federal income
       tax effects..........................................   23     8     4
      Income of foreign subsidiaries and joint ventures and
       foreign tax credit utilization.......................  (32)  (13)  (12)
      Net foreign tax rate differential.....................  --    --      4
      Resolution of tax issues..............................   (2)   (7)  (13)
      Other, net............................................   (5)   (9)    3
                                                             ----  ----  ----
                                                             $ 66  $ 43  $ 49
                                                             ====  ====  ====
</TABLE>
 
  The significant components of the deferred tax assets and deferred tax
liabilities at December 31, 1997 and 1996 are shown below:
 
<TABLE>
<CAPTION>
                                                                    DECEMBER
                                                                       31,
                                                                    ----------
                                                                    1997  1996
                                                                    ----  ----
                                                                       (IN
                                                                    MILLIONS)
      <S>                                                           <C>   <C>
      Deferred Tax Assets:
        Allowance for loan losses.................................. $ 97  $ 77
        Repossessed properties.....................................  --      1
        Foreign tax credits........................................    8    16
        Alternative minimum tax credit carryforward................  --      1
        Net operating losses.......................................   41    28
        Equity interests and other investments.....................   22    10
        Terminated swap income.....................................    5    17
        Accrued expenses...........................................   25    18
                                                                    ----  ----
      Gross deferred tax assets....................................  198   168
      Valuation allowance..........................................   (8)  (16)
                                                                    ----  ----
      Gross deferred tax assets, net of valuation allowance........  190   152
      Deferred Tax Liabilities:
        Repossessed properties..................................... $ (6) $--
        Fixed assets and deferred income from lease financing......  (17)  (17)
        Unrealized appreciation of securities available for sale...   (4)   (8)
                                                                    ----  ----
      Gross deferred tax liabilities...............................  (27)  (25)
                                                                    ----  ----
      Net deferred tax asset....................................... $163  $127
                                                                    ====  ====
</TABLE>
 
 
                                      74
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Provision has not been made for United States or additional foreign taxes on
$80 million of undistributed earnings of subsidiaries outside the United
States, as those earnings are intended to be reinvested. Such earnings would
become taxable upon the sale or liquidation of these international operations
or upon the remittance of dividends. Given the availability of foreign tax
credits and various tax planning strategies, management believes any tax
liability which may ultimately be paid on these earnings would be
substantially less than that computed at the statutory federal income tax
rate. Upon remittance, certain foreign countries impose withholding taxes that
are then available, subject to certain limitations, for use as credits against
the Company's U.S. tax liability. The amount of withholding tax that would be
payable upon remittance of the entire amount of undistributed earnings would
be approximately $14 million.
 
  The Company had unused foreign tax credit carryforwards of $8 million and
$16 million at December 31, 1997 and 1996, respectively. Due to substantial
restrictions on the utilization of foreign tax credits imposed by the Tax
Reform Act of 1986, the Company may not be able to utilize a significant
portion of foreign tax credit carryforwards prior to expiration. Accordingly,
the Company has recognized a valuation allowance for the amount of foreign tax
credits recorded at December 31, 1997 and 1996. Consistent with this approach,
the Company reduced income tax expense by $15 million in 1997 representing
utilization of such foreign tax credit carryovers.
 
  The Company has recorded a net deferred tax asset of $163 million as of
December 31, 1997. Although realization is not assured, management believes it
is more likely than not that the deferred tax assets will be realized. The
amount of the deferred tax assets considered realizable, however, could be
reduced if estimates of future taxable income are reduced.
 
15. RELATED PARTIES
 
  Several financial, administrative or other service arrangements exist
between the Company and Fuji Bank, HIC or related affiliates. In management's
opinion, the terms of these arrangements were similar to those the Company
would have been able to obtain in like agreements with unaffiliated entities
in arms-length transactions.
 
  KEEP WELL AGREEMENT WITH FUJI BANK. The Keep Well Agreement provides that if
the Company should lack sufficient cash or credit facilities to meet its
commercial paper obligations, Fuji Bank will lend the Company up to $500
million. That loan would be payable on demand and the proceeds from the loan
could only be used by the Company to meet its commercial paper obligations.
The Keep Well Agreement further provides that Fuji Bank will maintain the
Company's stockholders' equity in an amount equal to $500 million.
Accordingly, if the Company should determine, at the close of any month, that
its stockholders' equity is less than $500 million, then Fuji Bank will
purchase, or cause one of its subsidiaries to purchase, shares of the
Company's NW Preferred Stock in an amount necessary to increase the Company's
stockholders' equity to $500 million. Commitment fees paid by the Company to
Fuji Bank under the Keep Well Agreement amounted to less than $1 million in
1997, 1996 and 1995. Interest on any loans will be charged at the prime rate
of Morgan Guaranty Trust Company of New York plus .25% per annum. No loans or
purchases of NW Preferred Stock have been made by Fuji Bank under this
agreement.
 
  In connection with the issuance of the Series B Preferred Stock (Note 9),
the Company and Fuji Bank amended the termination provisions of the Keep Well
Agreement. The Keep Well Agreement cannot be terminated by either party prior
to December 31, 2002. After December 31, 2002, the Agreement cannot be
terminated by either party unless the Company has received written
certifications
 
                                      75
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
from Moody's Investor Service, Inc. and Standard and Poor's Corporation that
upon such termination, the Series A Preferred Stock will be rated no lower
than "a3" and "A--," respectively and the Series C Preferred Stock will be
rated no lower than "baa1" and "BBB" respectively. Similarly, after December
31, 2002, the agreement may only be terminated if the Company's senior debt
ratings were unchanged as a result of the termination of the Agreement. After
December 31, 2007, either Fuji Bank or the Company may terminate the agreement
upon 30 business days prior written notice.
 
  SERVICES PROVIDED BY FUJI BANK AND HIC FOR THE COMPANY. Certain employees of
Fuji Bank and HIC performed managerial, administrative and other related
functions for the Company during 1997. The Company compensated Fuji Bank and
HIC for the use of such individuals' services at a rate which reflects current
costs to Fuji Bank and HIC. The amounts paid to Fuji Bank and HIC for these
services were $2 million and $77 million, respectively for 1997, $2 million
and $60 million for 1996 and $2 million and $53 million for 1995. In
conjunction with the transfer of the Company to FAHI, the majority of
employees of HIC who were providing services to the Company were transferred
to the Company. Additionally, certain subsidiaries of Fuji Bank served as
managers for various offerings of the Company's debt securities and acts as
registrar and paying agent for certain debt issuances by the Company. These
services are provided at market rates. The Company has entered into similar
agreements with FAHI. In the Company's opinion, the amounts to be paid under
such agreements will be significantly less than the amounts paid in 1997.
 
  SERVICES PROVIDED BY THE COMPANY FOR FUJI BANK AND HIC. The Company performs
services for its affiliates, including FAHI, and charges them for the cost of
the work performed. The Company may also guarantee the obligations of its
clients or the clients of certain joint ventures, under letters of credit
issued by financial institutions, some of which are affiliates of the Company.
Additionally, the Company guaranteed payment under a deferred compensation
arrangement between HIC and certain of its employees. The Company had
agreements with HIC and certain other subsidiaries of HIC which provide for
the Company to receive an annual negotiated fee for servicing assets which had
been sold by the Company to HIC and these affiliates. The amount of fees for
servicing these assets in 1997, 1996 and 1995, was approximately $200,000, $1
million and $1 million, respectively.
 
  Heller Capital Markets Group, Inc. ("CMG"), a wholly-owned subsidiary of the
Company, acted as placement agent for the sale of commercial paper issued by
HIC during 1997. CMG received compensation based upon the face amount of the
commercial paper notes sold. HIC paid compensation to CMG pursuant to this
arrangement of $61,000 during 1997 and less than $1 million during each of
1996 and 1995. The HIC commercial paper program was terminated during 1997.
 
  INTERCOMPANY RECEIVABLES, PAYABLES, TRANSACTIONS AND FINANCIAL INSTRUMENTS.
At December 31, 1997, other liabilities included net amounts due to affiliates
of $29 million, and at December 31, 1996, other assets included net amounts
due from affiliates of $20 million. These amounts are principally comprised of
interest bearing demand notes representing amounts due to or from the Company
arising from an interest rate swap agreement with HIC, advances,
administrative fees and costs charged to other subsidiaries of HIC and amounts
payable to HIC for services provided. The notes bear interest at rates which
approximate the average rates on the Company's commercial paper obligations or
short-term bank borrowing rates outstanding during the period. During 1997,
the Company paid interest of $3 million to HIC related to these notes.
 
  During 1997, the Company was a party to a $200 million notional amount
interest rate swap agreement with HIC, which expires December 15, 2000 and was
assumed by FAHI effective January 2, 1998. The purpose of this agreement is to
manage the Company's exposure to interest rate fluctuations. Under this
agreement, the Company pays interest to the counterparty at a variable rate
 
                                      76
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
based on the commercial paper rate published by the Board of Governors of the
Federal Reserve System. The counterparty pays interest to the Company at a
fixed rate of 5.57%. This agreement, which FAHI assumed from HIC effective
January 1998, increased the Company's interest expense by $295,000 and $3
million in 1997 and 1996, respectively.
 
  During 1997, HIC converted all of its shares of Series D Preferred Stock
into common stock of the Company. Prior to the conversion, the Company paid a
dividend to HIC on the Series D Preferred Stock of approximately $500,000.
 
  Also, during 1997, the Company paid to Fuji Bank a commitment fee of
approximately $317,000, related to the Keep Well Agreement.
 
  The trust department of Fuji Bank may purchase commercial paper of the
Company for its clients. Interest expense paid by the Company related to such
commercial paper borrowings was $235,000 in 1997.
 
  In the ordinary course of its business, the Company participates in joint
financings with Fuji Bank or certain affiliates. During 1997, the Company sold
$10 million of an outstanding $25 million commitment to Fuji Bank at book
value. No gain or loss was recorded on the sale. During 1996, the Company
jointly participated with Fuji Bank in $53 million of financings, of which the
Company retained an $8 million interest.
 
  Fuji Bank and one of its subsidiaries provided uncommitted lines of credit
to consolidated international subsidiaries totaling $29 million and $15
million at December 31, 1997 and 1996, respectively. Borrowings under these
facilities totaled $5 million and $4 million at December 31, 1997 and 1996,
respectively. In addition, Fuji Bank provides committed and uncommitted lines
of credit to certain international joint ventures.
 
  The Company has an accounts receivable sale facility which allows the
Company to sell an undivided interest of up to $550 million in a designated
pool of its factored accounts receivable to five bank-sponsored conduits. The
Company sold approximately $500 million of receivables under this facility as
of December 31, 1997. The underlying liquidity support for the conduits is
provided by unaffiliated entities. One of the conduits has an operating
agreement with Fuji Bank. The Company paid fees of $346,000 to Fuji Bank
during 1997 for services provided under this agreement.
 
  In conjunction with the formation of FAHI, the Company purchased, at book
value, less than $10 million of assets from HIC on December 31, 1997. The
assets are primarily recorded as real estate receivables at the purchase
price.
 
16. FAIR VALUE DISCLOSURES
 
  Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
for certain financial instruments, for which it is practicable to estimate
that value. Since there is no well-established market for many of the
Company's assets and financial instruments, fair values are estimated using
present value, property yield, historical rate of return and other valuation
techniques. These techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. These
assumptions are inherently judgmental and changes in such assumptions could
significantly affect fair value calculations. The derived fair value estimates
may not be substantiated by comparison to independent markets and may not be
realized in immediate liquidation of the instrument.
 
                                      77
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
                                                       DECEMBER 31,
                                           --------------------------------------
                                                  1997                1996
                                           ------------------- ------------------
                                                     ESTIMATED          ESTIMATED
                                           CARRYING    FAIR    CARRYING   FAIR
                                            VALUE      VALUE    VALUE     VALUE
                                           --------  --------- -------- ---------
                                                       (IN MILLIONS)
      <S>                                  <C>       <C>       <C>      <C>
      Net receivables..................... $10,461    $10,883   $8,304   $8,509
      Total investments...................     994      1,044      805      863
      Debt................................   9,436      9,371    7,506    7,514
      Swap agreements
        Asset.............................       4         12        4       20
        Liability.........................      (7)      (111)      (6)     (37)
      Forward contracts...................     623        623      262      262
      Purchased options...................      74         74       42       42
</TABLE>
 
  The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments. Carrying values
approximate fair values for all financial instruments which are not
specifically addressed.
 
  For variable rate receivables that reprice frequently and are performing at
acceptable levels, fair values were assumed to equal carrying values. All
other receivables were pooled by loan type and risk rating. The fair value for
these receivables was estimated by employing discounted cash flow analyses,
using interest rates equal to the London Inter-Bank Offered Rate or the Prime
rate offered as of December 31, 1997 and 1996 plus an adjustment for normal
spread, credit quality and the remaining terms of the loans.
 
  Carrying and fair values of the trading securities and securities available
for sale are based on quoted market prices. The fair values of equity
interests and other investments are calculated by using the Company's business
valuation model to determine the estimated value of these investments as of
the anticipated exercise date. The business valuation model analyzes the cash
flows of the related company and considers values for similar equity
investments. The determined value is then discounted back to December 31, 1997
and 1996, using a rate appropriate for returns on equity investments. Although
the investments in international joint ventures accounted for by the equity
method are not considered financial instruments and, as such, are not included
in the above table, management believes that the fair values of these
investments significantly exceed the carrying value of these investments.
 
  The fair value of the notes and debentures was estimated using discounted
cash flow analyses, based on current incremental borrowing rates for
arrangements with similar terms and remaining maturities, as quoted by
independent financial institutions as of December 31, 1997 and 1996. Fair
values were assumed to equal carrying values for commercial paper and other
short term borrowings.
 
  The carrying value of the swap agreements represents the interest receivable
and interest payable as of December 31, 1997 and 1996. The estimated fair
value represents the mark to market loss and mark to market gain outstanding
as of December 31, 1997 and 1996, respectively, as based upon quoted market
prices obtained from independent financial institutions. Forwards and
purchased options are carried at fair value. The fair values of loan
commitments, letters of credit and guarantees are negligible.
 
                                      78
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
17. FINANCIAL DATA BY REGION
 
  The following table shows certain financial information by geographic region
for the years ended December 31, 1997, 1996 and 1995.
 
<TABLE>
<CAPTION>
                                         FOR THE YEAR ENDED DECEMBER 31,
                                   -------------------------------------------
                                   UNITED          ASIA-   LATIN
                                   STATES  EUROPE PACIFIC AMERICA CONSOLIDATED
                                   ------- ------ ------- ------- ------------
                                                  (IN MILLIONS)
      <S>                          <C>     <C>    <C>     <C>     <C>
      Assets
        1997...................... $10,048 $2,378  $267    $168     $12,861
        1996......................   9,157    330   306     133       9,926
        1995......................   8,981    295   265      97       9,638
      Total revenues
        1997...................... $ 1,063 $  159  $ 29    $ 19     $ 1,270
        1996......................     893     47    30      15         985
        1995......................   1,009     39    28       8       1,084
      Income before taxes and
       minority interest
        1997...................... $   183 $   59  $  6    $(15)    $   233
        1996......................     145     36     6      (4)        183
        1995......................     148     23     7       3         181
      Net income
        1997...................... $   126 $   41  $  5    $(14)    $   158
        1996......................     100     31     5      (3)        133
        1995......................      95     21     5       4         125
</TABLE>
 
                                       79
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
18. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 
  The following financial information for the calendar quarters of 1997, 1996
and 1995, is unaudited. In the opinion of management, all adjustments
necessary to present fairly the results of operations for such periods have
been included.
 
<TABLE>
<CAPTION>
                                                         QUARTER ENDED
                                               ---------------------------------
                                               MARCH 31 JUNE 30 SEPT. 30 DEC. 31
                                               -------- ------- -------- -------
                                                         (IN MILLIONS)
      <S>                                      <C>      <C>     <C>      <C>
      Net interest income--
        1997..................................   $ 92    $107     $104    $105
        1996..................................     90      87       87      91
        1995..................................     94      95       98     100
      Operating revenues--
        1997..................................   $141    $199     $193    $221
        1996..................................    131     129      124     149
        1995..................................    146     132      161     181
      Provision for losses--
        1997..................................   $ 22    $ 34     $ 48    $ 60
        1996..................................     24      25       12      42
        1995..................................     50      28       56      89
      Net income--
        1997..................................   $ 39    $ 44     $ 40    $ 35
        1996..................................     34      35       35      29
        1995..................................     30      34       35      26
</TABLE>
 
19. ACCOUNTING DEVELOPMENTS
 
  The Company adopted Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125") as amended by Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125" (collectively referred to
hereafter as "SFAS 125") on January 1, 1997. SFAS 125 uses a "financial
components" approach that focuses on control to determine the proper
accounting for financial asset transfers and addresses the accounting for
servicing rights on financial assets in addition to mortgage loans.
Securitizations of finance receivables are accounted for as sales when legal
and effective control over the related receivables is surrendered. Servicing
assets or liabilities are recognized when the servicing rights are retained by
the seller.
 
  In June, 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
which the Company has adopted effective January 1, 1998. This statement
establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.
 
  Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131") was also
released in June, 1997 and has also been adopted effective January 1, 1998.
SFAS 131 requires segments to be reported based on the way management
organizes segments within the Company for making operating decisions and
assessing performance.
 
  As SFAS 130 and 131 relate to disclosure requirements, management believes
that neither statement will have a material impact on the financial results of
the Company.
 
                                      80
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
20. SUBSEQUENT EVENTS
 
  On January 29, 1998, Fuji Bank announced that it is considering an initial
public offering of Common Stock by the Company. Fuji Bank will retain majority
ownership of the Company after any such offering. The timing and the terms of
the offering have not yet been determined.
   
  In anticipation of an initial public offering, the Company amended its
Restated Certificate of Incorporation to increase the number of authorized
shares of Common Stock. The total number of shares of stock which the Company
shall have authority to issue is 852 million, of which 2 million shares, no
par value, are to be of a class designated "Preferred Stock", 50 million
shares, of the par value of $.01 each, are to be of a class designated "Senior
Preferred Stock" and 800 million shares, of the par value of $0.25 each, are
to be of a class designated "Common Stock." The Company's Certificate of
Incorporation, as amended, authorizes two classes of Common Stock, Class A
Common Stock and Class B Common Stock. The authorization of the two classes of
Common Stock has been retroactively reflected in the Company's consolidated
financial statements.     
   
  Prior to the consummation of the offering, the Keep Well Agreement will be
amended to allow the Company or Fuji Bank or any of its affiliates to sell or
dispose of Common Stock to any person or entity, provided that after any such
sale or disposition, Fuji Bank (directly or indirectly through one or more
subsidiaries) continues to hold greater than 50% of the combined voting power
of the outstanding Common Stock.     
 
  In February 1998, the Company paid a dividend of 51 million shares of Class
B Common Stock to FAHI, which has been retroactively reflected in the
Company's consolidated financial statements.
   
  In February 1998, the Company was authorized to purchase the 21% ownership
interest in International Group held by Fuji Bank for approximately $83
million. If completed, the Company intends to account for this transaction
using the purchase method of accounting.     
 
  On February 24, 1998, the Company paid a dividend on the Common Stock owned
by FAHI of $450 million. The dividend was paid out of the surplus of the
Company and in the form of a subordinated note maturing six years from the
date of issuance with an interest rate of LIBOR plus 0.50%. The note can be
prepaid at any time without a premium.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
       FINANCIAL DISCLOSURE
 
  None.
 
                                      81
<PAGE>
 
                                   PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
          
  The following table sets forth certain information with respect to the
directors, executive officers and other senior management officers of the
Company. These biographies appear after the table. All of the directors and
officers of the Company are elected at the annual meeting for a term of one
year or until their successors are duly elected and qualified.     
                        
                     DIRECTORS AND EXECUTIVE OFFICERS     
 
<TABLE>   
<CAPTION>
NAME                            AGE                  POSITION
----                            ---                  --------
<S>                             <C> <C>
Richard J. Almeida (1)(2)(4)...  55 Chairman of the Board and Chief Executive
                                    Officer
Yukihiko Chayama (1)(3)........  50 Director
Nina B. Eidell.................  45 Executive Vice President and Chief Human
                                    Resources Officer
Tsutomu Hayano.................  51 Director
Mark Kessel....................  56 Director
Michael J. Litwin (1)..........  50 Director, Executive Vice President and
                                    Chief Credit Officer
Dennis P. Lockhart (1).........  51 Director and President of International
                                    Group
Lauralee E. Martin (1).........  47 Director, Executive Vice President and
                                    Chief Financial Officer
Hideo Nakajima.................  49 Director
Osamu Ogura (1)(3).............  41 Director
Masahiro Sawada (1)............  44 Director and Senior Vice President
Debra H. Snider................  43 Executive Vice President, General Counsel,
                                    Chief Administrative Officer and Secretary
Takeshi Takahashi..............  49 Director
Atsushi Takano (1)(2)(3)(4)....  52 Director
Kenichiro Tanaka (1)(2)(4).....  49 Director and Executive Vice President
Kenichi Tomita.................  48 Director
Frederick E. Wolfert...........  43 President and Chief Operating Officer
                     OTHER SENIOR MANAGEMENT OFFICERS (5)
Mark A. Abbott.................  37 Group President, Corporate Finance
Michel Aussavy.................  58 Chairman and Chief Executive Officer of
                                    Factofrance
Anthony O'B. Beirne............  49 Executive Vice President and Treasurer
Michael P. Goldsmith...........  44 Group President, Real Estate Finance and
                                    Project Finance
John L. Guy, Jr................  45 Group President, Small Business Lending
Jay S. Holmes..................  51 Group President, Equipment Finance and
                                    Leasing
Karen Ann Hrzich...............  51 Executive Vice President and Director of
                                    Internal Audit
Lawrence G. Hund...............  42 Executive Vice President and Controller
James S. Jasionowski...........  39 Senior Vice President and Director of Tax
Scott E. Miller................  51 Group President, Business Credit
Maureen G. Osborne.............  41 Senior Vice President and Chief Information
                                    Officer
James L. Prouty................  50 Managing Director of Heller Europe Limited
Michael J. Roche...............  46 Group President, Current Asset Management
Charles G. Schultz.............  51 Group President, Sales Finance
</TABLE>    
--------
   
(1) Member of Executive Committee     
   
(2) Member of Compensation Committee     
   
(3) Member of Audit Committee     
   
(4) Member of Special Financing Committee     
   
(5) Beginning in 1998, these officers are not considered "executive officers",
    as defined in the Exchange Act.     
 
                                      82
<PAGE>
 
  Richard J. Almeida has served as the Chairman of the Board and Chief
Executive Officer of the Company, International Group and Heller International
Holdings, Inc. ("Holdings") since November 1995; and as Director of the
Company and International Group since November 1987. He has also served as
Director of FAHI since January 1998. He has served as Director of Holdings
since December 1992. He previously served as the Chairman of the Board and
Chief Executive Officer of HIC from November 1995 to January 1998; Director of
HIC from November 1987 to January 1998; Executive Vice President and Chief
Financial Officer of Holdings from December 1992 to November 1995; and
Executive Vice President and Chief Financial Officer of the Company, HIC and
International Group from November 1987 to November 1995. Prior to joining the
Company in 1987, Mr. Almeida served in a number of operating positions, both
in Corporate Banking and Investment Banking sectors, for Citicorp.
 
  Yukihiko Chayama has served as Director of the Company, International Group
and Holdings since July 1996; Director of FAHI since January 1998; Chief
Representative for the Washington, DC Representative Office of Fuji Bank since
October 1996; and Executive Vice President and General Manager for the
Americas Division of Fuji Bank since July 1996. He previously served as
Director of HIC from July 1996 to January 1998; General Manager at the Oji
Branch of Fuji Bank from May 1994 to 1996; and the Deputy General Manager in
the Head Office Corporate Banking Division of Fuji Bank from April 1991 to
1994.
   
  Nina B. Eidell has served as Executive Vice President and Chief Human
Resources Officer of the Company since joining the Company in March 1998. From
February 1995 to February 1998, she served as Director, Human Resources of the
American Bar Association. Ms. Eidell previously spent eight years with
Citicorp, where she held a variety of human resources management roles. She
has also held human resources leadership positions with Sara Lee Corporation
and R.R. Donnelley & Sons Company.     
 
  Tsutomu Hayano has served as Director of the Company since May 1996;
Director of Fuji Bank since June 1997; General Manager at the New York Branch
of Fuji Bank and Chairman of The Fuji Bank and Trust Co. since May 1996. He
previously served as Director of HIC from May 1996 to January 1998; General
Manager at the Hamamatsucho Branch of Fuji Bank from May 1994 to 1996; and
President of Fuji Bank, Nederland N.V. from February 1990 to 1994.
 
  Mark Kessel has served as Director of the Company since July 1992. He
previously served as Director of HIC from July 1992 to January 1998. Mr.
Kessel has been a Partner of Shearman & Sterling since December 1977.
 
  Michael J. Litwin has served as Director of the Company since April 1990;
Executive Vice President and Chief Credit Officer of the Company since January
1997; Executive Vice President of Holdings since December 1992; Director of
International Group and Holdings since January 1997; and Executive Vice
President of International Group since January 1989. He previously served as
Director of HIC from April 1990 to January 1998; Executive Vice President of
HIC from January 1997 to January 1998; and Senior Group President of the
Company from October 1990 to January 1997. Mr. Litwin has served in various
other positions since joining the Company in 1971, including Assistant General
Counsel.
   
  Dennis P. Lockhart has served as Director of the Company and International
Group and President of International Group since January 1988 and Director and
President of Holdings since December 1992. In his current positions, he has
principal responsibility for the Company's international operations. Mr.
Lockhart has also served as a Director of Tri Valley Corporation since April
1981. He previously served as Director and Executive Vice President of HIC
from January 1988 to January 1998. Prior to joining the Company in 1988, Mr.
Lockhart was employed by Citicorp for 16 years, holding a number of positions
in corporate/institutional banking domestically and abroad, including
assignments in Lebanon, Saudi Arabia, Greece, Iran, New York and Atlanta, with
regional experience encompassing Europe, the Middle East, Africa and Latin
America.     
 
                                      83
<PAGE>
 
  Lauralee E. Martin has served as Executive Vice President and Chief
Financial Officer of the Company, International Group and Holdings since May
1996; Director of the Company since May 1991; Director of International Group
and Holdings since May 1996; and Director of Gables Residential Trust since
January 1994. She previously served as Executive Vice President and Chief
Financial Officer of HIC from May 1996 to January 1998; Director of HIC from
May 1991 to January 1998; and Senior Group President of the Company from
October 1990 to May 1996. Prior to joining the Company in 1986, Ms. Martin
held a variety of senior management positions with General Electric Credit
Corporation.
 
  Hideo Nakajima has served as Director of the Company since May 1996; and
Executive Vice President and General Manager of Fuji Bank, Los Angeles Agency
since May 1996. He previously served as Director of HIC from May 1996 to
January 1998; Managing Director of Fuji Bank, Nederland N.V. from July 1993 to
1996; and Deputy General Manager in the Head Office Corporate Banking Division
I of Fuji Bank from February 1990 to 1993.
 
  Osamu Ogura has served as Director of the Company since November 1994;
Director of FAHI since January 1998; Director of International Group and
Holdings since May 1996; and Senior Vice President and Deputy General Manager
of the Americas Division of Fuji Bank since November 1994. He previously
served as Director of HIC from November 1994 to January 1998 and Senior
Manager of Fuji Bank, Americas Division from 1993 to 1994.
 
  Masahiro Sawada has served as Senior Vice President of the Company since
January 1998 and as Director of the Company, International Group and Holdings
since December 1995. He previously served as Director of HIC from December
1995 to January 1998; Senior Vice President of HIC from May 1995 to January
1998; and Joint General Manager of Fuji Bank, Paris Branch from May 1992 to
1995.
   
  Debra H. Snider has served as Chief Administrative Officer of the Company
since February 1997; General Counsel of the Company, International Group and
Holdings since October 1995; Executive Vice President and Secretary of the
Company, International Group and Holdings since April 1995; and Secretary of
FAHI since January 1998. She previously served as General Counsel of HIC from
October 1995 to January 1998; Executive Vice President and Secretary of HIC
from April 1995 to January 1998; and Acting General Counsel for the Company,
HIC, International Group and Holdings from April 1995 to October 1995. Ms.
Snider was a Partner at Katten Muchin & Zavis from February 1991 to March 1995
and previously served as First Vice President and Associate General Counsel at
the Balcor Company.     
 
  Takeshi Takahashi has served as Director of the Company, and as Executive
Vice President and General Manager of Fuji Bank, Chicago Branch since June
1997. He previously served as Director of HIC from June 1997 to January 1998;
Executive Vice President and General Manager of Fuji Bank, Houston Agency from
May 1995 to June 1997; General Manager of HIC Project Finance II, Fuji Bank,
Tokyo from May 1994 to May 1995; and Joint General Manager of Fuji Bank,
London Branch from February 1990 to May 1994.
 
  Atsushi Takano has served as Director of the Company, International Group
and Holdings since August 1997; Director and Chairman of FAHI since January
1998; Managing Director of Fuji Bank since June 1997; and Director of Fuji
Bank since June 1995. He previously served as Director of HIC from August 1997
to January 1998; General Manager, Corporate Banking Division II, Fuji Bank,
Tokyo from June 1996 to June 1997; General Manager of Fuji Bank, New York
Branch from June 1994 to June 1996; and General Manager of Fuji Bank, Los
Angeles Agency from June 1992 to June 1994.
 
  Kenichiro Tanaka has served as Executive Vice President of the Company since
January 1998; Director of the Company, International Group and Holdings since
February 1997; and Director, President and Chief Executive Officer of FAHI
since January 1998. Mr. Tanaka previously served as Director and Executive
Vice President of HIC from February 1997 to January 1998; President and Chief
Executive Officer of Fuji Bank, Canada from November 1994 to January 1997; and
Deputy General Manager of Fuji Bank, Head Office Credit Division from May 1991
to November 1994.
 
                                      84
<PAGE>
 
  Kenichi Tomita has served as a Director of the Company since May 1996; and
as Executive Vice President and General Manager in the Credit Division for the
Americas of Fuji Bank since April 1996. He previously served as Director of
HIC from May 1996 to January 1998, and as Deputy General Manager of the Credit
Division for the Americas of Fuji Bank from March 1992 to 1996.
   
  Frederick E. Wolfert has served as President and Chief Operating Officer of
the Company since January 1998. In this capacity, he has principal
responsibility for all of the Company's domestic businesses. He served as
Chairman of Key Global Finance Ltd. from April 1996 to December 1997;
Chairman, President and Chief Executive Officer of KeyCorp Leasing, Ltd. from
June 1993 to December 1997; Chairman, President and Chief Executive Officer of
KeyBank USA N.A. from June 1993 to December 1996; President and Chief
Operating Officer of KeyCorp Leasing, Ltd. from December 1991 to June 1993;
and Executive Vice President of KeyBank USA N.A. from December 1991 to June
1993. Mr. Wolfert also served for nine years in management positions with U.S.
Leasing Corporation in its San Francisco headquarters.     
 
  Mark A. Abbott has served as Group President of Corporate Finance since
April 1997. He previously served as Executive Vice President of Corporate
Finance from November 1992 to April 1997. Prior to joining the Company in
1989, Mr. Abbott held various positions with Continental Bank, most recently
as a member of the bank's venture capital unit, which focused on investing in
leveraged transactions.
   
  Michel Aussavy joined Factofrance in 1980 and has served as its Chairman and
Executive Officer since 1988. He previously served as General Manager of
Factofrance from 1982 to 1988 and Director of Factofrance from 1980 to 1982.
Prior to joining Factofrance, Mr. Aussavy was employed by Credit du Nord from
1973 to 1980, holding various management positions, and by Delmas Vielgeux as
Director from 1968 to 1973.     
   
  Anthony O'B. Beirne has served as Executive Vice President of the Company
since March 1998; Treasurer of the Company since May 1995 and Treasurer of
FAHI since January 1998. He previously served as Senior Vice President of the
Company from May 1995 to March 1998; Senior Vice President and Treasurer of
HIC from May 1995 to January 1998; Senior Vice President and Controller of
Holdings from December 1992 to May 1995; and Senior Vice President and
Controller of the Company, HIC and International Group from March 1988 to May
1995. Before joining the Company in 1988, Mr. Beirne was Vice President and
Corporate Controller of Kenner Parker Toys, Inc. and previously worked for
General Mills, Inc., Arthur Andersen and Co. and Chemical Bank.     
 
  Michael P. Goldsmith has served as Group President of Real Estate Finance
and Project Finance since April 1994. He previously served as Executive Vice
President and Division Manager for the Project Management Organization from
May 1990 to April 1994. Prior to joining the Company in 1988, Mr. Goldsmith
was a Vice President and Division Manager at Continental Bank, managing many
of Continental's troubled loans. He has also held a variety of corporate
finance positions involving buyouts and recapitalizations.
 
  John L. Guy, Jr. has served as Group President for Small Business Lending
since April 1997; President of Heller First Capital Corp. since May 1996; and
Director of Monetta Trust since November 1994. He previously served as
Executive Vice President for the Heller First Capital Division of the Company
from May 1996 to April 1997; Senior Vice President for the Heller First
Capital Division of the Company from May 1995 to May 1996; and Senior Vice
President and Treasurer of the Company and HIC from July 1992 to May 1995.
Before joining the Company in 1987, Mr. Guy was Assistant Treasurer for Borg
Warner Financial Services.
 
  Jay S. Holmes has served as Group President of Equipment Finance and Leasing
since December 1995 and as President of Heller Financial Leasing, Inc. since
May 1996. He previously served as Executive Vice President for Commercial
Equipment Finance from September 1992 to December 1995. Mr. Holmes, who joined
the Company in 1992, has 26 years of equipment leasing industry experience and
currently is a member of the Middle Market Business Council of the Equipment
Leasing Association.
 
                                      85
<PAGE>
 
   
  Karen Ann Hrzich has served as Executive Vice President of the Company since
March 1998 and as Director of Internal Audit of the Company since November
1995. Ms. Hrzich was also a Senior Vice President of the Company prior to
March 1998. Before November 1995, she was Senior Vice President and Senior
Manager of Credit and Portfolio Review within the Internal Audit Department.
Prior to joining the Internal Audit Department in January 1995, Ms. Hrzich
held the position of Senior Vice President and Portfolio Manager of Corporate
Finance. Before joining the Company in 1989, Ms. Hrzich spent 15 years with
Chemical Bank of New York, holding a number of lending and managerial
positions in corporate banking, middle market lending and capital markets.
    
          
  Lawrence G. Hund has served as Executive Vice President of the Company,
International Group and Holdings since March 1998 and as Controller of the
Company, International Group and Holdings since March 1995. He previously
served as Senior Vice President of the Company, International Group and
Holdings from May 1995 to March 1998; Senior Vice President and Controller of
HIC from May 1995 to January 1998; Senior Vice President, Liability Management
and Assistant Treasurer of the Company and HIC from January 1995 to May 1995;
and Senior Vice President for Accounting and Operations of the Company and HIC
from January 1993 to December 1994. Prior to joining the Company in 1985, Mr.
Hund was an Audit Manager with the accounting firm of Arthur Young & Company.
    
          
  James S. Jasionowski has served as Senior Vice President and Director of Tax
of the Company and International Group since September 1997. He served as
Senior Vice President and Tax Counsel of HIC from September 1997 to January
1998. From May 1993 to August 1997, Mr. Jasionowski was Vice President and Tax
Counsel of the Company and HIC. Before joining the Company in 1993, Mr.
Jasionowski was a Tax Senior Manager with the accounting firm of KPMG Peat
Marwick, where he was employed for eight years in a variety of positions.     
 
  Scott E. Miller has served as Group President of Business Credit since
joining the Company in February 1998. From September 1993 to January 1998, he
served as Senior Vice President and General Manager in Asset Based Lending for
Bank of America NT&SA. Mr. Miller previously spent 17 years with Citicorp,
holding a variety of management and lending roles.
   
  Maureen G. Osborne, has served as Senior Vice President and Chief
Information Officer of the Company since joining the Company in April 1998.
From 1992 through March 1998, Ms. Osborne was employed by IBM Global Services,
where she most recently served as Senior Project Executive, Bank of America
contact. From 1978 to 1991, Ms. Osborne held various management positions at
Continental Bank Corporation.     
   
  James L. Prouty has served as Managing Director of Heller Europe Limited
("Heller Europe") since November 1997. Prior to joining Heller Europe, Mr.
Prouty spent 21 years with Bank of America, where he was most recently Senior
Vice President and Regional Manager of Continental Europe, headquartered in
Paris. Mr. Prouty also held a number of country management and regional
responsibilities in Brussels, London and Frankfurt. Mr. Prouty headed Bank of
America's Financial Institutions business in Europe and has held corporate
banking positions in New York, Los Angeles and Mexico City. He is currently
Chairman of the U.S. Trade and Investment Center in Brussels and was
previously the Chairman of the European Council for American Chambers of
Commerce and the President of the American Chamber of Commerce in Belgium.
    
  Michael J. Roche has served as Group President of Current Asset Management
since November 1994. He previously served as Senior Vice President and Chief
Information Officer for Information Technology of the Company from October
1990 to November 1994; and as Senior Vice President and Chief Information
Officer for Information Technology of HIC from May 1991 to October 1994. Prior
to joining the Company in 1990, Mr. Roche was employed by Continental Bank for
17 years in a variety of information technology positions, including as Senior
Vice President, Managing Director of Application Services.
 
                                      86
<PAGE>
 
   
  Charles G. Schultz has served as Group President of Sales Finance since
February 1997. He previously served as Executive Vice President and Manager of
Vendor Finance from September 1995, when he joined the Company, to April 1997.
Prior to joining the Company in September 1995, Mr. Schultz was President of
Financial Alliance Corporation, a company specializing in structuring,
managing and funding manufacturer vendor finance programs, from January 1994
to September 1995. Prior to that, he was Executive Vice President of Sanwa
Business Credit Corporation ("Sanwa"), where for 13 years he had primary
responsibility for Sanwa's equipment financing and leasing businesses. Prior
to joining Sanwa, Mr. Schultz spent 10 years with Ford Motor Credit Company in
various treasury, marketing and credit positions.     
       
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
  Section 16 of the Exchange Act requires the Company's officers (as defined
under Section 16) and directors and persons who own greater than 10% of a
registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission. Based solely on a review of the forms it has received and on
written representations from certain reporting persons that no such forms were
required for them, the Company believes that, during 1997, except as set forth
below, all Section 16 filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with by such
persons. Mark A. Abbott (elected as Group President of Corporate Finance on
March 19, 1997), Takeshi Takahashi (elected as Director on June 9, 1997) and
Atsushi Takano (elected as Director on August 21, 1997) inadvertently failed
to timely file their Initial Statements of Beneficial Ownership of Securities
on Form 3. Each of such individuals subsequently filed the required Form 3.
 
                                      87
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION
 
  The following table sets forth information with respect to all compensation
received by the Chief Executive Officer of the Company and the four next most
highly compensated executive officers of the Company (as determined at
December 31, 1997 based on combined salary and bonus) (collectively, the
"Named Officers") for services rendered in all capacities to the Company
during the years ended December 31, 1997, 1996 and 1995.
 
                       SUMMARY COMPENSATION TABLE (1)(2)
 
<TABLE>   
<CAPTION>
                                                      LONG TERM
                               ANNUAL COMPENSATION   COMPENSATION
                               -------------------   ------------
                                                     LTIP PAYOUTS     ALL OTHER
NAME AND PRINCIPAL POSITION  YEAR SALARY($) BONUS($)    ($)(3)    COMPENSATION($)(4)
---------------------------  ---- --------- -------- ------------ ------------------
<S>                          <C>  <C>       <C>      <C>          <C>
Richard J. Almeida           1997  637,500  450,000    548,871           4,000
 (Chairman of the            1996  475,000  313,500        --            4,750
 Board and Chief             1995  318,375  225,000    310,905           4,620
 Executive Officer)
Michael P. Goldsmith         1997  247,682  450,000    222,742           4,000
 (Group President,           1996  191,579  200,000        --            4,050
 Real Estate Finance         1995  184,500   90,732     67,838           4,128
 and Project
 Finance)
David J. Kantes(5)           1997  245,583  350,000    240,146           4,000
 (Group President,           1996  237,128  225,000        --            4,479
 Business Credit)            1995  208,488  175,000        --            4,620
Mark A. Abbott               1997  207,125  350,000    174,787         114,476(6)
 (Group President,           1996  192,833  276,000        --            4,478
 Corporate Finance)          1995  175,334  175,000     88,984           4,321
Lauralee E. Martin           1997  286,354  225,000    313,448           4,000
 (Chief Financial            1996  270,000  160,000        --            4,318
 Officer)                    1995  254,004  175,000    256,774           4,620
</TABLE>    
--------
   
(1) The Company has an Executive Deferred Compensation Plan, a non-qualified
    deferred compensation plan in which certain employees of the Company may
    elect to defer a portion of their annual compensation on a pre-tax basis.
    The amount of deferred compensation remains an asset of the Company and
    may be invested in any of certain mutual funds at the participant's
    discretion. The Company has amended the Plan to permit the investment of
    deferred compensation in the Company's Class A Common Stock.     
 
(2) Certain executive officers of the Company whose compensation is included
    above were employed and paid by HIC during 1997. Pursuant to a management
    agreement between the Company and HIC, the Company reimbursed HIC for
    their services.
 
(3) Under the terms of each of the Company's Long Term Incentive Plans
    ("LTIPs"), payouts of all accruals are made after the termination of the
    LTIP to officers who are active employees of the Company and participants
    in the LTIP through its termination date (subject to exceptions in the
    case of disability, death or retirement). In 1997, cash payouts were made
    to the Named Officers under an LTIP for the performance and award period
    that began January 1, 1994 and ended December 31, 1996. In March, 1995,
    cash payouts were made to the Named Officers under an LTIP for the
    performance and award period that began January 1, 1992 and ended December
    31, 1994. In prior years, the Company reported annual accruals under its
    LTIPs as other annual
 
                                      88
<PAGE>
 
   compensation. The Company revised the terms of its LTIPs commencing with
   the LTIP for the performance and award period beginning January 1, 1996 and
   ending December 31, 1998 (the "1996-1998 LTIP"), as discussed below in
   greater detail. Perquisites and other personal benefit amounts for each of
   the Named Officers fall below the minimum level for disclosure and
   therefore have been excluded.
   
(4) Amounts reported reflect the Company's contribution made in the form of a
    match on amounts deferred by the Named Officer in the Company's Savings
    and Profit Sharing Plan, which is qualified under Section 401(a) of the
    1986 Internal Revenue Code, as amended (the "Code"). This Plan is
    available to all employees who work at least 900 hours per year. The
    Company makes matching contributions equal to 50% of the employee's
    contribution, except that the Company's contribution will not exceed 2.5%
    of the employee's base salary or $4,000, whichever is less. The Company
    has amended the Plan to permit the investment of contributions in the
    Company's Class A Common Stock and intends to further amend the Plan such
    that the Company's matching contributions starting on July 1, 1998 will be
    in the form of Class A Common Stock.     
   
(5) Mr. Kantes resigned from the Company effective April 3, 1998.     
   
(6) Also includes an aggregate of $110,476 that was paid in respect of
    relocation expenses incurred on Mr. Abbott's behalf.     
 
LONG TERM INCENTIVE PLANS
 
  The Company currently maintains two different LTIPs covering the Named
Officers and other employees of the Company. Under each of the LTIPs,
performance shares have been granted for a three year performance and award
period. The performance shares are earned out over the three-year performance
and award period based on a targeted average return on equity goal. The
Company has made grants under the 1996-1998 LTIP and under an LTIP for the
performance and award period beginning January 1, 1997 and ending December 31,
1999 (the "1997-1999 LTIP"). The performance and award periods for the 1996-
1998 LTIP grants and the 1997-1999 LTIP grants will continue after the
consummation of the Offerings, subject to the terms and conditions of the
LTIPs. For each of the 1996-1998 LTIP and the 1997-1999 LTIP, a total of
46,000 units was allocated. If the Company achieves its return on equity
target, this would create a pool of $4,600,000 for each LTIP. In the event an
employee ceases to be an active employee prior to the end of the performance
period, no incentive compensation will be deemed to be earned under the LTIPs.
 
  The following tables set forth certain information with respect to awards
that were granted during 1996 to the Named Officers under the 1996-1998 LTIP
and are currently outstanding:
 
                   LONG TERM INCENTIVE PLANS--AWARDS IN 1996
                                1996-1998 LTIP
 
<TABLE>   
<CAPTION>
                                                      ESTIMATED FUTURE PAYOUTS
                                      PERFORMANCE OR UNDER NON-STOCK PRICE-BASED
                          NUMBER OF    OTHER PERIOD             PLANS
                        SHARES, UNITS     UNTIL      ---------------------------
                          OR OTHER    MATURATION OR  THRESHOLD  TARGET  MAXIMUM
         NAME              RIGHTS         PAYOUT        ($)      ($)      ($)
         ----           ------------- -------------- --------- -------- --------
<S>                     <C>           <C>            <C>       <C>      <C>
Richard J. Almeida....      4,060        3 Years     $304,500  $406,000 $690,200
Michael P. Goldsmith..      1,130        3 Years       84,750   113,000  192,100
David J. Kantes(1)....        N/A            N/A          N/A       N/A      N/A
Mark A. Abbott........        800        3 Years       60,000    80,000  136,000
Lauralee E. Martin....      1,580        3 Years      118,500   158,000  268,600
</TABLE>    
--------
   
(1) Mr. Kantes resigned from the Company effective April 3, 1998 and is
    therefore ineligible to receive any payouts under this plan.     
 
                                      89
<PAGE>
 
  The following table sets forth certain information with respect to awards
that were granted during 1997 to the Named Officers under the 1997-1999 LTIP
and are currently outstanding:
 
             LONG TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
                                1997-1999 LTIP
 
<TABLE>   
<CAPTION>
                                                      ESTIMATED FUTURE PAYOUTS
                                      PERFORMANCE OR UNDER NON-STOCK PRICE-BASED
                          NUMBER OF    OTHER PERIOD             PLANS
                        SHARES, UNITS     UNTIL      ---------------------------
                          OR OTHER    MATURATION OR  THRESHOLD  TARGET  MAXIMUM
NAME                       RIGHTS         PAYOUT        ($)       ($)      ($)
----                    ------------- -------------- --------- -------- --------
<S>                     <C>           <C>            <C>       <C>      <C>
Richard J. Almeida....      4,375        3 Years     $328,125  $437,500 $743,750
Michael P. Goldsmith..        500        3 Years       37,500    50,000   85,000
David J. Kantes(1)....        N/A          N/A            N/A       N/A      N/A
Mark A. Abbott........      1,000        3 Years       75,000   100,000   170,00
Lauralee E. Martin....      1,500        3 Years      112,500   150,000   255,00
</TABLE>    
--------
   
(1) Mr. Kantes resigned from the Company effective April 3, 1998 and is
    therefore ineligible to receive any payouts under this plan.     
 
RETIREMENT AND OTHER DEFINED BENEFIT PLANS
 
  The Company has a defined benefit retirement income plan (the "Retirement
Plan") for the benefit of its employees that is a qualified plan under Section
401 of the Code. Substantially all domestic employees of the Company who have
one year of service, including executive officers and directors of the
Company, certain employees of FAHI, and certain employees of International
Group who are not employees of the Company participate in the Retirement Plan.
Non-Employee Directors are not eligible for retirement benefits. Under a
defined benefit plan, such as the Retirement Plan, contributions are not
specifically allocated to individual participants.
 
  The Company adopted a Supplemental Executive Retirement Plan ("SERP"),
effective October 28, 1987 and amended and restated effective January 1, 1996,
which provides a benefit to all employees whose full benefit under the
Retirement Plan is reduced by participation in the Company's Executive
Deferred Compensation Plan and by limitations imposed by Sections 401(a)(17)
and 415 of the Code.
 
  The following table shows estimated annual retirement benefits for
executives in specified remuneration and service classifications:
 
                     ESTIMATED ANNUAL RETIREMENT BENEFITS
 
<TABLE>
<CAPTION>
                                            YEARS OF CREDITED SERVICE
                                  ----------------------------------------------
FINAL AVERAGE PAY                    5       10       15       20    25 AND OVER
-----------------                 ------- -------- -------- -------- -----------
<S>                               <C>     <C>      <C>      <C>      <C>
$200,000......................... $26,000 $ 52,000 $ 78,000 $104,000  $130,000
 225,000.........................  29,250   58,500   87,750  117,000   146,250
 250,000.........................  32,500   65,000   97,500  130,000   162,500
 275,000.........................  35,750   71,500  107,250  143,000   178,750
 300,000.........................  39,000   78,000  117,000  156,000   195,000
 400,000.........................  52,000  104,000  156,000  208,000   260,000
 450,000.........................  58,500  117,000  175,500  234,000   292,500
 500,000.........................  65,000  130,000  195,000  260,000   325,000
 600,000.........................  78,000  156,000  234,000  312,000   390,000
</TABLE>
 
                                      90
<PAGE>
 
   
  In general, remuneration covered by the Retirement Plan consists of the
annual base salary determined before any salary reduction contributions to the
Company's Savings and Profit Sharing Plan. The monthly accrued benefit under
the Retirement Plan is calculated as a percentage of average monthly
compensation over the sixty consecutive months during the employee's last 120
months of employment that yield the highest average, plus a certain percentage
of the employee's monthly compensation above the Social Security wage base for
the past 35 years. The figures shown in the table above include benefits
payable under the Retirement Plan and SERP, as described above. However, the
figures shown are prior to offsets for Social Security and Company matching
benefits under its Savings and Profit Sharing Plan. The estimates assume that
benefits commence at age 65 under a straight life annuity form.     
   
  As of December 31, 1997, the number of years of credited service for the
Named Officers and the actual average remuneration for their respective years
of credited service with the Company were as follows: Richard J. Almeida, 10
years, 5 months, $400,058; Michael P. Goldsmith, 9 years, 1 month, $189,741;
David J. Kantes, 4 years, 6 months, $196,642; Mark A. Abbott, 8 years, 5
months, $165,558; and Lauralee E. Martin, 11 years, 5 months, $256,308.     
 
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
 
  Richard J. Almeida, Chairman and Chief Executive Officer of the Company, is
party to an employment contract with the Company, which became effective as of
December 31, 1997 and expires on December 31, 1999. The contract will be
automatically extended to December 31, 2000, unless either Mr. Almeida or the
Company gives the other written notice to the contrary on or before June 30,
1999. The contract provides for the payment to Mr. Almeida of an annual base
salary of not less than the amount Mr. Almeida receives during 1998. Mr.
Almeida's base salary and performance bonus are to be reviewed by the Company
during the term of the contract pursuant to the Company's normal practices.
The contract provides for Mr. Almeida's participation in all executive bonus
and incentive compensation plans of the Company. The contract further provides
that if Mr. Almeida's employment is terminated by the Company without cause
(as defined in the contract), or if he resigns with cause (as defined in the
contract), he will be entitled to receive full salary through the date 24
months from the date of termination. In the event of a termination under
either of the situations described above, Mr. Almeida is also entitled to
receive his incentive plan bonus payment at the applicable target bonus level
for the full year in which such termination occurs, as well as certain minimum
payments under each LTIP in which he was previously granted awards, and he
will continue to be covered under certain benefit plans through the date 24
months from the date of termination.
 
  Frederick E. Wolfert is party to an employment contract with the Company,
which became effective as of December 31, 1997, the date on which he was
elected President and Chief Operating Officer, and expires on December 31,
1999. The contract provides for the payment to Mr. Wolfert of an annual base
salary of not less than the amount Mr. Wolfert receives during 1998. Mr.
Wolfert's base salary and performance bonus are to be reviewed by the Company
during the term of the contract pursuant to the Company's normal practices.
The contract provides for Mr. Wolfert's participation in all executive bonus
and incentive compensation plans of the Company. The contract further provides
that if Mr. Wolfert's employment is terminated by the Company without cause
(as defined in the contract), or if he resigns with cause (as defined in the
contract), he will be entitled to receive full salary through the later of
December 31, 2000 or the date 18 months from the date of termination. In the
event of a termination, Mr. Wolfert is also entitled to receive his incentive
plan bonus payment at the applicable target bonus level for the full year in
which such termination occurs, as well as payments under each LTIP in which he
was previously granted awards through the year in which the termination
occurs, and he will continue to be covered under certain benefit plans through
the later of December 31, 2000 or the date 18 months from the date of
termination.
 
                                      91
<PAGE>
 
COMPENSATION OF DIRECTORS
 
  Directors of the Company have not previously been compensated for serving as
directors. The Company anticipates that, following the consummation of the
Offering, the Company's directors will receive compensation for serving as
directors at levels customary for publicly-held companies similar to the
Company, except that no director of the Company who is also an employee of the
Company or Fuji Bank will receive remuneration for serving as a director.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
  Richard J. Almeida served as a member of the Compensation Committee
throughout 1997. Atsushi Takano was appointed to the Compensation Committee on
August 21, 1997 and Kenichiro Tanaka was appointed to the Compensation
Committee on February 25, 1997. Messrs. Almeida, Takano and Tanaka also served
concurrently as members of the Compensation Committees of HIC, International
Group and Holdings.
 
  During 1997, Mr. Almeida also served as Chairman and Chief Executive Officer
of the Company, International Group and Holdings. In addition, Mr. Almeida
served as the Chairman of the Board, Chief Executive Officer and President of
HIC and as a member of the compensation committees of HIC, International Group
and Holdings. Mr. Tanaka also served as an executive officer of HIC and FAHI
during his tenure as a member of the compensation committees.
 
  Mr. Lockhart, Mr. Litwin and Ms. Martin also served as executive officers of
HIC, International Group and Holdings, for which companies Mr. Almeida served
as a member of the Compensation Committee of the Board of Directors.
   
  No other relationships existed in 1997 or currently exist between the
members of the Compensation Committee of the Company, FAHI, HIC, International
Group or Holdings and the directors and executive officers of those companies.
    
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
   During 1997, all of the outstanding Common Stock of the Company was owned
by HIC, a wholly-owned subsidiary of Fuji Bank. Effective January 2, 1998,
Fuji Bank formed Fuji America Holdings, Inc. ("FAHI"), in order to combine
Fuji Bank's United States non-bank operations under one holding company and
transferred ownership of the Company from HIC to FAHI. Consequently, as of
February 25, 1998, FAHI directly owns 100% of the Common Stock outstanding,
and as the sole stockholder of FAHI, Fuji Bank is also deemed to beneficially
own 100% of such Common Stock.
   
  The principal executive offices of Fuji Bank are located at 1-5-5 Otemachi,
Chiyoda-ku, Tokyo, Japan. The principal executive offices of FAHI are located
at 500 West Monroe Street, Chicago, Illinois 60661.     
          
  As of March 31, 1998, none of the outstanding equity securities of the
Company was held by any of its directors or executive officers.     
 
                                      92
<PAGE>
 
   
  The following table sets forth, as of March 31, 1998, certain information
with respect to the beneficial ownership of common stock of Fuji Bank, the
Company's ultimate parent, by (i) each director of the Company, (ii) each of
the Named Officers and (iii) all directors and executive officers of the
Company as a group.     
 
<TABLE>   
<CAPTION>
NAME OF                                                      NUMBER OF SHARES
BENEFICIAL OWNER                                            BENEFICIALLY OWNED
----------------                                            ------------------
<S>                                                         <C>
Richard J. Almeida.........................................          --
Yukihiko Chayama...........................................          701
Tsutomu Hayano.............................................       11,315
Mark Kessel................................................          --
Michael J. Litwin..........................................          --
Dennis P. Lockhart.........................................          --
Lauralee E. Martin.........................................          --
Hideo Nakajima.............................................       13,428
Osamu Ogura................................................          --
Masahiro Sawada............................................        2,205
Takeshi Takahashi..........................................        4,000
Atushi Takano..............................................       13,714
Kenichiro Tanaka...........................................        4,174
Kenichi Tomita.............................................          620
Michael P. Goldsmith.......................................          --
David J. Kantes (1)........................................          --
Mark A. Abbott.............................................          --
All directors and executive officers as a group (seven
 persons)..................................................       50,157
</TABLE>    
--------
   
(1)Mr. Kantes resigned from the Company effective April 3, 1998.     
   
  In addition, Messrs. Chayama, Hayano, Nakajima, Ogura, Sawada, Takahashi,
Takano, Tanaka and Tomita participate in a Fuji Bank employee stock purchase
plan and, as of March 31, 1998, beneficially owned an aggregate of
approximately 34,634 shares of Fuji Bank common stock through this plan.     
   
  The number of shares of Fuji Bank common stock that are beneficially owned
by (i) each of the Company's directors, (ii) each of the Named Officers or
(iii) the Company's directors and executive officers as a group, including
those shares held in the Fuji Bank employee stock purchase plan, does not
exceed 1% of the outstanding shares of such stock.     
       
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
RELATIONSHIP WITH FUJI BANK
   
  Fuji Bank, headquartered in Tokyo, Japan, is currently the beneficial owner
of all of the Common Stock of the Company through its wholly-owned U.S.
subsidiary, FAHI. Fuji Bank is one of the largest banks in the world, with
total deposits of $301 billion at September 30, 1997. See "--Keep Well
Agreement". For as long as Fuji Bank continues to beneficially own shares of
Common Stock representing more than 50% of the voting power of the Common
Stock, Fuji Bank will be able to direct the election of all of the members of
the Board of Directors and thereby exercise a controlling influence over the
business and affairs of the Company, including any determinations with respect
to (i) mergers or other business combinations involving the Company, (ii) the
acquisition or disposition of assets by the Company, (iii) the incurrence of
indebtedness by the Company, (iv) the issuance of any additional Common Stock
or other equity securities and (v) the payment of dividends with respect to
the Common Stock. Similarly, Fuji Bank will have the power to (i) determine
matters submitted to a vote of the Company's stockholders without the consent
of the Company's other stockholders, (ii) prevent or cause a change in control
of the Company or (iii) take other actions that might be favorable to Fuji
Bank. In the foregoing situations or otherwise, various conflicts of interest
between the Company and Fuji Bank could arise.     
 
 
                                      93
<PAGE>
 
  From time to time the Company and Fuji Bank have entered into, and can be
expected to continue to enter into, certain agreements and business
transactions in the ordinary course of their respective businesses.
 
 KEEP WELL AGREEMENT
   
  The Company entered into the Keep Well Agreement with Fuji Bank on April 23,
1983. The Keep Well Agreement was amended and supplemented on January 26,
1984, in connection with the consummation of the purchase of the Company by
Fuji Bank and has been amended since that date from time to time. Under the
Keep Well Agreement, as currently in effect, neither Fuji Bank nor any of its
subsidiaries can sell, pledge or otherwise dispose of shares of the Company's
common stock, or permit the Company to issue shares of its common stock,
except to Fuji Bank or a Fuji Bank affiliate. However, prior to the
consummation of the contemplated Offering, the Keep Well Agreement is expected
to be amended to allow the Company or Fuji Bank or any of its affiliates to
sell or dispose of Common Stock to any person or entity, provided that after
any such sale or disposition, Fuji Bank (directly or indirectly, through one
or more subsidiaries) continues to hold greater than 50% of the combined
voting power of the outstanding Common Stock. This provision may be subject to
further revision by the Company and Fuji Bank without the approval of any of
the Company's securityholders.     
 
  The Keep Well Agreement may not be terminated prior to the date (the
"Termination Date") which is the earlier of (i) December 31, 2007 and (ii) the
date on which the Company has received written certifications from Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Rating Services
("S&P") that, upon termination of the Keep Well Agreement, the ratings on the
Company's senior unsecured indebtedness without the support provided by the
Keep Well Agreement will be no lower than such ratings with the support of the
Keep Well Agreement, but in no event may the Termination Date occur before
December 31, 2002. In addition, the Keep Well Agreement includes certain
restrictions on termination relating to the Company's Series A Preferred Stock
and Series C Preferred Stock, which restrictions are discussed below.
 
  The Keep Well Agreement provides that Fuji Bank will maintain the Company's
stockholders' equity in an amount equal to $500 million. Accordingly, if the
Company should determine, at the close of any month, that its net worth is
less than $500 million, then Fuji Bank will purchase, or cause one of its
subsidiaries to purchase, shares of the Company's NW Preferred Stock, Class B,
no par value (the "NW Preferred Stock"), in an amount necessary to increase
the Company's stockholders' equity to $500 million. The NW Preferred Stock is
a series of Junior Preferred Stock and, accordingly, if and when issued will
rank junior to the Series A Preferred Stock and the Series C Preferred Stock
and senior to the Common Stock as to payment of dividends, and in all other
respects. If and when the NW Preferred Stock is issued, dividends thereon will
be noncumulative and will be payable (if declared) quarterly at a rate per
annum equal to 1% over the three-month LIBOR. Such dividends will not be paid
during a default in the payment of principal or interest on any of the
outstanding indebtedness for money borrowed by the Company. Subject to certain
conditions, the NW Preferred Stock will be redeemable, at the option of the
holder, within a specified period of time after the end of a calendar quarter
in an aggregate amount not greater than the excess of the stockholders' equity
of the Company as of the end of such calendar quarter over $500 million.
 
  The Keep Well Agreement further provides that if the Company should lack
sufficient cash, other liquid assets or credit facilities to meet its payment
obligations on its commercial paper, then Fuji Bank will lend the Company up
to $500 million, payable on demand, which the Company may use only for the
purpose of meeting such payment obligations. Any such loan by Fuji Bank to the
Company (a "Liquidity Advance") will bear interest at a fluctuating interest
rate per annum equal to the announced prime commercial lending rate of Morgan
Guaranty Trust Company of New York plus 0.25% per annum. Each Liquidity
Advance will be repayable on demand at any time after the business day
following the 29th day after such Liquidity Advance was made. No repayment of
the Liquidity Advance will be made during a period of default in the payment
of the Company's senior indebtedness for borrowed money.
 
                                      94
<PAGE>
 
  No Liquidity Advances or purchases of NW Preferred Stock have been made by
Fuji Bank under the Keep Well Agreement; other infusions of capital in the
Company have been made by Fuji Bank, the last one of which occurred in 1992.
 
  Under the Keep Well Agreement, the Company has covenanted to maintain, and
Fuji Bank has undertaken to assure that the Company will maintain, unused
short-term lines of credit, asset sales facilities and committed credit
facilities in an amount approximately equal to 75% of the amount of its
commercial paper obligations from time to time outstanding.
 
  Neither Fuji Bank nor the Company is permitted to terminate the Keep Well
Agreement for any reason prior to the Termination Date. After the Termination
Date, either Fuji Bank or the Company may terminate the Keep Well Agreement
upon 30 business days' prior written notice, except as set forth below. So
long as the Series A Preferred Stock is outstanding and held by third parties
other than Fuji Bank, the Keep Well Agreement may not be terminated by either
party unless the Company has received written certifications from Moody's and
S&P that upon such termination the Series A Preferred Stock will be rated by
them no lower than "a3" and "A-", respectively. Additionally, so long as the
Series C Preferred Stock is outstanding and held by third parties other than
Fuji Bank, the Keep Well Agreement may not be terminated by either party
unless the Company has received written certifications from Moody's and S&P
that upon such termination the Series C Preferred Stock will be rated no lower
than "baa1" and "BBB" by Moody's and S&P, respectively. For these purposes,
the Series A Preferred Stock and the Series C Preferred Stock will no longer
be deemed outstanding at such time as an effective notice of redemption of all
of the Series A Preferred Stock and the Series C Preferred Stock shall have
been given by the Company and funds sufficient to effectuate such redemption
shall have been deposited with the party designated for such purpose in the
notice. So long as the Series A Preferred Stock is outstanding, if both
Moody's and S&P shall discontinue rating the Series A Preferred Stock, then
Goldman, Sachs & Co., or its successor, shall, within 30 days, select a
nationally recognized substitute rating agency and identify the comparable
ratings from such agency. So long as the Series A Preferred Stock is no longer
outstanding but the Series C Preferred Stock is outstanding, if both Moody's
and S&P shall discontinue rating the Series C Preferred Stock, then Lehman
Brothers Inc., or its successor, shall, within 30 days, select a nationally
recognized substitute rating agency and identify the comparable ratings from
such agency. Any termination of the Keep Well Agreement by the Company must be
consented to by Fuji Bank. Any such termination will not relieve the Company
of its obligations in respect of any NW Preferred Stock outstanding on the
date of termination or the dividends thereon, any amounts owed in respect of
Liquidity Advances on the date of termination or the unpaid principal or
interest on those Liquidity Advances or Fuji Bank's fee relating to the
Liquidity Commitment. Any such termination will not adversely affect the
Company's commercial paper obligations outstanding on the date of termination.
The Keep Well Agreement can be modified or amended by a written agreement of
Fuji Bank and the Company. However, no such modification or amendment may
change the prohibition against termination before the Termination Date or the
other restrictions on termination or adversely affect the Company's then-
outstanding commercial paper obligations.
 
  Under the Keep Well Agreement, the Company's commercial paper obligations
and any other debt instruments are solely the obligations of the Company. The
Keep Well Agreement is not a guarantee by Fuji Bank of the payment of the
Company's commercial paper obligations, indebtedness, liabilities or
obligations of any kind.
 
 REGISTRATION RIGHTS AGREEMENT
   
  In connection with the contemplated Offering, the Company and Fuji Bank
expect to enter into a registration rights agreement (the "Registration Rights
Agreement") providing that, upon the request of any of Fuji Bank, its
subsidiaries or certain transferees of Common Stock from Fuji Bank or its
subsidiaries (each, a "Qualified Transferee"), the Company will use its best
efforts to effect the registration under the applicable federal and state
securities laws of any of the shares of Class A     
 
                                      95
<PAGE>
 
   
Common Stock that it may hold or that are issued or issuable upon conversion
of any other security that it may hold (including the shares of Class B Common
Stock) and of any other securities issued or issuable in respect of the Class
A Common Stock, in each case for sale in accordance with the intended method
of disposition of the holder or holders making such demand for registration,
and will take such other actions as may be necessary to permit the sale
thereof in other jurisdictions, subject to certain specified limitations. Fuji
Bank, its subsidiaries or any Qualified Transferee will also have the right,
which it may exercise at any time and from time to time, subject to certain
limitations, to include any such shares and other securities in other
registrations of equity securities of the Company initiated by the Company on
its own behalf or on behalf of other securityholders of the Company. The
Company will agree to pay all costs and expenses in connection with each such
registration which Fuji Bank, any subsidiary thereof or any Qualified
Transferee initiates or in which any of them participates. The Registration
Rights Agreement will contain indemnification and contribution provisions (i)
by Fuji Bank and its permitted assigns for the benefit of the Company, and
(ii) by the Company for the benefit of Fuji Bank and other persons entitled to
effect registrations of Class A Common Stock pursuant to its terms, and
related persons.     
 
PURCHASE OF INTEREST IN INTERNATIONAL GROUP FROM FUJI BANK
   
  In connection with the contemplated Offering, the Company's Board of
Directors has authorized the Company to purchase Fuji Bank's interest in
International Group for total cash consideration of approximately $83 million,
$54 million of which will be for the International Group common stock owned by
Fuji Bank, valued at book value, and $29 million of which will be for the
International Group preferred stock owned by Fuji Bank, valued at a modest
premium over book value. The shares of common and preferred stock of
International Group currently owned by Fuji Bank represent 21% of the
outstanding shares of capital stock of International Group. The Company
intends to finance this acquisition through the issuance of senior debt, which
will bear interest at a market rate and have such other terms as are
determined at the time of issuance.     
 
CERTAIN OTHER TRANSACTIONS WITH FUJI BANK AND ITS SUBSIDIARIES
 
  Several financial, administrative or other service arrangements exist or
have existed between the Company and Fuji Bank, FAHI, HIC or related
affiliates. In management's opinion, the terms of these arrangements are
similar to those the Company would have been able to obtain in like agreements
with unaffiliated entities in arms-length transactions.
 
 TAX ALLOCATION AGREEMENT
   
  Under the terms of the tax allocation agreement between HIC and the Company,
as amended, which was terminated after 1997, the Company has previously filed,
and will file for 1997, consolidated U.S. federal income tax returns with HIC.
The Company has reported, and will report for 1997, income tax expense as if
it were a separate company and will record future tax benefits as soon as it
is more likely than not that such benefits will be realized. Pursuant to the
tax allocation agreement, each company covered by the agreement calculated its
current and deferred income taxes based on its separate company taxable income
or loss, utilizing separate company net operating losses, tax credits, capital
losses and deferred tax assets or liabilities. In accordance with the
provisions of such tax allocation agreement, net payments of $73 million, $43
million and $70 million were made by the Company to HIC in 1997, 1996 and
1995, respectively, and HIC made income tax payments of $49 million, $23
million and $25 million in 1997, 1996 and 1995, respectively. Under the terms
of other tax allocation agreements with certain of the Company's subsidiaries,
the Company and HIC, in calculating their current income taxes, utilized the
taxable income or loss of the subsidiaries. The Company anticipates that it
will enter into a similar tax allocation agreement with FAHI for the period
from January 2, 1998 through the date of the consummation of the Offerings.
    
                                      96
<PAGE>
 
 SERVICES PROVIDED BY FUJI BANK, HIC AND FAHI FOR THE COMPANY
 
  Certain employees of Fuji Bank and HIC performed managerial, administrative
and other related functions for the Company during 1997. The Company
compensated Fuji Bank and HIC for the use of such individuals' services at a
rate which reflects current costs to Fuji Bank and HIC. The amounts paid to
Fuji Bank and HIC for these services in 1997 were $2 million and $77 million,
respectively. See "Item 11. Executive Compensation." In conjunction with the
transfer of ownership of the Company to FAHI, the majority of the employees of
HIC who were providing services to the Company were transferred to the
Company. Additionally, certain subsidiaries of Fuji Bank periodically serve as
managers for various offerings of the Company's debt securities and may act as
registrar and paying agent for certain debt issuances by the Company. These
services are provided at market rates. The Company has entered into similar
agreements with FAHI. In the Company's opinion, the amounts to be paid under
such agreements will be significantly less than the amounts paid in 1997.
 
 SERVICES PROVIDED BY THE COMPANY FOR AFFILIATES
 
  The Company performs services for its affiliates, including FAHI, and
charges them for the cost of the work performed. The Company may also
guarantee the obligations of its clients or the clients of certain joint
ventures under letters of credit issued by financial institutions, some of
which are affiliates of the Company. Additionally, the Company guaranteed
payment under a deferred compensation arrangement between HIC and certain of
its employees. The Company had agreements with HIC and certain other
subsidiaries of HIC which provided for the Company to receive an annual
negotiated fee for servicing assets which had been sold by the Company to HIC
and these affiliates. The amount of fees for servicing these assets in 1997
was approximately $200,000.
 
  Heller Capital Markets Group, Inc. ("CMG"), a wholly-owned subsidiary of the
Company, acted as placement agent for the sale of commercial paper issued by
HIC during 1997. CMG received compensation based upon the face amount of the
commercial paper notes sold. For the year ended December 31, 1997, HIC paid
compensation to CMG pursuant to this arrangement of $61,000. The HIC
commercial paper program was terminated during 1997.
 
 INTERCOMPANY RECEIVABLES, PAYABLES, TRANSACTIONS AND FINANCIAL INSTRUMENTS
 
  At December 31, 1997, the net amount due to affiliates was $29 million. This
amount is comprised principally of interest bearing demand notes representing
amounts due to or from the Company arising from an interest rate swap
agreement with HIC, advances, administrative fees and costs charged to other
subsidiaries of HIC. The notes bear interest at rates which approximate the
average rates on the Company's commercial paper obligations or short-term bank
borrowing rates outstanding during the period. During 1997 the Company paid
interest of $3 million to HIC related to these notes.
   
  Fuji Bank and one of its subsidiaries provided uncommitted lines of credit
to international subsidiaries of the Company totalling approximately $29
million at December 31, 1997. Borrowings under these facilities totalled $5
million at December 31, 1997. In addition, Fuji Bank provides lines of credit
to certain international joint ventures of the Company.     
 
  The Company is a party to a $200 million notional amount interest rate swap
agreement with FAHI, which expires December 15, 2000. The purpose of this
agreement is to manage the Company's exposure to interest rate fluctuations.
Under this agreement, the Company pays interest to FAHI at a variable rate
based on the commercial paper rate published by the Board of Governors of the
Federal Reserve and FAHI pays interest to the Company at a fixed rate of
5.57%. This agreement, which FAHI assumed from HIC effective January 1998,
increased the Company's interest expense by $295,000 in 1997.
 
  During 1997, HIC converted all of its shares of Series D Preferred Stock
into common stock of the Company. Prior to the conversion, the Company paid a
dividend to HIC on the Series D Preferred Stock of approximately $500,000.
 
                                      97
<PAGE>
 
  Also, during 1997, the Company paid to Fuji Bank a commitment fee of
approximately $317,000, related to the Keep Well Agreement.
 
  The trust department of Fuji Bank may purchase commercial paper of the
Company for its clients. Interest expense paid by the Company related to such
commercial paper borrowings was $235,000 in 1997.
 
  In the ordinary course of its business, the Company participates in joint
financings with Fuji Bank or certain affiliates. During 1997, the Company sold
$10 million of an outstanding $25 million commitment to Fuji Bank at book
value. No gain or loss was recorded on the transaction.
 
  The Company has an accounts receivable sale facility which allows the
Company to sell an undivided interest of up to $550 million in a designated
pool of its factored accounts receivable to five bank-supported conduits. The
Company sold approximately $500 million of receivables under this facility as
of December 31, 1997. The underlying liquidity support for the conduit is
provided by unaffiliated entities. One of the conduits has an operating
agreement with Fuji Bank. The Company paid fees of $346,000 to Fuji Bank
during 1997 for services provided under this agreement.
 
  In conjunction with the formation of FAHI, the Company purchased, at book
value, less than $10 million of assets from HIC on December 31, 1997. These
assets are primarily recorded as real estate receivables at the purchase
price.
   
  On February 15, 1985, the Company issued to HIC 1,000 shares of previously
subscribed Series D Preferred Stock, which had a dividend yield established
quarterly at the rate of 1/2% under the announced prime commercial lending
rate of Morgan Guaranty Trust Company of New York, cumulative from March 30,
1984 and payable quarterly commencing on March 31, 1989. During 1997, HIC
converted all of its shares of Series D Preferred Stock into common stock of
the Company. The conversion was accounted for as a stock dividend and
therefore has been retroactively restated in the Company's consolidated
financial statements. All dividends paid on the Series D Preferred Stock have
been retroactively reclassified to common dividends.     
 
CERTAIN OTHER RELATIONSHIPS
 
  Mr. Kessel, a director of the Company, is a partner of the law firm of
Shearman & Sterling, which from time to time acts as counsel in certain
matters for Fuji Bank, the Company and FAHI.
 
                                      98
<PAGE>
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
  (a) Documents Filed as Part of This Report:
 
    1.   Financial Statements (All Financial Statements listed below are
         those of the Company and its consolidated subsidiaries):
 
      Report of Independent Public Accountants--Arthur Andersen LLP
 
      Consolidated Balance Sheets--December 31, 1997 and 1996
 
      Consolidated Statements of Income for the Years Ended December 31,
      1997, 1996 and 1995
 
      Consolidated Statements of Cash Flows for the Years Ended December
      31, 1997, 1996 and 1995
 
      Consolidated Statements of Changes in Stockholders' Equity for the
      Years Ended December 31, 1997, 1996 and 1995
 
      Notes to Consolidated Financial Statements
 
    2.   Financial Statement Schedules:
 
      Schedules are omitted because they are not applicable or because the
      required information appears in the financial statements or the
      notes thereto.
 
    3.   Exhibits:
 
<TABLE>
<CAPTION>
 
    <C>       <S>                        <C>
    (3)(a)*   Restated Certificate of
              Incorporation of the
              Company, as amended
    (3)(b)    By-laws of the Company,
              as amended on June 17,
              1996 [Incorporated by
              reference to Exhibit
              3(ii) to the Company's
              Quarterly Report on Form
              10-Q for the Quarter
              Ended June 30, 1996
              (File No. 1-6157)]
    (4)(a)    Certificate of Designa-
              tion, Preferences and
              Rights of Cumulative
              Perpetual Senior Pre-
              ferred Stock, Series A,
              filed September 16, 1992
              [Incorporated by refer-
              ence to Exhibit 4(a) to
              the Company's Annual Re-
              port on Form 10-K for
              the Fiscal Year Ended
              December 31, 1992 (File
              No. 1-6157)]
    (4)(b)    Certificate of Designa-
              tion, Preferences and
              Rights of the Company's
              Fixed Rate Noncumulative
              Perpetual Senior Pre-
              ferred Stock Series B
              (Liquidation Preference
              $100.00 per share) filed
              with the Secretary of
              State of Delaware on
              June 13, 1997 [Incorpo-
              rated by reference to
              Exhibit (3)(i)(b) to the
              Company's Quarterly Re-
              port on Form 10-Q for
              the Quarter Ended June
              30, 1997 (File No. 1-
              6157)]
    (4)(c)    Certificate of Designa-
              tion, Preferences and
              Rights of the Company's
              Fixed Rate Noncumulative
              Perpetual Senior Pre-
              ferred Stock, Series C
              (Liquidation Preference
              $100.00 Per Share) filed
              with the Secretary of
              State of Delaware on No-
              vember 5, 1997 [Incorpo-
              rated by reference to
              Exhibit 4.4 to the
              Company's Registration
              Statement on Form S-4
              dated October 24, 1997
              (File No. 333-38627)]
    (4)(d)    Heller Financial, Inc.
              Standard Multiple-Series
              Indenture Provisions
              dated February 5, 1987
              [Incorporated by refer-
              ence to Exhibit (4)(a)
              to the Company's Regis-
              tration Statement on
              Form S-3 dated February
              5, 1987 (File No. 33-
              11757)]
</TABLE>
 
                                      99
<PAGE>
 
<TABLE>
<CAPTION>
 
    <C>       <S>                        <C>
    (4)(e)    Form of Indenture dated
              as of February 5, 1987
              between the Company and
              The First National Bank
              of Chicago, Trustee,
              with respect to Senior
              Securities [Incorporated
              by reference to Exhibit
              (4)(b) to the Company's
              Registration Statement
              on Form S-3 dated Febru-
              ary 5, 1987 (File No.
              33-11757)]
    (4)(f)    Form of Indenture dated
              as of February 24, 1993
              between the Company and
              The First National Bank
              of Boston, Trustee, with
              respect to Senior Secu-
              rities [Incorporated by
              reference to Exhibit
              (4)(h) to the Company's
              Registration Statement
              on Form S-3 dated Febru-
              ary 24, 1993 (File No.
              33-58716)]
    (4)(g)    First Supplemental In-
              denture dated September
              29, 1995 to the Inden-
              ture dated February 24,
              1993 between the Company
              and State Street Bank
              Bank and Trust Company,
              as successor to The
              First National Bank of
              Boston, with respect to
              Senior Securities [In-
              corporated by reference
              to Exhibit (4)(a) to the
              Company's Current Report
              on Form 8-K filed Octo-
              ber 3, 1995 (File No. 1-
              6157)]
    (4)(h)    Form of Indenture dated
              as of February 5, 1987
              between the Company and
              Chemical Bank, Trustee,
              with respect to Senior
              Securities [Incorporated
              by reference to Exhibit
              (4)(c) to the Company's
              Registration Statement
              on Form S-3 dated Febru-
              ary 5, 1987 (File No.
              33-11757)]
    (4)(i)    First Supplemental In-
              denture dated as of De-
              cember 1, 1989 to the
              Indenture dated as of
              February 5, 1987 between
              Chemical Bank, as Trust-
              ee, and the Company [In-
              corporated by reference
              to Exhibit (4)(e) to the
              Company's Annual Report
              on Form 10-K for the
              Fiscal Year Ended Decem-
              ber 31, 1994 (File No.
              1-6157)]
    (4)(j)    Form of Indenture dated
              as of September 30, 1991
              between the Company and
              The Bank of New York,
              Trustee, with respect to
              Senior Securities [In-
              corporated by reference
              to Exhibit (4)(h) to the
              Company's Registration
              Statement on Form S-3
              dated September 30, 1991
              (File No. 33-43020)]
    (4)(k)    Indenture dated as of
              September 1, 1995 be-
              tween the Company and
              State Street Bank and
              Trust Company, as suc-
              cessor to Shawmut Bank
              Connecticut, National
              Association, as Trustee,
              with respect to Senior
              Securities [Incorporated
              by reference to Exhibit
              4.3 to the Company's
              Registration Statement
              on Form S-3 dated Octo-
              ber 23, 1997 (File No.
              333-38545)]
    (4)(l)    First Supplemental In-
              denture dated as of Oc-
              tober 13, 1995, to the
              Indenture dated as of
              September 1, 1995, be-
              tween the Company and
              State Street Bank and
              Trust Company, as suc-
              cessor to Shawmut Bank
              Connecticut, National
              Association, as Trustee,
              with respect to Senior
              Securities [Incorporated
              by reference to the
              Company's Current Report
              on Form 8-K, filed Octo-
              ber 18, 1995 (File No.
              1-6157)]
    (4)(m)    Second Supplemental In-
              denture dated November
              17, 1997 to Indenture
              dated September 1, 1995
              between the Company and
              State Street Bank and
              Trust Company, as Trust-
              ee, with respect to Se-
              nior Securities [Incor-
              porated by reference to
              Exhibit 4(a) to the
              Company's Current Report
              on Form 8-K filed Decem-
              ber 4, 1997 (File No. 1-
              6157)]
    (4)(n)    Indenture dated as of
              September 1, 1995
              between the Company and
              State Street Bank and
              Trust Company, as
              successor to Shawmut
              Bank Connecticut,
              National Association, as
              Trustee, with respect to
              Subordinated Securities
              [Incorporated by
              reference to Exhibit 4.5
              to the Company's
              Registration Statement
              on Form S-3 dated
              October 23, 1997 (File
              No. 333-38545)]
</TABLE>
 
                                      100
<PAGE>
 
<TABLE>
<CAPTION>
 
    <C>       <S>                        <C>
    (4)(o)    First Supplemental In-
              denture dated as of Oc-
              tober 13, 1995, to the
              Indenture dated as of
              September 1, 1995, be-
              tween the Company and
              State Street Bank and
              Trust Company, as suc-
              cessor to Shawmut Bank
              Connecticut, National
              Association, as Trustee,
              with respect to Subordi-
              nated Securities [Incor-
              porated by reference to
              the Company's Current
              Report on Form 8-K,
              filed October 18, 1995
              (File No. 1-6157)]
    (4)(p)    Indenture dated as of
              September 1, 1995
              between the Company and
              State Street Bank and
              Trust Company, as
              successor to Shawmut
              Bank Connecticut,
              National Association, as
              Trustee, with respect to
              Junior Subordinated
              Securities [Incorporated
              by reference to Exhibit
              4.7 to the Company's
              Registration Statement
              on Form S-3 dated
              October 23, 1997 (File
              No. 333-38545)]
    (4)(q)    First Supplemental
              Indenture dated October
              13, 1995, to the
              Indenture dated as of
              September 1, 1995,
              between the Company and
              State Street Bank and
              Trust Company, as
              successor to Shawmut
              Bank Connecticut,
              National Association, as
              Trustee, with respect to
              Junior Subordinated
              Securities [Incorporated
              by reference to Exhibit
              4(d)(i) to the Company's
              Current Report on Form
              8-K filed October 18,
              1995 (File No. 1-6157)]
    (4)(r)    Form of Medium-Term
              Note, Series G (Fixed
              Rate) due from 9 months
              to 30 years from date of
              issue [Incorporated by
              reference to Exhibit
              4(a) to the Company's
              Current Report on Form
              8-K filed November 6,
              1997 (File no. 1-6157)]
    (4)(s)    Form of Medium-Term
              Note, Series G (Fixed
              Rate/Currency Indexed)
              due from 9 months to 30
              years from date of issue
              [Incorporated by refer-
              ence to Exhibit 4(b) to
              the Company's Current
              Report on Form 8-K filed
              November 6, 1997 (File
              no. 1-6157)]
    (4)(t)    Form of Medium-Term
              Note, Series G (Floating
              Rate) due from 9 months
              to 30 years from date of
              issue [Incorporated by
              reference to Exhibit
              4(c) to the Company's
              Current Report on Form
              8-K filed November 6,
              1997 (File no. 1-6157)]
    (4)(u)    Form of Medium-Term
              Note, Series G (Floating
              Rate/Currency Indexed)
              due from 9 months to 30
              years from date of issue
              [Incorporated by refer-
              ence to Exhibit 4(d) to
              the Company's Current
              Report on Form 8-K filed
              November 6, 1997 (File
              no. 1-6157)]
    (4)(v)    Form of Medium-Term
              Note, Series H (Fixed
              Rate) due from 9 months
              to 30 years from date of
              issue [Incorporated by
              reference to Exhibit
              4(b) to the Company's
              Current Report on Form
              8-K filed December 4,
              1997 (File no. 1-6157)]
    (4)(w)    Form of Medium-Term
              Note, Series H (Fixed
              Rate/Currency Indexed)
              due from 9 months to 30
              years from date of issue
              [Incorporated by refer-
              ence to Exhibit 4(c) to
              the Company's Current
              Report on Form 8-K filed
              December 4, 1997 (File
              no. 1-6157)]
    (4)(x)    Form of Medium-Term
              Note, Series H (Floating
              Rate) due from 9 months
              to 30 years from date of
              issue [Incorporated by
              reference to Exhibit
              4(d) to the Company's
              Current Report on Form
              8-K filed December 4,
              1997 (File no. 1-6157)]
    (4)(y)    Form of Medium-Term
              Note, Series H (Floating
              Rate/Currency Indexed)
              due from 9 months to 30
              years from date of issue
              [Incorporated by refer-
              ence to Exhibit 4(e) to
              the Company's Current
              Report on Form 8-K filed
              December 4, 1997 (File
              no. 1-6157)]
    (10)(a)*  Restated Keep Well
              Agreement dated as of
              June 17, 1997, amending
              and restating the agree-
              ment dated as of August
              28, 1992, as amended as
              of May 3, 1995 and June
              17, 1997, between Fuji
              Bank and the Company
    (10)(b)   Services Agreement dated
              January 1, 1985 between
              the Company and Fuji
              Bank [Incorporated by
              reference to Exhibit
              (10)(e) to the Company's
              Annual Report on Form
              10-K for the Fiscal Year
              Ended December 31, 1992
              (File No. 1-6157)]
</TABLE>
 
                                      101
<PAGE>
 
<TABLE>
<CAPTION>
 
   <C>       <S>                        <C>
   (10)(c)   Management Agreement
             dated as of January 1,
             1991 between HIC and the
             Company [Incorporated by
             reference to Exhibit
             (10)(m) to the Company's
             Quarterly Report on Form
             10-Q for the period end-
             ing March 31, 1991 (File
             No. 1-6157)]
   (10)(d)*  Management Services
             Agreement dated as of
             January 2, 1998 between
             FAHI and the Company
   (10)(e)   Agreement for the Allo-
             cation of Federal, State
             and Foreign Income Tax
             Liability and Benefits
             Among Heller Interna-
             tional Corporation and
             its Subsidiaries, effec-
             tive as of July 1, 1996
             [Incorporated by refer-
             ence to Exhibit (10)(g)
             to the Company's annual
             Report on Form 10-K for
             the Fiscal Year Ended
             December 31, 1996 (File
             No. 1-6157)]
   (10)(f)+  Supplemental Executive
             Retirement Benefit Plan,
             amended and restated ef-
             fective January 1, 1996
             [Incorporated by refer-
             ence to Exhibit (10)(e)
             to the Company's Annual
             Report on Form 10-K for
             the Fiscal Year Ended
             December 31, 1996 (File
             No. 1-6157)]
   (10)(g)+  Long Term Incentive
             Plan, effective January
             1, 1994 [Incorporated by
             reference to Exhibit
             10(n) to the Company's
             Annual Report on Form
             10-K for the Fiscal Year
             Ended December 31, 1994
             (File No. 1-6157)]
   (10)(h)*+ 1996-1998 Long Term In-
             centive Plan, effective
             January 1, 1996
   (10)(i)*+ 1997-1999 Long Term In-
             centive Plan, effective
             January 1, 1997
   (10)(j)+  Executive Deferred Com-
             pensation Plan, dated
             January 1, 1994 as
             amended on October 1,
             1994 [Incorporated by
             reference to Exhibit
             10(o) to the Company's
             Annual Report on Form
             10-K for the Fiscal Year
             Ended December 31, 1994
             (File No. 1-6157)]
   (10)(k)+  Second Amendment to the
             Executive Deferred Com-
             pensation Plan, dated
             December 29, 1995 [In-
             corporated by reference
             to Exhibit 10(n) to the
             Company's Annual Report
             on Form 10-K for the
             Fiscal Year Ended Decem-
             ber 31, 1995 (File No.
             1-6157)]
   (10)(l)+  Third Amendment to the
             Executive Deferred Com-
             pensation Plan, dated
             January 1, 1996 [Incor-
             porated by reference to
             Exhibit 10(m) to the
             Company's Annual Report
             on Form 10-K for the
             Fiscal Year Ended Decem-
             ber 31, 1996 (File No.
             1-6157)]
   (10)(m)+  Fourth Amendment to the
             Executive Deferred Com-
             pensation Plan, dated
             November 26, 1996 [In-
             corporated by reference
             to Exhibit 10(n) to the
             Company's Annual Report
             on Form 10-K for the
             Fiscal Year Ended Decem-
             ber 31, 1996 (File No.
             1-6157)]
   (10)(n)*+ Fifth Amendment to the
             Executive Deferred Com-
             pensation Plan, dated
             November 21, 1997 and
             effective January 1,
             1997
   (10)(o)+  Cross Guaranty for the
             Executive Deferred Com-
             pensation Plan [Incorpo-
             rated by reference to
             Exhibit 10(p) to the
             Company's Annual Report
             on Form 10-K for the
             Fiscal Year Ended Decem-
             ber 31, 1994 (File No.
             1-6157)]
   (10)(p)+  Management Incentive
             Plan (Effective January
             1, 1987, Revised January
             1, 1989) [Incorporated
             by reference to Exhibit
             10(m) to the Company's
             Annual Report on Form
             10-K for the Fiscal Year
             Ended December 31, 1995
             (File No. 1-6157)]
   (10)(q)+  Savings and Profit Shar-
             ing Plan, amended and
             restated effective as of
             January 1, 1989 [Incor-
             porated by reference to
             Exhibit (10)(q) to the
             Company's Annual Report
             on Form 10-K for the
             Fiscal Year Ended Decem-
             ber 31, 1996 (File No.
             1-6157)]
   (10)(r)+  First Amendment to Sav-
             ings and Profit Sharing
             Plan, dated December 23,
             1993 [Incorporated by
             reference to Exhibit
             (10)(r) to the Company's
             Annual Report on Form
             10-K for the Fiscal Year
             Ended December 31, 1996
             (File No. 1-6157)]
</TABLE>
 
                                      102
<PAGE>
 
<TABLE>   
<CAPTION>
 
   <C>       <S>                        <C>
   (10)(s)+  Second Amendment to Sav-
             ings and Profit Sharing
             Plan, dated December 20,
             1994 [Incorporated by
             reference to Exhibit
             (10)(s) to the Company's
             Annual Report on Form
             10-K for the Fiscal Year
             Ended December 31, 1996
             (File No. 1-6157)]
   (10)(t)+  Third Amendment to Sav-
             ings and Profit Sharing
             Plan, dated September 9,
             1996 [Incorporated by
             reference to Exhibit
             (10)(t) to the Company's
             Annual Report on Form
             10-K for the Fiscal Year
             Ended December 31, 1996
             (File No. 1-6157)]
   (10)(u)*+ Fourth Amendment to Sav-
             ings and Profit Sharing
             Plan, dated April 30,
             1997
   (10)(v)+  Employment Letter Agree-
             ment, dated February 1,
             1996 between the HIC and
             Richard J. Almeida [In-
             corporated by reference
             to Exhibit 10(o) to the
             Company's Annual Report
             on Form 10-K for the
             Fiscal Year Ended Decem-
             ber 31, 1995 (File No.
             1-6157)]
   (10)(w)*+ Employment Letter Agree-
             ment, dated as of Decem-
             ber 31, 1997, between
             the Company and Richard
             J. Almeida
   (10)(x)*+ Employment Letter Agree-
             ment, dated as of Decem-
             ber 31, 1997, between
             the Company and Freder-
             ick E. Wolfert
   (10)(y)*  Subordinated Promissory
             Note in the principal
             amount of $450 million
             issued by the Company to
             Fuji America Holdings,
             Inc.
   (12)*     Computation of Ratio of
             Earnings to Combined
             Fixed Charges and Pre-
             ferred Stock Dividends
   (21)*     Subsidiaries of the Reg-
             istrant
   (23)**    Consent of Independent
             Public Accountants
   (24)*     Powers of Attorney
   (27)*     Financial Data Schedule
</TABLE>    
--------
   
*  Previously filed as part of the Form 10-K.     
   
** Filed herewith.     
+  Management contract or compensatory plan or arrangement required to be
   filed as an exhibit to this Form 10-K.
 
    Instruments defining the rights of holders of certain issues of long-
    term debt of the Company have not been filed as exhibits to this Report
    because the authorized principal amount of any one of such issues does
    not exceed 10% of the total assets of the Company. In accordance with
    paragraph (b)(4)(iii) of Item 601 of Regulation S-K, the Company hereby
    agrees to furnish to the Securities and Exchange Commission, upon
    request, a copy of each instrument that defines the rights of holders
    of the Company's long-term debt.
 
  (b) Current Reports on Form 8-K:
 
    The following were filed pursuant to Item 5 of Form 8-K:
 
 
      On October 22, 1997, the Company filed a Current Report on Form 8-K
    to announce the Company's earnings for the quarter ended September 30,
    1997 and the Company's issuance of $250 million principal amount of its
    6.44% Notes due October 6, 2002.
 
      On November 6, 1997, the Company filed a Current Report on Form 8-K
    to announce that the Company commenced an offering from time to time
    under its Registration Statement on Form S-3 (Reg. No. 333-38545) and
    pursuant to a Prospectus Supplement of up to $500 million of Medium
    Term Notes, Series G, due from 9 months to 30 years from the date of
    issue.
 
      On December 4, 1997, the Company filed a Current Report on Form 8-K
    to announce that the Company commenced an offering pursuant to a
    Prospectus Supplement of up to $2.5 billion of Medium Term Notes,
    Series H, due from 9 months to 30 years from the date of issue.
 
      On December 9, 1997, the Company filed a Current Report on Form 8-K
    to announce that Fuji Bank issued a press release with respect to Fuji
    Bank's interim financial statements for the six months ended September
    30, 1997.
 
      On January 28, 1998, the Company filed a Current Report on Form 8-K
    to announce the Company's earnings for the year ended December 31,
    1997.
 
      On January 30, 1998, the Company filed a Current Report on Form 8-K
    to announce Fuji Bank's consideration of a public offering by the
    Company
 
      On February 20, 1998, the Company filed a Current Report on Form 8-K
    to announce payment of a $450 million dividend to FAHI in the form of a
    subordinated promissory note.
 
                                      103
<PAGE>
 
                                  SIGNATURES
   
  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.     
 
                                          Heller Financial, Inc.
                                                   
                                                /s/ Lauralee E. Martin     
                                          By:__________________________________
                                                     
                                                  Lauralee E. Martin     
                                               
                                            Executive Vice President and Chief
                                                  Financial Officer     
                                             
                                          Dated: April 28, 1998     
                                                 
                                      104