<PAGE>
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
 
                                  Form 10-K/A
                               (Amendment No. 1)
 
(Mark One)   ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
  [X]                   SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year Ended December 31, 1998
 
                                      OR
 
  [_]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
 
                         Commission file number 1-6157
 
                            Heller Financial, Inc.
            (Exact name of registrant as specified in its charter)
 
                                                     36-1208070
               Delaware                 (I.R.S. Employer Identification No.)
    (State or other jurisdiction of
    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>
Class A Common Stock                        New York Stock Exchange, Inc.
                                       The Chicago Stock Exchange Incorporated
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. YesX  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. [_]
 
  As of March 1, 1999, the aggregate market value of voting stock held by non-
affiliates of the registrant, based upon the closing sales price for the
registrant's Class A common stock, as reported on the New York Stock Exchange
was approximately $963,050,000.
 
        Number of shares of Common Stock outstanding at March 1, 1999:
                       Class A Common Stock--38,852,546
                       Class B Common Stock--51,050,000
 
     Documents incorporated by reference: Portions of the definitive Proxy
 Statement prepared for the 1999 Annual Meeting of Stockholders to be filed no
 later than April 1, 1999 are incorporated by reference into Part III of this
                                    report.
                 Web site address is http://www.hellerfin.com
 
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<PAGE>
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
  Item
   No.                             Name of Item                             Page
  ----                             ------------                             ----
 <C>     <S>                                                                <C>
 Part I
 Item 1. Business........................................................     4
         General.........................................................     4
         Domestic Commercial Finance Segment.............................     7
           Corporate Finance.............................................     7
           Real Estate Finance...........................................     9
           Leasing Services..............................................    11
           Small Business Finance........................................    14
           Commercial Services...........................................    16
         International Factoring and Asset Based Finance Segment.........    17
         Sales and Marketing.............................................    19
         Competition.....................................................    20
         Regulation......................................................    21
         Employees.......................................................    22
         Risk Management.................................................    22
         Credit Risk Management..........................................    22
         Asset/Liability Management......................................    23
         Interest Rate Risk Management...................................    24
         Foreign Exchange Risk Management................................    26
         Liquidity Risk Management.......................................    29
         Portfolio Quality...............................................    30
 Item 2. Properties......................................................    32
 Item 3. Legal Proceedings...............................................    32
 Item 4. Submission of Matters to a Vote of Security Holders.............    32
 
 Part II
         Market for Registrant's Common Equity and Related Stockholder
 Item 5.   Matters.......................................................    33
 Item 6. Selected Financial Data.........................................    35
 Item 7. Management's Discussion and Analysis of Financial Condition and
           Results of Operations.........................................    37
         General.........................................................    37
         Year Ended December 31, 1998 Compared to Year Ended December 31,
           1997..........................................................    39
         Results of Operations...........................................    39
         Lending Assets and Investments..................................    43
         Year Ended December 31, 1997 Compared to Year Ended December 31,
           1996..........................................................    45
         Results of Operations...........................................    45
         Lending Assets and Investments..................................    49
         Liquidity and Capital Resources.................................    50
         Accounting Developments.........................................    52
         Year 2000 Compliance............................................    53
         Special Note Regarding Forward-Looking Statements...............    54
 Item 8. Financial Statements and Supplementary Data.....................    55
 Item 9. Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure..........................................    94
</TABLE>
 
 
                                       2
<PAGE>
 
<TABLE>
<CAPTION>
 Item No.                           Name of Item                            Page
 --------                           ------------                            ----
 <C>      <S>                                                               <C>
 Part III
 Item 10. Directors and Executive Officers of the Registrant.............    95
 Item 11. Executive Compensation.........................................    96
 Item 12. Security Ownership of Certain Beneficial Owners and Management.    96
 Item 13. Certain Relationships and Related Transactions.................    96
 Part IV
          Exhibits, Financial Statement Schedules and Reports on Form 8-
 Item 14.   K............................................................    96
</TABLE>
 
                                       3
<PAGE>
 
                                     PART I
 
ITEM 1. BUSINESS
 
    The following discussion contains certain "forward-looking statements" as
defined in the Securities Exchange Act of 1934 which are generally identified
by the words "anticipates", "believes", "estimates", "expects", "plans",
"intends" and similar expressions. Those statements are subject to certain
risks, uncertainties and contingencies which could cause our 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, Heller or
the Company, which may be referred to as we, us or our) is a leading
diversified commercial financial services company. We provide a broad array of
financial products and services to mid-sized and small businesses in the United
States and selected international markets.
 
    Primary Business Segments
 
    We deliver our products and services principally through two business
segments:
 
  . Domestic Commercial Finance; and
 
  . International Factoring and Asset Based Finance.
 
    Domestic Business
 
    Our Domestic Commercial Finance segment is made up of five business units:
 
  (1) Corporate Finance, providing collateralized cash flow and asset based
      lending;
 
  (2) Real Estate Finance, primarily providing secured real estate
      financing;
 
  (3) Leasing Services, providing debt and lease financing of small and
      large ticket equipment sourced directly or through manufacturers,
      distributors and dealers;
 
  (4) Small Business Finance, providing financing to small businesses,
      primarily under U.S. Small Business Administration (SBA) loan
      programs; and
 
  (5) Commercial Services, providing factoring and receivables management
      services.
 
    International Business
 
    Our International Factoring and Asset Based Finance segment, known as
Heller International Group, provides factoring services and financings secured
primarily by receivables, inventory and equipment. It does so through wholly-
owned subsidiaries and joint ventures which provide financing to small and mid-
sized companies primarily in Europe, but also in Asia and Latin America.
 
    Market Position
 
    We concentrate primarily on senior secured lending, with 87% of lending
assets and investments at December 31, 1998 being made on that basis. Also, to
a more limited extent, we make subordinated loans and invest in select debt and
equity instruments.
 
                                       4
<PAGE>
 
    We believe that, as of December 31, 1998, we are the largest factoring
operation worldwide in terms of factoring volume. Our subsidiary, Factofrance-
Heller (Factofrance), is the largest factoring operation in France and our
Commercial Services unit is the fourth largest factoring operation in the
United States. We believe we are the third largest originator of U.S. SBA 7(a)
guaranteed small business loans (including leadership positions in California,
Texas, Florida and Illinois). We are among the largest lenders to private
equity-sponsored companies in the U.S. middle market. Additionally, we are a
recognized leader in real estate finance, vacation ownership lending, vendor
finance and middle-market equipment finance and leasing in the United States.
 
    We have built our portfolio through:
 
  . effective asset origination capabilities;
 
  . effective portfolio management;
 
  . disciplined underwriting and credit approval processes; and
 
  . acquisitions, to a lesser extent.
 
Our business groups have the ability to manage asset, client and industry
concentrations and enhance profitability by distributing assets through
securitizations, syndications and loan sales.
 
    Heller History and Recent Activities
 
    Heller was founded in 1919. From our inception, we have primarily targeted
our commercial financing activities at mid-sized and small businesses in the
United States. Since 1964, we have also competed in selected international
markets through our consolidated subsidiaries and investments in international
joint ventures.
 
    Heller was purchased by a subsidiary of The Fuji Bank, Limited (Fuji Bank)
in 1984. Fuji Bank owned 100% of Heller's common stock between that time and
April 1998. In May 1998, we issued 38,525,000 shares of Class A Common Stock in
an initial public offering (the IPO). The IPO reduced Fuji Bank's ownership,
through its direct subsidiary Fuji America Holdings, Inc. (FAHI), to 79% of the
voting interest and 57% of the economic interest of our issued common stock. In
May 1998, Heller increased its ownership of International Group to 100% from
79% by purchasing the 21% interest held by Fuji Bank.
 
    From the time of Fuji Bank's purchase of Heller through 1990, the
substantial majority of our portfolio consisted of Corporate Finance and Real
Estate Finance assets. These assets collectively represented 76% of our lending
assets and investments at December 31, 1990. Since 1990, we have diversified
our portfolio. While continuing to build our Corporate Finance and Real Estate
Finance franchises, we also invested major resources in building other secured
lending businesses through start-ups of new business units, acquisitions, and
the expansion of smaller existing operations. Products included asset based
working capital and term financings secured by accounts receivable and
inventory and various types of equipment finance and leasing product offerings.
 
    We further expanded our leasing operations by acquiring certain U.S. assets
of the Dealer Products Group of Dana Commercial Credit Corporation and the
stock of the Dealer Products Group's international subsidiaries (Dealer
Products Group).
 
    In the past several years, we selectively expanded our overseas operations,
most significantly by completing the acquisition, in April 1997, of the
interest of our joint venture partner in Factofrance, the leading factoring
company in France.
 
 
                                       5
<PAGE>
 
    As the result of the above activities, we believe that we have built a
lending portfolio that is well diversified, has strong asset collateralization
and provides us with a diversified income stream.
 
    Domestic Commercial Finance Restructuring
 
    During the fourth quarter of 1998, we implemented a restructuring
initiative
designed to:
 
  . increase operating revenues;
 
  . improve operational efficiencies; and
 
  . optimize return on stockholders' equity.
 
    To achieve the goals of our restructuring initiative, we reorganized our
domestic operations into five business units by bringing together businesses
that either originate transactions in similar markets or have common operating
processes as follows:
 
  . Corporate Finance combines the former Corporate Finance, Heller Business
    Credit and Heller Commercial Funding groups;
 
  . Real Estate Finance combines the former Real Estate Finance group and
    our Vacation Ownership unit;
 
  . Leasing Services combines the Commercial Equipment Finance and Vendor
    Finance units, including the Dealer Products Group acquired at the end
    of 1998;
 
  . Our factoring group, formerly known as the Current Asset Management
    Group, has been renamed Commercial Services;
 
  . Our Small Business Lending group has been renamed Small Business
    Finance.
 
    We incurred a one time charge of $17 million in connection with the
restructuring, primarily related to severance benefits for terminated employees
and termination of office leases. We anticipate that the restructuring will
realize annual savings of more than $20 million beginning in 1999.
 
    Summary 1998 Results
 
    For the year ended December 31, 1998:
 
  . Net income increased 22% to $193 million, from $158 million for the
    prior year.
 
  . Net income applicable to common stock was $172 million for the year
    ended December 31, 1998, which represented an increase of 19% from $144
    million for the prior year.
 
  . New business volume increased 20% over the prior year, from $6.0 billion
    to $7.2 billion.
 
  . Total lending assets and investments increased to $13.4 billion, an
    increase of $1.5 billion from the prior year.
 
  . Common stockholders' equity increased to $1.6 billion.
 
  . The strong credit quality of our portfolio is reflected in nonearning
    assets of $211 million, or 1.8% of total lending assets at December 31,
    1998. This is favorable to our targeted range for non earning assets of
    2-4% of total lending assets.
 
 
                                       6
<PAGE>
 
    See Note 22, "Operating Segments," of the Consolidated Financial Statements
for disclosure regarding certain financial information with respect to each of
our business segments.
 
Domestic Commercial Finance Segment
 
  Corporate Finance
 
    Corporate Finance is a leading provider of secured financing solutions to
middle market oriented equity sponsors, intermediaries and enterprises.
Corporate Finance primarily offers:
 
  . cash flow based lending;
 
  . asset based lending; and
 
  . makes equity investments on a more limited basis.
 
    Through Corporate Finance, we provide cash flow lending primarily for
leveraged buyouts, acquisitions, recapitalizations, refinancings, expansion and
growth of publicly and privately held entities. These entities are in a wide
variety of industries, including manufacturing, services, metals, plastics,
consumer products, health care and defense. In almost all cases, these
transactions involve professional or private equity investors, which acquire
businesses for financial or strategic purposes.
 
    We also provide secured term and revolving credit facilities with durations
of up to ten years. To a lesser extent, we provide unsecured or subordinated
financings and invest in private equity buy-out funds. From time to time, we
make modest non-voting equity investments in conjunction with senior debt
facilities, receive warrants or equity interests as a result of providing
financing, and make stand-alone equity co-investments, with known equity
sponsors. We also serve as co-lender or participant in larger senior secured
transactions originated by other lenders.
 
    We provide asset based working capital and term financing to middle-market
enterprises for growth, refinancings, recapitalizations, acquisitions, seasonal
borrowing, and debtor-in-possession (DIP) and post-DIP transactions. We do this
through senior loans primarily secured by accounts receivable, inventory and,
to a lesser extent, machinery and equipment. Middle market enterprises we serve
through our asset based lending unit include manufacturers, retailers,
wholesalers, distributors and service firms. We typically provide financing as
agent (lead lender), but we also provide financing as a co-lender or a
participant in senior secured transactions agented by other asset-based
lenders.
 
    We generate the majority of our new business through our relationships with
private equity sponsors, investment and commercial banks and a variety of
brokers and intermediaries. We have developed and maintain close relationships
with about 200 equity sponsors, many of whom have been our clients for ten or
more years and have financed several transactions with us.
 
    Our portfolio has loans in a wide range of industries including industrial
machinery, business services, metals, chemicals/plastics, consumer products,
health care and automotive. The portfolio is diversified among approximately 30
industries with a concentration of 10% in the food and drug industry. No other
industry represented more than 10% of the portfolio.
 
 
                                       7
<PAGE>
 
    The following table gives information about Corporate Finance:
 
<TABLE>
<CAPTION>
                                                As of, or For the Year Ended,
                                                        December 31,
                                                -------------------------------
                                                  1998       1997       1996
                                                ---------  ---------  ---------
                                                    (dollars in millions)
   <S>                                          <C>        <C>        <C>
   New business volume........................  $   2,663  $   2,065  $   1,496
   Total lending assets and investments.......      3,784      3,066      2,890
   Revenues...................................        391        361        318
 
   Revenues as a percentage of total revenues.       27.8%      28.4%      32.3%
   Ratio of net writedowns to average lending
    assets....................................        0.4        0.8        0.4
   Ratio of nonearning assets to lending
    assets....................................        0.4        0.2        1.4
</TABLE>
 
    The level of nonearning assets at December 31, 1998 of $13 million, or 0.4%
of Corporate Finance lending assets, indicates the high credit quality of the
portfolio. For the year ended December 31, 1998, Corporate Finance had:
 
  . net writedowns of 0.4% of average lending assets versus 0.8% in 1997;
 
  . total lending assets and investments of $3.8 billion, or 28% of the
    Company's total lending assets and investments; and
 
  . total revenues of $391 million, or 28% of the Company's total revenues.
 
    We base our commitment to finance cash flow lending transactions on our
assessment of the borrower's ability to generate cash flows to repay the loan.
To do this, we consider, among other factors, the borrower's:
 
  . equity sponsor;
 
  . market position;
 
  . ability to withstand competitive challenges; and
 
  . relationships with clients and suppliers.
 
    Cash flow based transactions are generally cross-collateralized and secured
by liens on the borrower's current and fixed assets and capital stock.
 
    Asset based lending transactions concentrate on balancing collateral
values, cash flow and capital structure. We protect against deterioration of a
borrower's performance by using established advance rates against eligible
collateral and cross-collateralizing revolving credit facilities and term
loans. We also actively manage credit risk through portfolio diversification by
industry and individual client exposure.
 
    We manage the Corporate Finance portfolio centrally to ensure consistent
application of credit policy and efficient documentation and approval of
transaction modifications.
 
    Corporate Finance has an established syndication capability. This enables
us to commit to larger transactions while still managing the ultimate size of
our retained position and to generate additional income. In 1998, we acted as
agent for 52 syndicated transactions. We believe this level of agented
transactions makes us the fourth largest syndicator of private equity-sponsored
deals in the United States. In 1998, we syndicated a total of $1.2 billion in
funds. Although we can provide commitments of up to $200 million per
transaction, we generally syndicate our ultimate retained position to less than
$20 million. As of December 31, 1998, our average retained transaction size was
approximately $17 million in commitments and $9 million in fundings.
 
                                       8
<PAGE>
 
    During 1998, we made a 23% investment in a media lending company. As part
of this transaction, we have a loan with funds employed of $81 million
currently secured by 35 individual loans to media companies with an average
commitment size of approximately $6.7 million at December 31, 1998. This is a
strategic investment for us as it provides access to certain segments of the
media communications industry.
 
    As of December 31, 1998, Corporate Finance had contractual commitments to
finance an additional $1.4 billion to new and existing borrowers, generally
contingent on their maintaining specific credit standards. Since we expect many
of these commitments to remain unused, the total commitment amounts do not
necessarily represent future cash requirements. We do not have any significant
commitments to provide additional financing related to nonearning assets.
 
  Real Estate Finance
 
    Real Estate Finance provides secured 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. We
serve these markets by offering tailored senior secured debt and junior
participating structures and by originating fixed rate commercial mortgages
which we hold for ultimate securitization (CMBS). We believe we are the second
largest lender to the U.S. vacation ownership industry, providing timeshare
resort developers with full life-cycle financing secured by time share
receivables and available time share units.
 
    Our transactions are secured by a variety of property types including:
 
  . offices;
 
  . apartments;
 
  . senior housing;
 
  . retail properties;
 
  . industrial properties;
 
  . manufactured housing communities;
 
  . self storage facilities; and
 
  . hotels and vacation ownership units.
 
    Senior secured loan transactions range in size from $4 million to $30
million, with an average transaction size in 1998 of about $5 million. Typical
junior secured loan transactions range in size from $1 million to $12 million,
with an average transaction size in 1998 of about $3.5 million. Typical
vacation ownership transactions range in size from $5 million to $40 million,
with an average transaction size in 1998 of about $16 million.
 
    Real Estate Finance has 11 offices throughout the United States. We
generate new business through our relationships with real estate brokers and
through direct calling on prospective borrowers. We also market our products
through the use of trade advertising, direct marketing, newsletters, and trade
show attendance and sponsorship.
 
                                       9
<PAGE>
 
    The following table gives information about Real Estate Finance:
 
<TABLE>
<CAPTION>
                                                As of, or For the Year Ended,
                                                        December 31,
                                                -------------------------------
                                                  1998       1997       1996
                                                ---------  ---------  ---------
                                                    (dollars in millions)
   <S>                                          <C>        <C>        <C>
   New business volume........................  $   2,157  $   1,667  $     975
   Total lending assets and investments.......      2,044      2,323      1,655
   Revenues...................................        261        274        204
 
   Revenues as a percentage of total revenues.       18.6%      21.6%      20.7%
   Ratio of net writedowns to average lending
    assets....................................        2.6        --         --
   Ratio of nonearning assets to lending
    assets....................................        0.5        0.3        0.2
</TABLE>
 
    As of December 31, 1998, Real Estate Finance had total lending assets and
investments of $2.0 billion, or 15% of Heller's total lending assets and
investments. Of this amount:
 
  . about $800 million represents CMBS receivables;
 
  . about $400 million represents senior secured lending assets and
    investments;
 
  . about $300 million represents vacation ownership lending assets and
    investments; and
 
  . about $300 million represents junior secured lending assets and
    investments.
 
    Real Estate Finance new business volume for the year totaled $2.2 billion,
of which $1.7 billion related to CMBS receivables.
 
    Net writedowns to average lending assets in 1998 of 2.6% reflect a $40
million writedown recorded on CMBS assets, which were subsequently securitized.
Excluding the $40 million writedown, the ratio of net writedowns to average
lending assets was 0.3% for Real Estate Finance during 1998.
 
    Real Estate Finance's credit philosophy emphasizes selecting properties
that generate stable or increasing income cash flow streams, have strong asset
quality and proven sponsorship with defined business plans. We underwrite the
CMBS product according to rating agency guidelines and we make all CMBS loans
on a senior secured basis. Vacation Ownership's credit philosophy considers the
developer's business objectives and capital needs, the resort development,
clients' servicing capabilities and performance of receivables portfolio and
sponsorship support. Our credit philosophy for junior secured financings
considers the strength and track record of the property developer, the supply
and demand dynamics of the particular market and the competitive strengths of
the subject real estate.
 
    These credit strategies have resulted in low levels of nonearning assets
for the past three years. Our 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.
 
    Real Estate Finance's lending assets and investments were distributed as
follows:
 
          Property Types                           Geographic Areas
 
 
<TABLE>
<CAPTION>
                                                 1998  1997
                                                 ----  ----
                          <S>                    <C>   <C>
                          Southwest.............  21%   21%
                          California............  19    26
                          Florida...............  12    10
                          Midwest...............   8    10
                          Southeast.............   8     3
                          West..................   7     4
                          New England...........   6     5
                          Mid-Atlantic States...   4     6
                          New York..............   3     4
                          Other.................  12    11
                                                 ---   ---
                                                 100%  100%
                                                 ===   ===
</TABLE>
<TABLE>
<CAPTION>
                           1998  1997
                           ----  ----
   <S>                     <C>   <C>
   General purpose office
    buildings............   15%    8%
   Apartments............   15    18
   Vacation ownership
    units................   14    10
   Retail properties.....   13    13
   Senior housing........    8     1
   Manufactured housing..    7    14
   Hotels................    6     5
   Industrial properties.    5     7
   Self storage
    facilities...........    5    11
   Loan Portfolios.......    2     3
   Other.................   10    10
                           ---   ---
                           100%  100%
                           ===   ===
</TABLE>
 
                                       10
<PAGE>
 
    During 1998, we securitized over $2.0 billion of CMBS receivables in two
separate transactions. In the first quarter, we securitized $1.1 billion and
recognized an $11 million gain on the transaction. We did not retain any
residual risk in this transaction, as all of the securities were sold to third
parties on a non-recourse basis.
 
    During the third quarter, the CMBS securitization market experienced
considerable volatility and we decided to retain CMBS receivables on our
balance sheet. In the fourth quarter, market conditions improved and we decided
to reclassify $900 million of CMBS receivables to "held for sale." This
reclassification at market value generated a writedown of $40 million through
our allowance for losses of receivables. We subsequently securitized $900
million of CMBS receivables, selling all of the unrated and "B" rated
securities. We continue to originate assets in the CMBS market but, due to
pricing and liquidity issues, we anticipate that in 1999, new business
originations will be lower than in 1998. Depending on market conditions, we may
sell or securitize a portion of our existing and newly originated CMBS assets
in 1999.
 
    In addition to securitizations, we syndicate 50% to 75% of our junior
participation originations through arrangements with real estate funds
sponsored by two nationally known investment banking firms. The use of
syndications has enabled us to reduce our average individual retained position
in this portfolio to approximately $1 million.
 
    At December 31, 1998, Real Estate Finance maintained contractual
commitments to finance an additional $71 million to new and existing borrowers,
generally contingent upon their maintaining specific credit standards. Since we
expect many of these commitments to remain unused, the total commitment amounts
do not necessarily represent future cash requirements. We do not have any
significant commitments to provide additional financing related to nonearning
assets.
 
  Leasing Services
 
    Leasing Services is made up of three distinct units:
 
  (1) Global Vendor Finance, which provides financing programs for
      manufacturers, vendors and dealers to finance sales of their products,
      as well as financing options to independent leasing companies;
 
  (2) Commercial Equipment Finance, which provides loans and lease financing
      directly to leading middle market companies; and
 
  (3) Capital Finance, which provides financing of commercial aircraft and
      engines and plans to expand into other large ticket leasing and
      structured finance segments including rail, marine and technology.
 
    Global Vendor Finance. We formed Global Vendor Finance in 1998 by combining
our existing Vendor Finance unit with the Dealer Products Group's technology
leasing assets we acquired on November 30, 1998. Primary locations for vendor
leasing are the United States, United Kingdom and Canada with smaller
operations throughout Europe.
 
    Global Vendor Finance provides customized sales financing programs that
enable vendors and manufacturers in commercial, industrial, medical and
information and technology markets to offer financing and leasing options to
their customers. The primary products we offer are true leases, loans and
conditional sales contracts. We also provide financing options to independent
leasing companies, including term financing, residual financing and private
securitization structures. The primary equipment types we finance are computer
equipment, software, machine tool equipment, plastics equipment, graphic arts
equipment and transportation equipment. Individual transaction sizes within
these programs range from $1,000 to $10 million and terms generally range from
24 months to eight years.
 
 
                                       11
<PAGE>
 
    In 1998, Global Vendor Finance generated approximately $800 million in new
business volume. This included one month of activity related to the Dealer
Products Group. New business volume for the Dealer Products Group was
approximately $360 million during 1998. We expect that, due to the Dealer
Products Group acquisition, Global Vendor Finance volume will increase in 1999.
 
    Commercial Equipment Finance. Commercial Equipment Finance has broad,
national access to the equipment finance marketplace through 13 domestic
offices. We provide general equipment term loan and lease financings directly
to a diverse group of middle market companies. They use the financings for:
 
  . expansions;
 
  . acquisitions;
 
  . turnkey land, building and equipment financing;
 
  . remodeling;
 
  . refinancing;
 
  . replacement or modernization of equipment; and
 
  . refinancing of existing equipment obligations.
 
    We believe that our emphasis on direct origination provides us with a
competitive advantage of stronger customer relationships and enables us to
generate repeat business.
 
    In addition to direct origination, we generate business through traditional
broker and other intermediary channels. Through our broad market access, we
also generate new business referrals for other business groups of the Company,
particularly Corporate Finance and Small Business Finance. Individual
transaction sizes range from $1 million to $40 million. A typical
borrower/lessee is a U.S. business with annual revenues of at least $35
million. Generally, the equipment serving 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.
Commercial Equipment Finance generated new business volume of over $600 million
in 1998.
 
    Capital Finance. We formed Capital Finance in an effort to expand into
other attractive large ticket leasing and structured finance markets in
addition to aircraft finance. The new group, which will include Aircraft
Finance as a significant operating unit, will focus its originations efforts in
large ticket markets and sectors such as:
 
  . commercial aircraft;
 
  . rail;
 
  . intermodal container;
 
  . inland/bluewater marine;
 
  . media;
 
  . technology infrastructure;
 
  . telecommunications; and
 
  . entertainment.
 
    The Aircraft Finance unit within Capital Finance, a niche competitor in the
commercial aircraft and aircraft engine finance industries, will continue to
provide financing through operating leases and senior and junior secured loans
on both new and used equipment. Our
 
                                       12
<PAGE>
 
clients are typically mid-tier foreign or domestic airlines. Typical
transaction sizes range from $3 million to $50 million. We have developed a
reputation for responsiveness on single investor transactions, which generally
involve one aircraft with lease terms of three to seven years. In addition, our
reliability and industry knowledge have made us a frequently desired
participant in larger financings by other aircraft lessors. With our industry
and equipment expertise, we are able to effectively shift our product offering
mix during various phases of the equipment cycle and to re-market off-lease
equipment.
 
    Similar to our Aircraft Finance unit, the newly-formed Capital Finance
transactions in new markets will provide financing through:
 
  . operating leases;
 
  . acquisition of seasoned leveraged leases;
 
  . residual participation; and
 
  . other strategic partnerships or investments.
 
    Typical transaction sizes range from $10 million to $50 million and our
intention is to retain between $10 million to $20 million. Capital Finance
generated new business volume of $230 million in 1998, all of which related to
Aircraft Finance.
 
    The following table sets forth certain information regarding Leasing
Services:
 
<TABLE>
<CAPTION>
                                                          As of, or For the
                                                             Year Ended,
                                                            December 31,
                                                         ---------------------
                                                          1998    1997   1996
                                                         ------  ------  -----
                                                             (dollars in
                                                              millions)
   <S>                                                   <C>     <C>     <C>
   New business volume.................................. $1,634  $1,646  $ 917
   Total lending assets and investments.................  2,840   2,314  1,933
   Revenues.............................................    231     195    141
   Revenues as a percentage of total revenues...........   16.4%   15.4%  14.3%
   Ratio of net writedowns (recoveries) to average
    lending assets......................................    0.1     0.1   (0.2)
   Ratio of nonearning assets to lending assets.........    1.0     0.7    0.5
</TABLE>
 
    The ratio of net writedowns to average lending assets of 0.1% for 1998 and
1997, and the low ratio of nonearning assets to lending assets of 1.0% or lower
for each of the past three years, demonstrate the strong credit quality of the
Leasing Services portfolio.
 
    Global Vendor Finance's approach to lending balances the strength of the
borrower, the value of the underlying collateral and the extent of recourse
provided by the vendor. Transactions are characterized by the high credit
quality performance of the portfolio as evidenced by lower levels of nonearning
assets and writedowns with equivalently lower yields on middle and large ticket
leasing transactions. Small ticket leasing transactions have higher margins but
also have correspondingly higher levels of writedowns and non-earning assets.
 
    Commercial Equipment Finance's approach to lending concentrates on the cash
flow of the borrower, the importance and/or value of the equipment to the
borrower's overall operations and the relative strength of the borrower's
balance sheet and capital structure.
 
    Capital Finance's credit approach focuses on the strength of the underlying
collateral and the creditworthiness of the underlying lessee.
 
 
                                       13
<PAGE>
 
    In all areas, Leasing Services assesses residual value risk and effectively
manages off-lease equipment exposures. Designated individuals in each equipment
unit establish all equipment residuals used in pricing lease transactions. They
continuously research secondary market values to establish current values,
estimate future values and mark industry trends.
 
    Leasing Services distributes a portion of its assets through
securitizations and syndications. In 1998, we contributed $434 million of
equipment receivables to two bank-sponsored conduits and syndicated an
additional $172 million of assets. Through these capital markets capabilities,
we are able to provide broader market coverage and better service to clients,
while managing borrower and industry concentrations.
 
    As of December 31, 1998, Leasing Services' lending assets and investments
totaled $2.8 billion, or 21% of Heller's total lending assets and investments.
 
    The Leasing Services portfolio consisted of 32 industry classifications at
December 31, 1998. The computer industry represented 22% of Leasing Services'
total lending assets, while transportation services represented 11%. No other
industry represented more than 10% of total lending assets for Leasing Services
at December 31, 1998.
 
    At December 31, 1998, Leasing Services maintained contractual commitments
to finance an additional $635 million to new and existing borrowers, generally
contingent upon their maintaining specific credit standards. Since we expect
many of these commitments to remain unused, the total commitment amounts do not
necessarily represent future cash requirements. We do not have any significant
commitments to provide additional financing related to nonearning assets.
 
  Small Business Finance
 
    Small Business Finance provides long-term financing to small businesses
primarily in the manufacturing, retail and service sectors for:
 
  . facility purchases, construction or refinancing;
 
  . business or equipment acquisition;
 
  . working capital; and
 
  . debt refinancing.
 
    Our 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%. We also originate
transactions without credit support from the SBA.
 
    Small Business Finance is one of only fourteen non-banks the SBA licenses
to make SBA 7(a) loans. We are the third largest originator of such loans in
the United States. Our portfolio is 82% concentrated in California, Texas,
Florida and Illinois, and is geographically diversified within these states. We
have diversified our portfolio by industry type, with concentrations of 14% in
transportation services at December 31, 1998. No other industry represented
more than 10% of our portfolio.
 
    Small Business Finance loans are generally for amounts up to $3 million,
have an average size of $400,000 and have a contractual maturity ranging from
five to 25 years. Our $1.0 billion in lending assets and investments as of
December 31, 1998, represented 8.0% of the Company's portfolio. At December 31,
1998, 82% of our portfolio was originated under SBA lending programs.
 
                                       14
<PAGE>
 
    The following table gives certain information regarding Small Business
Finance:
 
<TABLE>
<CAPTION>
                                               As of, or For the Year Ended,
                                                        December 31,
                                               --------------------------------
                                                  1998       1997       1996
                                               ----------  ---------  ---------
                                                   (dollars in millions)
   <S>                                         <C>         <C>        <C>
   New business volume.......................  $      547  $     472  $     394
   Total lending assets and investments......       1,013        766        403
   Revenues..................................          98         64         47
   Revenues as a percentage of total
    revenues.................................         7.0%       5.0%       4.8%
   Ratio of net writedowns to average lending
    assets...................................         0.4        0.3        0.3
   Ratio of nonearning assets to lending
    assets...................................         3.3        2.0        1.3
</TABLE>
 
    Small Business Finance operates out of 31 offices in 17 states. Our
portfolio is managed on a centralized basis. We focus our marketing efforts on
developing relationships with third party intermediaries, such as real estate
brokers, mortgage brokers and business brokers. We originate additional
business through referrals from existing customers, franchisors, targeted
direct marketing and cross-referrals from Heller's other business units.
 
    We maintain SBA Preferred Lender Program (PLP) status in over 30 states,
which enables us to approve SBA 7(a) loans under SBA-delegated approval
authority. We believe that Small Business Finance has maintained a position as
one of the nation's three largest originators of SBA 7(a) loans since 1995. We
are the leading originator of SBA 7(a) loans in Illinois, Texas and Florida and
the number one non-bank SBA lender in California.
 
    We have standardized our underwriting and procedural guidelines to ensure a
consistent and efficient lending process. We base our credit decisions on the
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.
 
    Our Small Business Finance portfolio consists of approximately 3,400
individual loans, providing diversified risk. At December 31, 1998, nonearning
assets represented 3.3% of this portfolio. Of our nonearning assets,
approximately 70% were the guaranteed portions of 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 0.4% of average lending assets for each of
the past three years.
 
    We have developed and demonstrated the ability to sell both the guaranteed
and unguaranteed portions of SBA 7(a) loans in the secondary market. The
guaranteed portions of SBA 7(a) loans, which represented 43% of Small Business
Finance lending assets at December 31, 1998, can generally be sold and settled
at amounts in excess of book value and in less than 45 days. We sold $68
million in guaranteed SBA 7(a) loans in 1998. In addition, we securitized $96
million of the unguaranteed portion of SBA 7(a) loans during the second quarter
of 1998, demonstrating the liquidity of this product. As required by the SBA,
we retained an investment in this securitization of $14 million, all of which
are securities rated BB or higher.
 
    At December 31, 1998, Small Business Finance maintained contractual
commitments to finance an additional $31 million to new and existing borrowers,
generally contingent upon their maintaining specific credit standards. We do
not have any significant commitments to provide additional financing related to
nonearning assets.
 
 
                                       15
<PAGE>
 
  Commercial Services
 
    Commercial Services, formerly known as the Current Asset Management Group,
has been a leading provider of factoring services in the United States for over
50 years. We believe that Commercial Services is the fourth largest factor in
the United States in terms of volume, with factoring volume of over $7.8
billion in 1998, a 6% increase from the prior year.
 
    We provide middle-market companies with:
 
  . factoring;
 
  . working capital and term loans;
 
  . receivables management;
 
  . import and export financing;
 
  . credit protection; and
 
  . credit facilities.
 
    Working capital and term loans consist of advances against receivables,
inventory and equipment on a formula basis as well as seasonal over-advances.
As of December 31, 1998, the majority of our lending assets consisted of short-
term trade receivables from department and general merchandise retail stores.
We have also begun to service a broad range of additional markets such as golf,
temporary staffing services, seafood and housewares.
 
    Clients use our 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 fixed cost of operating a credit and collection
    department into a variable expense.
 
    The following table gives certain information regarding Commercial
Services:
 
<TABLE>
<CAPTION>
                                                         As of, or For the
                                                        Year Ended, December
                                                                31,
                                                        ----------------------
                                                         1998    1997    1996
                                                        ------  ------  ------
                                                            (dollars in
                                                             millions)
   <S>                                                  <C>     <C>     <C>
   Factoring volume.................................... $7,802  $7,347  $6,933
   Total lending assets and investments(1).............    401     361     907
   Revenues............................................    117     113     107
 
   Revenues as a percentage of total revenues..........    8.3%    8.9%   10.9%
   Ratio of client net writedowns to average lending
    assets.............................................    1.3     0.3     0.3
   Ratio of customer net writedowns to factoring
    volume.............................................    0.1     0.1     0.1
   Ratio of nonearning assets to lending assets........    1.2     0.5     0.3
</TABLE>
--------
(1) Reflects the sale of $475 million and $500 million of factored accounts
    receivable during 1998 and 1997, respectively.
 
    Commercial Services maintains two full service offices, in New York and
Glendale, California, and operates sales offices in Atlanta and Dallas. Through
our experienced sales force, we generate business through direct calling on
manufacturers. We also develop and maintain relationships with financial
intermediaries that provide financing advice to prospective clients. In
addition to direct sales efforts, we generate business through the programmatic
use of direct mail and advertising and through referrals from other Heller
 
                                       16
<PAGE>
 
business groups. We believe that our focused sales efforts, market research
program, and advertising and marketing efforts have played a key role in the
growth of our domestic factoring operation.
 
    We have developed 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. They enable us to efficiently process
the high transaction volumes related to factoring invoices. We believe that the
investments in the technology associated with factoring represent a significant
entry barrier to new competitors.
 
    We generally purchase the accounts receivable owed to our clients by their
customers, usually on a nonrecourse basis, and we may provide funding to our
clients as an advance against those receivables. We extend credit to these
clients based on our analysis of the customers' operating performance and
sources of short-term liquidity, such as borrowing facilities and trade
relationships. We also use technology to perform basic credit surveillance
routines electronically.
 
    We have a factored accounts receivable facility which allows us to sell an
undivided interest of up to $550 million in a designated pool of factored
accounts receivable to five bank-supported conduits. At December 31, 1998, we
had sold $475 million of factored accounts receivable through this facility.
This facility provides us with an additional funding source at favorable market
rates.
 
    At December 31, 1998, Commercial Services maintained contractual
commitments to finance an additional $65 million to new and existing borrowers,
generally contingent upon their maintaining specific credit standards. Since we
expect many of these commitments to remain unused, the total commitment amounts
do not necessarily represent future cash requirements. We do not have any
significant commitments to provide additional financing related to nonearning
assets.
 
International Factoring and Asset Based Finance Segment
 
    International Group, the Heller subsidiary that manages the International
Factoring and Asset Based Financing business, provides the following programs:
 
  . factoring and receivables management services;
 
  . asset based financing;
 
  . acquisition financing;
 
  . leasing and vendor financing; and
 
  . trade financing.
 
    International Group has a significant international presence in factoring
and asset based financing, primarily throughout Europe. We have had
subsidiaries and joint ventures in many international markets for more than 30
years. International Group currently consists of four consolidated subsidiaries
and joint ventures with operations in 16 countries in Europe, Asia/Pacific and
Latin America.
 
    The largest of our consolidated subsidiaries is Factofrance, which is the
leading factoring company in France and the third largest factor in the world.
In 1998, Factofrance had factoring volume of nearly $11 billion. The largest of
our joint ventures is NMB-Heller Holding N.V., which has operations primarily
in Holland, the United Kingdom and Germany. NMB-Heller Holding N.V. accounted
for 56% of our investments in international joint ventures at December 31,
1998.
 
                                       17
<PAGE>
 
    We believe that our International Group subsidiaries and joint ventures
provide a solid base for consistent growth in international earnings. They also
provide us with the opportunity to meet the international financing needs of
Heller's domestic client base. At December 31, 1998, International Group had
total lending assets and investments of $2.7 billion, or 20% of Heller's total
lending assets and investments. In 1998, we had total revenues (including
Heller's share of income from international joint ventures) of $244 million, or
17% of Heller's total revenues.
 
    The following table provides certain information regarding the
International Factoring and Asset Based Financing segment:
 
<TABLE>
<CAPTION>
                                                        As of, or For the
                                                           Year Ended,
                                                          December 31,
                                                       -----------------------
                                                        1998     1997     1996
                                                       -------  ------    ----
                                                           (dollars in
                                                            millions)
   <S>                                                 <C>      <C>       <C>
   Lending assets and investments of consolidated
    subsidiaries:
    France............................................ $ 2,143  $1,850(1) $ --
    Other Europe......................................      19      10      --
    Asia/Pacific......................................     194     223     257
    Latin America.....................................      74      80      80
                                                       -------  ------    ----
                                                         2,430   2,163     337
   Investments in international joint ventures:
    Europe............................................     194     160     238
    Asia/Pacific......................................      16      16      14
    Latin America.....................................      21      22      20
                                                       -------  ------    ----
                                                           231     198     272
                                                       -------  ------    ----
      Total lending assets and investments............ $ 2,661  $2,361    $609
                                                       =======  ======    ====
   Factoring volume of consolidated subsidiaries:
    France............................................ $10,684  $6,238    $ --
    Other Europe......................................      --      --      --
    Asia/Pacific......................................     573     280      --
    Latin America.....................................     346     159      --
                                                       -------  ------    ----
                                                       $11,603  $6,677    $ --
                                                       =======  ======    ====
   Revenues of consolidated subsidiaries:
    France............................................ $   183  $  121(1) $ --
    Other Europe......................................       2      --      --
    Asia/Pacific......................................      21      25      26
    Latin America.....................................       8       5      12
                                                       -------  ------    ----
                                                           214     151      38
   Income of international joint ventures:
    Europe............................................      30      32      42
    Asia/Pacific......................................      --       1       2
    Latin America.....................................      --       3      --
                                                       -------  ------    ----
                                                            30      36      44
                                                       -------  ------    ----
      Total international revenues.................... $   244  $  187    $ 82
                                                       =======  ======    ====
   Total international revenues as a percentage of
    total revenues....................................    17.3%   14.7%    8.3%
   Ratio of net writedowns (recoveries) to average
    lending assets....................................     0.2     1.8    (0.1)
   Ratio of nonearning assets to lending assets.......     1.1     0.9     8.2
</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%.
 
    Our European investments in international joint ventures include our
investment in NMB-Heller Holding N.V. of $131 million and $107 million at
December 31, 1998 and 1997, respectively. NMB-Heller Holding N.V. had total
receivables of $2.8 billion and $2.2 billion, and revenues of $180 million and
$151 million at December 31, 1998 and 1997, respectively.
 
                                       18
<PAGE>
 
    We continue to develop our international operations through mergers, joint
ventures, and acquisitions. We have broad, worldwide access to mid-sized and
small businesses with operations in 20 countries outside the United States.
Each of our subsidiaries and joint ventures operates independently, with its
own well-developed methods of originating business. The majority of our
international joint ventures are self-financed. We manage our 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. We monitor them
through participation on their boards of directors, credit committees and other
executive and administrative bodies.
 
Sales and Marketing
 
    Heller originates transactions in the United States utilizing a dedicated
sales force of over 300 employees throughout our 52 domestic office locations.
We originate transactions internationally through a network of wholly-owned and
joint venture commercial finance companies in 20 countries outside the United
States. Our sales people have industry-specific experience that enables them to
effectively structure commercial finance transactions to companies in the
industries and markets we serve.
 
    Our sales force originates business through a combination of:
 
  . relationships with a wide variety of private equity investors, business
    brokers, investment bankers, and various intermediaries and referral
    sources;
 
  . relationships with manufacturers, dealers, and distributors;
 
  . direct calling on prospective borrowers; and
 
  . relationships with financial institutions.
 
    We have invested in expanding and broadening our market coverage in several
of our businesses, particularly Small Business Finance and Leasing Services. We
expect these investments to enhance our ability to generate new transactions
and revenue growth.
 
    We design the structure of our sales force compensation to encourage:
 
  . profitable new business development;
 
  . client retention;
 
  . credit quality;
 
  . solid pricing margins; and
 
  . cross-referral of business opportunities to other business groups.
 
    We have developed a cross-referral program, "CrossLink," to compensate
sales force members and other employees for the generation of cross-referral
business volume. We expect that CrossLink will increase the volume of cross
referral business in 1999.
 
    We also market our products and services through the use of:
 
  . general market advertising;
 
  . trade advertising;
 
  . direct mail;
 
  . a web site;
 
                                       19
<PAGE>
 
  . public relations;
 
  . newsletters;
 
  . trade show attendance and sponsorship;
 
  . presenting educational seminars; and
 
  . a variety of other market--and industry-specific events.
 
    We maintain several proprietary databases for the purpose of generating
targeted, customized direct marketing campaigns and for tracking relationship
history with certain clients and prospects. We regularly conduct client
satisfaction surveys and other market research studies designed to assess our
competitive position and to identify unfulfilled needs of our clients and
prospects.
 
Competition
 
    Heller's markets are highly fragmented and extremely competitive. They are
characterized by competitive factors that vary by product and geographic
region. Our competitors include:
 
  . other commercial finance companies;
 
  . national and regional banks and thrift institutions;
 
  . investment banks;
 
  . leasing companies;
 
  . investment companies; and
 
  . manufacturers and vendors.
 
    Competition from both traditional competitors and new market entrants has
intensified in recent years as the result of an improving economy, growing
marketplace liquidity and an increasing recognition of the attractiveness of
the commercial finance markets. Also, the rapid expansion of the securitization
markets is dramatically reducing the difficulty of accessing capital, which
previously provided a significant barrier to entry for new competitors into
these markets. This is further intensifying competition in certain market
segments.
 
    We compete primarily on the basis of pricing, terms, structure and service.
Our competitors often seek to compete aggressively on the basis of these
factors. We may lose market share to the extent we are unwilling to match our
competitors' pricing, terms or structure in order to maintain our spreads or to
maintain our credit discipline. To the extent that we match competitors'
pricing, terms or structure, we may experience decreased spreads and/or
increased risk of credit losses. Many of our competitors are large companies
that have substantial capital, technological and marketing resources. Some of
them are larger than we are and may have access to capital at a lower cost than
we do. Further, the size and access to capital of certain of our competitors
are being enhanced by the recent surge in consolidation activity in the
commercial and investment banking industries. Also, our 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 and their subsidiaries. As a result, such non-banking
competitors may engage in certain activities in which we are currently
prohibited from engaging.
 
 
                                       20
<PAGE>
 
Regulation
 
  Bank Holding Company Act
 
    Fuji Bank is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 and is registered as such with the Board of Governors of
the Federal Reserve System. As a result, we are subject to the Bank Holding
Company Act and are subject to examination by the Federal Reserve.
 
    In general, the Bank Holding Company Act limits the activities in which we
may engage to those the Federal Reserve has generally determined to be "so
closely related to banking . . . as to be a proper incident thereto." The Bank
Holding Company Act generally requires the approval of the Federal Reserve
before we may engage 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 Heller. 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 our voting stock or otherwise is deemed by the Federal Reserve to control
our management or operations. Our current business activities either constitute
permitted activities or have received the Federal Reserve's express authority.
 
  Japanese Banking Law
 
    Fuji Bank, as a Japanese bank, is also required to comply with the Japanese
Banking Law. During 1998, the Banking Law was amended. The Banking Law limits
the type of subsidiaries in which a Japanese bank may invest to those that
conduct "eligible businesses." A subsidiary is defined as an entity in which
there is ownership of more than 50% of the voting shares. Eligible businesses
generally include banks, securities firms, insurance companies, administrative
businesses and financial companies. Establishment of any subsidiary requires
the prior approval of the Financial Supervisory Agency, an agency of the Prime
Minister's Office. Non-eligible business investments are permitted if acquired
as collateral, although disposition of such businesses is required within one
year.
 
    Heller intends to use its best efforts to cooperate with Fuji Bank in Fuji
Bank's compliance with the new statute, provided that such cooperation would
not, in the judgment of Heller's management, materially and adversely affect
Heller's business operations. We do not believe that our cooperation will have
a material adverse effect on our current business operations or on the
achievement of our intended business and financial goals.
 
  Small Business Act
 
    SBA loans that we make 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.
 
  Other
 
    Our operations are subject, in certain instances, to supervision and
regulation by state and federal governmental authorities. They may also be
subject to various laws and judicial and administrative decisions imposing
various requirements and restrictions, which, among other things:
 
  . regulate credit granting activities;
 
  . establish maximum interest rates, finance charges and other charges;
 
  . require disclosures to customers;
 
                                       21
<PAGE>
 
  . govern secured transactions; and
 
  . 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. They may also require licensing of
lenders and financiers and adequate disclosure of certain contract terms. We
are also required to comply with certain provisions of the Equal Credit
Opportunity Act applicable to commercial loans. Additionally, we are subject to
regulation in those countries in which we have operations and in most cases
have 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 our business. However, it is not possible to
forecast the nature of future legislation, regulations, judicial decisions,
orders or interpretations, nor their impact upon our future business, financial
condition, results of operations or prospects.
 
Employees
 
    As of December 31, 1998, Heller had 2,714 employees. We are not subject to
any collective bargaining agreements.
 
    In January 1999, to more closely align the goals of Heller with those of
our employees, we awarded approximately 17,000 shares of our Class A Common
Stock and approximately 1.2 million stock options for the purchase of shares of
our Class A Common Stock to various employees throughout Heller.
 
Risk Management
 
    Heller's business activities contain elements of risk. We consider the
principal types of risk to be:
 
  . credit risk; and
 
  . asset/liability risk (including our primary market risk exposures of
    interest rate and foreign exchange risk as well as liquidity risk).
 
    We consider the proper management of risk essential to conducting our
business and to maintaining profitability. Accordingly, we have designed our
risk management systems and procedures to identify and analyze our risks. We
have set appropriate policies and limits to continually monitor these risks and
limits by means of administrative and information systems and other policies
and programs.
 
  Credit Risk Management
 
    We manage credit risk through:
 
  . underwriting procedures;
 
  . centralized approval of individual transactions; and
 
  . active portfolio and account management.
 
    We have developed underwriting procedures for each business line that
enable us to assess a prospective borrower's ability to perform in accordance
with established loan terms. These procedures include:
 
  . analyzing business or property cash flows and collateral values;
 
  . performing financial sensitivity analyses; and
 
  . assessing potential exit strategies.
 
 
                                       22
<PAGE>
 
    For transactions we originate with the intent of reducing our ultimate
retained asset size, we assign a risk rating prior to approval of the
underlying transaction that reflects our confidence level, prior to funding, in
syndicating the proposed transaction. A Senior Credit Officer who reports
directly to our Chief Credit Officer reviews and approves financing and
restructuring transactions that exceed designated amounts. Larger transactions
require approval of our Chief Credit Officer or of a centralized credit
committee comprised of our Chairman, Chief Operating Officer, Chief Credit
Officer and Chief Financial Officer. Our Chief Credit Officer and, in some
cases, our Chairman, conducts a quarterly portfolio review of each business
group's significant assets.
 
    We manage our portfolio by monitoring transaction sizes as well as
diversification according to (1) industry, (2) geographic area, (3) property
type and (4) identity of borrower. Through these practices, management
identifies and limits exposure to unfavorable risks and seeks favorable
financing opportunities. We use (1) loan grading systems to monitor the
performance of loans by product category and (2) an overall risk classification
system to monitor the risk characteristics of the total portfolio. These
systems generally consider (1) debt service coverage, (2) the relationship of
the loan to underlying business or collateral value, (3) industry
characteristics, (4) principal and interest risk and (5) credit enhancements
such as guarantees, irrevocable letters of credit and recourse provisions.
 
    When an account experiences financial difficulties, professionals who
specialize in managing workout situations are brought in to more closely
monitor the account and formulate strategies to optimize and accelerate the
resolution process. An independent loan review function performs reviews to
validate the loan grading of assets and provides its findings to senior
management and to our Board's Audit Committee. Our Internal Audit Department,
which is independent of operations, performs reviews of credit management and
operation processes and also reports its findings to senior management and our
Board's Audit Committee.
 
  Asset/Liability Management
 
    We actively measure and quantify (1) interest rate risk, (2) foreign
exchange risk and (3) liquidity risk, in each case resulting from normal
business operations and derivatives hedging activity. We use derivatives as an
integral part of our asset/liability management program. We use these
derivatives to:
 
  . diversify sources of funding;
 
  . alter interest rate exposure arising from mismatches between assets and
    liabilities; and
 
  . manage exposure to fluctuations in foreign exchange rates.
 
    We are not an interest rate swap dealer nor are we a trader in derivatives.
We do not use derivative products for the purpose of generating earnings from
changes in market conditions.
 
    Before entering into a derivative transaction, we determine that a high
correlation exists between the change in value of a hedged item and the value
of the derivative. When we execute each transaction, we designate 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 matures. Accordingly, after the inception of a hedge
transaction, our asset/liability managers monitor the effectiveness of
derivatives through an ongoing review of the amounts and maturities of assets,
liabilities and swap positions. They report this information to our Financial
Risk Management Committee (the FRMC), whose members include our Chairman,
 
                                       23
<PAGE>
 
Chief Operating Officer, Chief Credit Officer, Chief Financial Officer and
Treasurer. The FRMC determines the direction we will take with respect to our
financial risk position and regularly reviews interest rate sensitivity,
foreign exchange exposures, funding needs and liquidity. We regularly report
these positions and the related FRMC activities to the Board of Directors and
our Board's Executive Committee.
 
    Interest Rate Risk Management. We regularly measure and quantify our
sensitivity to changes in interest rates in terms of our two primary risks of
potential loss, "basis risk" and "mismatch risk." Basis risk is the exposure
created from the use of different interest rate indices to reprice assets
versus liabilities, such as prime based assets funded with commercial paper
liabilities. Mismatch risk is the exposure created from the repricing or
maturity characteristics of on and off balance sheet assets versus the
repricing or maturity characteristics of on and off balance sheet liabilities.
 
    We use various models to assess interest rate risk in terms of the
potential effect on net interest income, market value of net assets, and value
at risk in an effort to ensure that our exposure to any significant adverse
effects of changes in interest rates is limited to that approved by the Board
of Directors and the FRMC. The FRMC reviews the results of these models
monthly. Assuming our balance sheet were to remain constant and no actions were
taken to alter the existing interest rate sensitivity, when the month-end
difference between the repricing or maturing of assets and liabilities was at
its greatest during 1998, a hypothetical immediate 100 basis point change in
interest rates would have affected net interest income and net income by less
than 1.0% over a six month horizon.
 
    Additionally, if our balance sheet were to remain constant and no actions
were taken to alter the existing prime/commercial paper exposure, when the net
notional exposure was at its greatest during 1998, a 30 basis point compression
in the existing basis would have altered net interest income and net income by
approximately 2.0% over a twelve month horizon.
 
    Although we believe that this measure indicates our sensitivity to interest
rate changes, it does not adjust for potential changes in credit quality, size
and balance sheet composition and other business developments that could affect
net income. Accordingly, we can give no assurances that actual results would
not differ materially from the potential outcome simulated.
 
    Interest rate swaps are our primary tool for financial risk management.
These instruments enable us to match more closely the interest rate and
maturity characteristics of our assets and liabilities. As such, we use
interest rate swaps to:
 
  . change the characteristics of fixed rate debt to that of variable rate
    debt;
 
  . alter the characteristics of specific fixed rate asset pools to more
    closely match the interest rate terms of the underlying financing; and
 
  . modify the variable rate basis of a liability to more closely match the
    variable rate basis used for variable rate receivables.
 
    Heller's underlying business activities remain unchanged from 1997 and are
not expected to substantially change in 1999. Interest rate risk remains a
primary market risk exposure that we will continue to manage. We anticipate
utilizing instruments, in addition to interest rate swaps, to hedge interest
rate risk in 1999.
 
    At December 31, 1998, we had $7.1 billion in notional amount of interest
rate swap and basis swap agreements with commercial banks and investment
banking firms.
 
                                       24
<PAGE>
 
    The following table provides information about certain of Heller's
financial instruments that are sensitive to changes in interest rates. For
receivables, investments and debt obligations, the table presents principal
cash flows and related weighted average interest rates by expected maturity
date at December 31, 1998. Weighted average variable rates provided in the
table, of which the majority are LIBOR based and to a lesser extent are based
on Prime, represent the interest rates in effect at December 31, 1998 and
assume that no changes in interest rates will occur over the remaining life of
the respective assets or liabilities. The information is reported in U.S.
dollar equivalents, which is our reporting currency.
 
<TABLE>
<CAPTION>
                                          Expected Maturity Date
                          ------------------------------------------------------------
                                                                                 Fair
                           1999    2000   2001   2002  2003  Thereafter Total   value
                          ------  ------  -----  ----  ----  ---------- ------  ------
Rate sensitive assets
---------------------                     (dollars in millions)
<S>                       <C>     <C>     <C>    <C>   <C>   <C>        <C>     <C>
Fixed interest rate
 receivables*...........  $1,328  $  920  $ 435  $296  $176     $467    $3,622  $3,962
Average interest rate...    9.33%   9.09%  9.48% 9.33% 9.41%    9.39%     9.30%
Variable interest rate
 receivables*...........  $3,411  $1,037  $ 794  $797  $201     $551    $6,791  $6,755
Average interest rate...    8.11%   9.01%  8.89% 8.96% 9.23%    9.50%     8.58%
Fixed interest rate
 investments............  $   29  $   93  $  43  $  3  $  2     $132    $  302  $  314
Average interest rate...   13.81%   9.21%  9.03% 9.10% 9.10%    9.76%     9.87%
Variable interest rate
 investments............  $   45  $   77  $  61  $  1  $  1     $ 20    $  205  $  222
Average interest rate...   10.71%  10.69% 10.12% 7.39% 7.39%    8.20%    10.25%
<CAPTION>
Rate sensitive
liabilities
--------------
<S>                       <C>     <C>     <C>    <C>   <C>   <C>        <C>     <C>
Commercial paper and
 short-term borrowings..  $3,681      --     --    --    --       --    $3,681  $3,681
Average interest rate...    5.20%     --     --    --    --       --      5.20%
Notes and debentures
 Fixed rate.............  $1,052  $1,336  $ 703  $542  $ 43     $210    $3,886  $3,896
 Average interest rate..    7.22%   5.46%  6.20% 6.60% 5.90%    6.94%     6.31%
 Variable rate..........  $1,464  $1,127  $ 150  $ 45  $ 22     $ 71    $2,879  $2,879
 Average interest rate..    5.24%   5.47%  5.92% 5.45% 5.47%    4.00%     5.34%
</TABLE>
--------
   * net of credit balances of factoring clients
 
                                       25
<PAGE>
 
    The following table provides information about certain of Heller's
derivative financial instruments that are sensitive to changes in interest
rates. For interest rate swaps and basis swaps, the table presents notional
amounts and weighted average receive/pay rates by expected maturity date at
December 31, 1998. Notional amounts are used to calculate the contractual
payments to be exchanged under the contract. Weighted average variable rates
provided in the table, which are generally LIBOR based, represent the interest
rates in effect at December 31, 1998 and assume that no changes in interest
rates will occur over the remaining life of the respective swaps. The
information is reported in U.S. dollar equivalents, which is our reporting
currency.
 
<TABLE>
<CAPTION>
                                          Expected Maturity Date
                           -----------------------------------------------------------
                                                                                 Fair
                            1999    2000   2001   2002  2003  Thereafter Total   Value
                           ------  ------  -----  ----  ----  ---------- ------  -----
Rate sensitive derivative
financial instruments
-------------------------                  (dollars in millions)
<S>                        <C>     <C>     <C>    <C>   <C>   <C>        <C>     <C>
Interest Rate Swap
 Agreements and Basis
 Swap Agreements
Pay a fixed rate/receive
 a floating rate
 Notional amount........   $   45  $  335  $  39  $102  $100    $1,035   $1,656  $(66)
 Weighted average
  receive rate..........     5.52%   5.32%  5.91% 5.65% 5.56%     5.52%    5.50%
 Weighted average pay
  rate..................     5.47%   5.11%  6.19% 6.80% 5.81%     6.21%    5.98%
Pay a floating
 rate/receive a fixed
 rate
 Notional amount........   $1,185  $1,169  $ 300  $ 45  $ 15    $  250   $2,964  $ 42
 Weighted average
  receive rate..........     6.63%   5.38%  5.94% 5.89% 5.76%     6.30%    6.02%
 Weighted average pay
  rate..................     5.64%   5.51%  5.68% 5.86% 5.55%     5.68%    5.60%
Pay a floating
 rate/receive a
 different floating
 rate:
 Notional amount........   $1,255  $1,040  $ 125  $ 51    --        --   $2,471  $ (3)
 Weighted average
  receive rate..........     5.56%   5.61% 11.62% 5.67%   --        --     5.89%
 Weighted average pay
  rate..................     5.54%   5.60% 10.44% 5.44%   --        --     5.81%
                           ------  ------  -----  ----  ----    ------   ------  ----
Total notional amount...   $2,485  $2,544  $ 464  $198  $115    $1,285   $7,091  $(27)
                           ======  ======  =====  ====  ====    ======   ======  ====
Total weighted average
 rate on swaps:
 Receive rate...........     6.08%   5.46%  7.50% 5.72% 5.59%     5.67%    5.86%
 Pay rate...............     5.60%   5.51%  7.08% 6.27% 5.78%     6.11%    5.78%
</TABLE>
 
    At December 31, 1998, we also have foreign currency interest rate swaps
that are sensitive to changes in interest rates. See "Foreign Exchange Risk
Management" for information on these instruments.
 
    Foreign Exchange Risk Management. We invest in and operate commercial
finance companies throughout the world. Over the course of time, reported
results from our operations and investments in foreign countries may fluctuate
in response to exchange rate movements in the U.S. dollar. While our Western
European operations and investments represent our largest areas of activity,
reported results will be influenced to a lesser extent by the exchange rate
movements in the currencies of certain countries in Asia and Latin America
where our subsidiaries and investments are located.
 
    In order to minimize the effect of fluctuations in foreign currency
exchange rates on our financial results, we periodically enter into forward
currency exchange contracts, cross currency swap agreements or purchase
currency options. These financial instruments serve as hedges of our foreign
investment in international subsidiaries and joint ventures or effectively
hedge the translation of the related foreign currency income. We held $820
million in notional amount of forward currency exchange contracts and $616
million in notional amount of cross currency swap agreements at December 31,
1998. Included in the cross currency interest rate swap agreements were $306
million used to hedge debt instruments issued in foreign currencies at December
31, 1998. Through these contracts, we effectively sell the local currency and
buy U.S. dollars. We also periodically enter into forward contracts to hedge
receivables denominated in foreign currencies or purchase foreign currencies in
the spot market to settle a foreign currency denominated liability.
 
 
                                       26
<PAGE>
 
    Heller's exposure to foreign exchange risk has increased somewhat since
1997 due to the Dealer Product's Group acquisition, as we now have operations
in countries for which we previously did not conduct business. Foreign exchange
risk remains a primary market risk exposure that we will continue to manage. We
have not altered the way in which we hedge our foreign exchange risk nor do we
anticipate any significant changes in 1999. Our implementation of Financial
Accounting Standard No. 133, "Accounting for Derivatives and Hedging
Activities," may however, impact our use of certain foreign currency hedging
instruments in 1999.
 
    The following table provides information about certain of Heller's
financial instruments that are sensitive to changes in foreign exchange rates,
including assets and liabilities. The table presents principal cash flows and
related weighted average interest rates by expected maturity date at December
31, 1998 for these instruments. Weighted average interest rates provided in the
table represent the interest rates in effect at December 31, 1998 and assume
that no changes in variable interest rates will occur over the remaining life
of the respective assets or liabilities. The information is reported in U.S.
dollar equivalents, which is our reporting currency.
 
<TABLE>
<CAPTION>
                                         Expected Maturity Date
                         -------------------------------------------------------------
                                                                                 Fair
                          1999   2000   2001   2002   2003   Thereafter Total   Value
                         ------  -----  -----  -----  -----  ---------- ------  ------
                                          (dollars in millions)
Foreign Currency
Sensitive Assets
----------------
<S>                      <C>     <C>    <C>    <C>    <C>    <C>        <C>     <C>
Australian Dollar
 assets*................ $   77  $   6  $   5  $   2  $   1       --    $   91  $   89
Average interest rate...  10.15% 10.15% 10.15% 10.15% 10.15%      --     10.15%
British Pound assets.... $  103  $  73  $  38  $  17  $   8    $   6    $  245  $  245
Average interest rate...  14.50% 14.50% 14.50% 14.50% 14.50%   14.50%    14.50%
Canadian Dollar assets.. $   20  $  14  $   7  $   3  $   2       --    $   46  $   46
Average interest rate...   9.00%  8.00%  7.50%  7.00%  6.00%      --      8.00%
French Franc assets*.... $1,208     --     --     --     --       --    $1,208  $1,195
Average interest rate...   4.76%    --     --     --     --       --      4.76%
German Mark assets...... $    3  $   3  $   2  $   1     --    $   1    $   10  $   10
Average interest rate...  14.28% 14.28% 14.28% 14.28%    --    14.28%    14.28%
Mexican Peso assets*.... $   20     --     --     --     --       --    $   20  $   18
Average interest rate...  37.88%    --     --     --     --       --     37.88%
Singapore Dollar
 assets*................ $   52  $  11  $   4  $   1     --       --    $   68  $   65
Average interest rate...   9.89%  9.50%  9.50%  9.50%    --       --      9.82%
Swiss Franc assets...... $   10  $   7  $   3  $   1     --    $   2    $   23  $   23
Average interest rate...  10.32% 10.32% 10.32% 10.32%    --    10.32%    10.32%
<CAPTION>
Foreign Currency
Sensitive Liabilities
---------------------
<S>                      <C>     <C>    <C>    <C>    <C>    <C>        <C>     <C>
Australian Dollar
 liabilities............ $   69     --     --     --     --       --    $   69  $   69
Average interest rate...   6.12%    --     --     --     --       --      6.12%
French Franc
 liabilities............ $1,169     --     --  $  26  $  72       --    $1,267  $1,267
Average interest rate...   3.57%    --     --   5.25%  4.00%      --      3.63%
Mexican Peso
 liabilities............ $   30     --     --     --     --       --    $   30  $   30
Average interest rate...  24.88%    --     --     --     --       --     24.88%
Singapore Dollar
 liabilities............ $   35     --     --     --     --       --    $   35  $   35
Average interest rate...   7.80%    --     --     --     --       --      7.80%
</TABLE>
--------
*net of credit balances of factoring clients
 
    The following table provides information about Heller's forward currency
exchange contracts which are sensitive to changes in foreign exchange rates.
The table presents notional amounts and related weighted average exchange rates
at December 31, 1998 for
 
                                       27
<PAGE>
 
these instruments. Weighted average exchange rates provided in the table,
represent the contract rates in effect at December 31, 1998. The forward
currency exchange contracts listed below all mature during 1999. The
information is reported in U.S. dollar equivalents, which is our reporting
currency.
 
<TABLE>
<CAPTION>
                                                                 Average
                                                        Notional Exchange Fair
                                                         Amount    Rate   Value
                                                        -------- -------- -----
                                                         (dollars in millions)
      Foreign Currency Sensitive Derivatives
      --------------------------------------
      <S>                                               <C>      <C>      <C>
      Forward Contracts to sell Foreign Currencies for
       USD
      Australian Dollars..............................    $ 26     0.622  $0.37
      Belgium Francs..................................      17    34.280  (0.04)
      British Pounds..................................      40     1.656  (0.01)
      Canadian Dollars................................      16     1.550  (0.18)
      Danish Krona....................................      14     6.346   0.03
      Dutch Guilders..................................     261     1.868   0.08
      French Francs...................................     343     5.555   1.06
      German Marks....................................       6     1.629  (0.01)
      Mexican Pesos...................................      11    10.125  (0.20)
      Portuguese Escudos..............................      15   170.523  (0.04)
      Singapore Dollars...............................      38     1.642   0.15
      Spanish Pesetas.................................      11   141.314   0.03
      Swiss Francs....................................      22     1.293   0.34
                                                          ----            -----
       Total..........................................    $820            $1.58
                                                          ====            =====
</TABLE>
 
    The following table provides information about Heller's cross currency
swaps that are sensitive to changes in foreign exchange rates. The table
presents notional amounts and weighted average receive/pay rates by expected
maturity date at December 31, 1998. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract. Weighted average
floating rates provided in the table are based on the rates
in effect at December 31, 1998 and assume that no changes in rates will occur
over the remaining life of the respective currency swaps. The information is
reported in U.S. dollar equivalents, which is our reporting currency.
 
<TABLE>
<CAPTION>
                                          Expected Maturity Date
                          ----------------------------------------------------------
                          1999   2000   2001   2002 2003 Thereafter Total  FairValue
                          -----  -----  -----  ---- ---- ---------- -----  ---------
                                          (dollars in millions)
Foreign Currency
Sensitive Derivatives
---------------------
<S>                       <C>    <C>    <C>    <C>  <C>  <C>        <C>    <C>
Currency Swap Agreements
Payment of British
 Pounds
 Notional amount........  $  83  $  50  $  25  --   --       --     $ 158    $--
 Pay fixed British Pound
  rate..................   5.68%  5.67%  5.77% --   --       --      5.69%
 Receive floating US
  rate..................   6.05%  6.05%  6.05% --   --       --      6.05%
 
Payment of Canadian
 Dollars
 Notional amount........  $  16  $  10  $   3  --   --     $  17    $  46    $--
 Pay fixed Canadian
  Dollar rate...........   5.69%  5.54%  5.63% --   --      7.04%    6.15%
 Receive floating US
  rate..................   6.06%  6.06%  6.06% --   --      7.06%    6.42%
 
Payment of French Francs
 Notional amount........  $ 106    --     --   --   --       --     $ 106    $  2
 Pay fixed French Franc
  rate..................   3.88%   --     --   --   --       --      3.88%
 Receive fixed US rate..   6.62%   --     --   --   --       --      6.62%
 
Receipt of Japanese Yen
 Notional amount........    --   $ 306    --   --   --       --     $ 306    $(31)
 Receive fixed Japanese
  Yen rate..............    --    3.26%   --   --   --       --      3.26%
 Pay floating US rate...    --    6.32%   --   --   --       --      6.32%
                                                                    -----    ----
 Total..................                                            $ 616    $(29)
                                                                    =====    ====
</TABLE>
 
 
                                       28
<PAGE>
 
    Liquidity Risk Management. We manage liquidity risk primarily by:
 
    (1) monitoring the relative maturities of assets and liabilities;
 
    (2) borrowing funds through the U.S. and international money and
        capital markets and bank credit markets; and
 
    (3) ensuring the availability of substantial sources of liquidity such
        as unused committed bank lines.
 
    We use cash to fund asset growth and to meet debt obligations and other
commitments on a timely and cost-effective basis. Our primary sources of funds
are:
 
      (1) commercial paper borrowings;
 
     (2) issuances of medium-term notes and other term debt securities; and
 
     (3) the syndication, securitization or sale of certain lending assets.
 
    At December 31, 1998, commercial paper borrowings were $3.7 billion and
amounts due on term debt within one year were $2.5 billion. If we are unable to
access such markets at acceptable terms, we could draw on our bank credit and
asset sale facilities and use cash flow from operations and portfolio
liquidations to satisfy our liquidity needs. At December 31, 1998, we had
committed liquidity support through our bank credit and asset sale facilities
totaling $5.1 billion. Our bank facilities include two 364-day facilities
expiring in April 1999 and October 1999 (both of which we intend to renew),
representing, on a consolidated basis, 142% of outstanding commercial paper and
short-term borrowings. We believe that such credit lines should provide us with
sufficient liquidity 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
our liquidity.
 
 
                                       29
<PAGE>
 
Portfolio Quality
 
    The high credit quality of our portfolio in 1998 reflected the
effectiveness of our credit strategies, underwriting and portfolio management
and disciplined credit approval process. As of December 31, 1998, nonearning
assets were $211 million, or 1.8% of lending assets, versus $155 million, or
1.4% of lending assets, at the end of 1997. We remain favorable to our stated
target range for nonearning assets of 2-4% of lending assets. In addition, our
allowance for losses of receivables was in excess of 100% of nonearning
impaired receivables as of December 31, 1998 and 1997. The following table
presents information about the credit quality of our portfolio:
 
<TABLE>
<CAPTION>
                                                           December 31,
                                                      ------------------------
                                                       1998     1997     1996
                                                      -------  -------  ------
                                                          (in millions)
   <S>                                                <C>      <C>      <C>
   Lending Assets and Investments:
    Receivables.....................................  $11,854  $10,722  $8,529
    Repossessed assets..............................        3       14      14
                                                      -------  -------  ------
      Total lending assets..........................   11,857   10,736   8,543
    Equity and real estate investments..............      617      488     419
    Debt securities.................................      400      311     251
    Operating leases................................      321      195     135
    Investments in international joint ventures.....      235      198     272
                                                      -------  -------  ------
      Total lending assets and investments..........  $13,430  $11,928  $9,620
                                                      =======  =======  ======
 
<CAPTION>
                                                           December 31,
                                                      ------------------------
                                                       1998     1997     1996
                                                      -------  -------  ------
                                                      (dollars in millions)
   <S>                                                <C>      <C>      <C>
   Nonearning Assets:
    Impaired receivables............................  $   208  $   141  $  264
    Repossessed assets..............................        3       14      14
                                                      -------  -------  ------
      Total nonearning assets.......................  $   211  $   155  $  278
                                                      =======  =======  ======
    Ratio of nonearning impaired receivables to
     receivables....................................      1.8%     1.3%    3.1%
    Ratio of total nonearning assets to total
     lending assets.................................      1.8%     1.4%    3.3%
   Allowances for Losses:
    Allowance for losses of receivables.............  $   271  $   261  $  225
    Ratio of allowance for losses of receivables to
     receivables....................................      2.3%     2.4%    2.6%
    Ratio of allowances for losses of receivables
     to net writedowns..............................      3.3x     1.8x    2.1x
    Ratio of allowance for losses of receivables to
     nonearning impaired receivables................    130.3%   185.1%   85.2%
   Delinquencies:
    Earning loans delinquent 60 days or more........  $   184  $   151  $  143
    Ratio of earning loans delinquent 60 days or
     more to
     receivables....................................      1.6%     1.4%    1.7%
<CAPTION>
                                                        For the Year Ended
                                                           December 31,
                                                      ------------------------
                                                       1998     1997     1996
                                                      -------  -------  ------
                                                      (dollars in millions)
   <S>                                                <C>      <C>      <C>
   Net Writedowns of Lending Assets:
    Net writedowns on receivables...................  $    81  $   139  $  104
    Net writedowns on repossessed assets............      --         7       4
                                                      -------  -------  ------
      Total net writedowns..........................  $    81  $   146  $  108
                                                      =======  =======  ======
    Ratio of net writedowns to average lending
     assets.........................................      0.7%     1.5%    1.3%
</TABLE>
 
    Nonearning Assets. We classify receivables as nonearning when we have
significant doubt about the ability of the debtor to meet current contractual
terms. This may be evidenced by (1) loan delinquency, (2) reduction of cash
flows, (3) deterioration in the loan to value relationship and (4) other
relevant considerations. The table below shows nonearning assets by business
line in 1998, 1997 and 1996:
 
 
                                       30
<PAGE>
 
<TABLE>
<CAPTION>
                                         For the Year Ended December 31,
                                   --------------------------------------------
                                        1998           1997           1996
                                   -------------- -------------- --------------
                                   Amount Percent Amount Percent Amount Percent
                                   ------ ------- ------ ------- ------ -------
                                              (dollars in millions)
   <S>                             <C>    <C>     <C>    <C>     <C>    <C>
   Domestic Commercial Finance
    Corporate Finance............   $ 13      6%   $  7      5%   $ 40     14%
    Real Estate Finance..........      8      4       5      3       3      1
    Leasing Services.............     25     12      14      9       9      3
    Small Business Finance.......     33     16      16     10       5      2
    Commercial Services..........      5      2       2      1       3      1
    Other........................    101     48      92     59     193     70
                                    ----    ---    ----    ---    ----    ---
   Total Domestic Commercial
    Finance......................    185     88     136     87     253     91
   International Factoring and
    Asset Based Finance..........     26     12      19     13      25      9
                                    ----    ---    ----    ---    ----    ---
    Nonearning assets............   $211    100%   $155    100%   $278    100%
                                    ====    ===    ====    ===    ====    ===
</TABLE>
 
    The increase in Leasing Services' nonearning assets is a result of our
acquisition of the Dealer Products Group. The increase in Small Business
Finance's nonearning assets is primarily due to growth in its portfolio.
Approximately 70% of those nonearning assets are guaranteed by the SBA under
its 7(a) loan program. Other nonearning assets consist of transactions for
business activities we are no longer pursuing.
 
    Allowance for Losses. The allowance for losses of receivables is a general
reserve available to absorb losses in the entire portfolio. We establish this
allowance through direct charges to income. Losses are charged to the allowance
when we deem all or a portion of a receivable uncollectible. We review the
allowance periodically and we adjust it when appropriate given (1) the size and
loss experience of the overall portfolio, (2) the effect of current economic
conditions and (3) the collectibility and workout potential of identified risk
and nonearning accounts. For repossessed assets, if the fair value declines
after the time of repossession, we record a writedown to reflect this reduction
in value.
 
    The allowance for losses of receivables totaled $271 million, or 2.3% of
receivables, at December 31, 1998 versus $261 million, or 2.4% of receivables,
at December 31, 1997. The decrease as a percentage of receivables is consistent
with the strong credit performance of our portfolio. The ratio of allowance for
losses of receivables to nonearning impaired receivables exceeded 100% both at
December 31, 1998 and 1997.
 
    Delinquent Earning Accounts and Loan Modifications. Earning accounts
greater than 60 days past due totaled $184 million, or 1.6% of receivables at
December 31, 1998 compared to 1.4% at December 31, 1997. A portion of this
increase was due to the acquisition of the Dealer Products Group. 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 our
borrowers. Troubled debt restructurings were $14 million at December 31, 1998
versus $13 million at December 31, 1997.
 
    We had $11 million of receivables at December 31, 1998 that we restructured
at market rates of interest, written down from the original loan balance and
returned to earning status. We expect to fully recover the recorded investment
of these receivables.
 
 
                                       31
<PAGE>
 
    Writedowns. Net writedowns, shown below for the years ended December 31,
1998, 1997 and 1996, decreased in 1998 due to lower writedowns and higher
recoveries in the Other category compared to 1997. This category represents
transactions for business activities we are no longer pursuing.
 
<TABLE>
<CAPTION>
                                        For the Year Ended December 31,
                                  --------------------------------------------
                                       1998           1997           1996
                                  -------------- -------------- --------------
                                  Amount Percent Amount Percent Amount Percent
                                  ------ ------- ------ ------- ------ -------
                                             (dollars in millions)
   <S>                            <C>    <C>     <C>    <C>     <C>    <C>
   Net Writedowns of Lending
    Assets:
    Domestic Commercial Finance
      Corporate Finance..........  $14      17%   $ 25     17%   $ 13     12%
      Real Estate Finance........   45      55       1      1       1      1
      Leasing Services...........    3       4       1      1      (3)    (3)
      Small Business Finance.....    3       4       2      1       1      1
      Commercial Services........   13      16       8      5       9      8
      Other......................   (2)     (2)     87     60      87     81
                                   ---     ---    ----    ---    ----    ---
    Total Domestic Commercial
     Finance.....................   76      94     124     85     108    100
    International Factoring and
     Asset Based Finance.........    5       6      22     15     --     --
                                   ---     ---    ----    ---    ----    ---
        Total net writedowns.....  $81     100%   $146    100%   $108    100%
                                   ===     ===    ====    ===    ====    ===
</TABLE>
 
    Net writedowns for 1998 totaled $81 million or 0.7% of average lending
assets, compared to $146 million or 1.5% for the same period in 1997. Gross
writedowns totaled $145 million for 1998, compared to $169 million in the prior
year, while gross recoveries totaled $64 million in 1998 compared to $23
million in 1997. The increase in Real Estate Finance net writedowns during 1998
was the result of the $40 million writedown on CMBS assets recorded in the
fourth quarter. Excluding this writedown, Real Estate Finance net writedowns
were $5 million, or 0.3% of Real Estate Finance average lending assets during
1998.
 
    During 1998, we recorded net recoveries of $2 million on our Other
portfolio, as compared with net writedowns of $87 million in 1997. This is the
result of recording higher levels of recoveries on Real Estate Finance and
Corporate Finance transactions originated before 1990 under different
underwriting criteria. The decrease in International net writedowns in 1998 was
due to higher levels of writedowns recorded in 1997 in conjunction with our
Mexican subsidiary.
 
ITEM 2. PROPERTIES
 
    We lease office space for our corporate headquarters at 500 West Monroe
Street, Chicago, Illinois 60661. We lease other offices throughout the United
States, Canada, Europe, Asia/Pacific and Latin America. For information
concerning our lease obligations, see Note 10 to the Consolidated Financial
Statements. We own an office building used by Leasing Services in the United
Kingdom.
 
ITEM 3. LEGAL PROCEEDINGS
 
    We are a party to a number of legal proceedings as plaintiff and defendant,
all arising in the ordinary course of our business. We believe that the
amounts, if any, which we may ultimately pay regarding these matters will not
have a material adverse effect on our business, financial condition or results
of operations. However, we have no assurance that an unfavorable decision in
any such legal proceeding would not have 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 Heller in
the fourth quarter of 1998.
 
                                       32
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    Heller's Class A Common Stock has traded on the New York and Chicago Stock
Exchanges, under the symbol HF, since our initial public offering in May 1998.
The following tables summarize the high and low market prices as reported on
the New York Stock Exchange Composite Tape for the periods indicated and the
cash dividends declared during 1998 and 1997:
 
<TABLE>
<CAPTION>
                                                                    Sales Price
                                                                     Range of
                                                                   Common Stock
                                                                       1998
                                                                   -------------
                                                                    High   Low
                                                                   ------ ------
      <S>                                                          <C>    <C>
      Quarters:
       First.....................................................     N/A    N/A
       Second....................................................  $30.82 $26.50
       Third.....................................................  $30.75 $19.75
       Fourth....................................................  $29.13 $17.00
</TABLE>
 
<TABLE>
<CAPTION>
                                                                      Dividends
                                                                     Declared on
                                                                       Common
                                                                        Stock
                                                                     (dollars in
                                                                      millions)
                                                                     -----------
                                                                      1998  1997
                                                                     ------ ----
      <S>                                                            <C>    <C>
      Quarters:
       First........................................................ $  465 $14
       Second.......................................................    533  14
       Third........................................................    --   14
       Fourth.......................................................      8  27
                                                                     ------ ---
         Total dividends paid....................................... $1,006 $69
                                                                     ====== ===
</TABLE>
 
    In 1998, we declared and paid cash dividends of over $1 billion on our
Common Stock. These dividends included $998 million paid on the Common Stock
owned by FAHI, both before and after the IPO. This amount included a $450
million dividend paid in February 1998 in the form of a subordinated note,
which we subsequently repaid, and cash dividends in the first and second
quarters of $15 million and $533 million, respectively.
 
    In the fourth quarter we paid cash dividends of $8 million, or $0.09 per
share, ratably on our Class A and Class B Common Stock. In 1997, we paid
dividends of $69 million on our Common Stock to Heller International
Corporation (HIC). Of the dividends paid in 1997, we paid $43 million in cash
and $26 million in preferred stock issued by International Group.
 
    During the first quarter of 1999, we declared and paid dividends ratably on
our Class A and Class B Common Stock of $0.09 per share.
 
    We are prohibited from paying dividends on Common Stock unless:
 
  (1) we have paid all declared dividends on all of our outstanding shares
      of Preferred Stock, Series C and Series D; and
 
  (2) we have paid all full cumulative dividends on all outstanding shares
      of our Cumulative Perpetual Senior Preferred Stock, Series A.
 
    All such preferred stock dividends have been paid to date.
 
                                       33
<PAGE>
 
    Effective January 1998, we exchanged our 6.687% Fixed Rated Noncumulative
Perpetual Senior Preferred Stock, Series C, for all formerly outstanding 6.687%
Noncumulative Perpetual Senior Preferred Stock, Series B. Our 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.
 
    At December 31, 1998, we had outstanding borrowings under our domestic and
foreign commercial paper programs of approximately $2.7 billion. Under these
programs, we issue, from time to time, notes with a maturity of nine months or
less, primarily to institutional investors. These notes are exempt from the
registration requirements of the Securities Act of 1933 under Section 3(a)(3)
of that Act.
 
    As of March 1, 1999, there were approximately 220 holders of record of
Heller's Class A Common Stock, one of which represents approximately 8,000
beneficial holders. FAHI is the sole record holder of Heller's Class B Common
Stock. The closing price of the Class A Common Stock on March 1, 1999 was
$24.69.
 
 
                                       34
<PAGE>
 
ITEM 6. SELECTED FINANCIAL DATA
 
    The results of our operations and balance sheet data for each of the years
in the three-year period ended December 31, 1998 and as of December 31, 1998
and 1997, respectively, were derived from the audited Consolidated Financial
Statements of Heller, and the notes thereto, which appear 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, 1995 and as of December 31,
1996, 1995 and 1994, respectively, except 1994 net income applicable to common
stock, were derived from audited consolidated financial statements of Heller,
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,
                                               ---------------------------------
                                               1998(1)(2) 1997(2) 1996 1995 1994
                                               ---------- ------- ---- ---- ----
                                                         (in millions)
<S>                                            <C>        <C>     <C>  <C>  <C>
Results of Operations:
Interest income..............................    $1,047    $924   $807 $851 $702
Interest expense.............................       624     516    452  464  336
                                                 ------    ----   ---- ---- ----
 Net interest income.........................       423     408    355  387  366
Fees and other income........................       206     206     79  148  117
Factoring commissions........................       124     104     55   50   53
Income of international joint ventures.......        30      36     44   35   21
                                                 ------    ----   ---- ---- ----
 Operating revenues..........................       783     754    533  620  557
Operating expenses...........................       399     357    247  216  195
Provision for losses.........................        77     164    103  223  188
Restructuring charge.........................        17     --     --   --   --
                                                 ------    ----   ---- ---- ----
 Income before income taxes and minority
  interest...................................       290     233    183  181  174
Income tax provision.........................        93      66     43   49   51
Minority interest............................         4       9      7    7    5
                                                 ------    ----   ---- ---- ----
 Net income..................................    $  193    $158   $133 $125 $118
                                                 ======    ====   ==== ==== ====
 Dividends on preferred stock................    $   21    $ 14   $ 10 $ 10 $ 10
                                                 ======    ====   ==== ==== ====
 Net income applicable to common stock.......    $  172    $144   $123 $115 $108
                                                 ======    ====   ==== ==== ====
</TABLE>
 
<TABLE>
<CAPTION>
                                                 December 31,
                                    ------------------------------------------
                                    1998(1)(2) 1997(2)   1996    1995    1994
                                    ---------- -------  ------  ------  ------
                                                 (in millions)
<S>                                 <C>        <C>      <C>     <C>     <C>
Balance Sheet Data:
Receivables.......................   $11,854   $10,722  $8,529  $8,085  $7,616
Allowance for losses of
 receivables......................      (271)     (261)   (225)   (229)   (231)
Equity and real estate
 investments......................       617       488     419     428     399
Debt securities...................       400       311     251     152      69
Operating leases..................       321       195     135     113     166
Investment in international joint
 ventures.........................       235       198     272     233     174
 Total assets.....................    14,366    12,861   9,926   9,638   8,476
                                     =======   =======  ======  ======  ======
Commercial paper and short-term
 borrowings.......................     3,681     3,432   2,745   2,223   2,451
Long-term debt....................     6,768     6,004   4,761   5,145   3,930
                                     -------   -------  ------  ------  ------
 Total debt.......................   $10,449   $ 9,436  $7,506  $7,368  $6,381
                                     =======   =======  ======  ======  ======
 Total liabilities................   $12,394   $11,096  $8,402  $8,208  $7,107
Preferred stock...................       400       275     125     125     125
Common equity.....................     1,562     1,403   1,342   1,259   1,205
                                     -------   -------  ------  ------  ------
 Total stockholders' equity.......   $ 1,962   $ 1,678  $1,467  $1,384  $1,330
                                     =======   =======  ======  ======  ======
</TABLE>
 
                                       35
<PAGE>
 
<TABLE>
<CAPTION>
                                    As of, or For the Year Ended, December
                                                      31,
                                    ------------------------------------------
                                    1998(1)(2) 1997(2)   1996    1995    1994
                                    ---------- -------  ------  ------  ------
                                             (dollars in millions)
<S>                                 <C>        <C>      <C>     <C>     <C>
Selected Data and Ratios:
Profitability
 Net interest income as a
  percentage of AFE(3)............       3.6%      4.0%    4.1%    4.6%    4.7%
 Non-interest operating revenues
  as a percentage of AFE(3).......       3.0       3.5     2.0     2.7     2.5
 Operating revenues as a
  percentage of AFE(3)............       6.6       7.5     6.1     7.3     7.2
 Return on average common
  stockholders' equity(4).........      12.4      10.5     9.4     9.3     9.2
 Return on AFE(3).................       1.6       1.6     1.5     1.5     1.5
 Ratio of earnings to combined
  fixed charges and preferred
  stock dividends(5)..............      1.39x     1.39x   1.36x   1.34x   1.45x
 Salaries and general operating
  expenses as a percentage of
  AFE(3)..........................       3.4%      3.5%    2.8%    2.6%    2.5%
 Ratio of operating expenses to
  operating revenues..............      51.0      47.3    46.3    34.8    35.0
 Common dividend payout ratio(6)..      13.4      47.7    47.2    47.0    20.4
Credit Quality
 Ratio of earning loans delinquent
  60 days or more to receivables..       1.6%      1.4%    1.7%    1.4%    1.4%
 Ratio of net writedowns to
  average lending assets..........       0.7       1.5     1.3     2.9     2.4
 Ratio of total nonearning assets
  to total lending assets.........       1.8       1.4     3.3     3.6     4.0
 Ratio of allowance for losses of
  receivables to receivables......       2.3       2.4     2.6     2.8     3.0
 Ratio of allowance for losses of
  receivables to net writedowns...       3.3x      1.8x    2.lx    1.0x    1.3x
 Ratio of allowance for losses of
  receivables to nonearning
  impaired receivables............     130.2%    185.1%   85.2%   87.7%   81.3%
Leverage
 Ratio of debt (net of short-term
  investments) to total
  stockholders' equity............       5.2x      5.2x    5.0x    5.0x    4.7x
 Ratio of commercial paper and
  short-term borrowings to total
  debt............................      35.2%     36.4%   36.6%   30.2%   38.4%
Other
 Total lending assets and
  investments(7)..................   $13,430   $11,928  $9,620  $9,039  $8,443
 Funds employed(3)................    11,989    10,673   9,030   8,542   7,991
 Average funds employed(3)........    11,814    10,081   8,727   8,466   7,785
 Total managed assets(8)..........    13,664    11,800   9,574   9,137   8,414
 Average managed assets(8)........    13,007    10,687   9,356   8,776   7,918
 Number of employees..............     2,714     2,339   1,527   1,487   1,404
 Number of office locations.......        76        63      52      36      33
</TABLE>
--------
(1) The financial data presented for 1998 reflects our purchase of the domestic
    technology leasing assets of the Dealer Products Group and the stock of the
    Dealer Products Group's international subsidiaries in November 1998. As a
    result of this purchase, we consolidated the acquired assets and
    international subsidiaries of the Dealer Products Group as of the date of
    acquisition. Goodwill related to this acquisition totaled $187 million and
    is subject to any purchase price adjustments to be finalized in 1999. The
    consolidation of the Dealer Products Group assets and subsidiaries resulted
    in an increase of approximately $625 million in total assets and
    approximately 400 additional employees as of December 31, 1998 as compared
    to December 31, 1997. This acquisition had a minimal favorable impact on
    our 1998 net income, as our 1998 results include only one month of Dealer
    Products Group operations.
(2)The financial data presented for 1998 and 1997 reflects our purchase
    (through our subsidiary, International Group) of our joint venture
    partner's interest in Factofrance in April 1997 for $174 million. As a
    result of this purchase, Factofrance was reported on a consolidated basis
    with Heller as of the date of acquisition. The premium related to this
    purchase was allocated as follows: $78 million to goodwill and $18 million
    to a noncompetition agreement. Our consolidation of Factofrance resulted in
    increases of $2 billion, $94 million, $59 million and 570 in total assets,
    operating revenues, operating expenses and number of employees,
    respectively, during 1997 as compared to 1996.
(3)Funds employed include lending assets and investments, less credit balances
    of our factoring clients. We believe that funds employed are indicative of
    the dollar amount which we have loaned to our borrowers. Average funds
    employed (AFE) reflect the average of lending assets and investments, less
    credit balances of our factoring clients.
 
                                       36
<PAGE>
 
(4)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.
(5)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.
(6)Common dividend payout ratio is computed as common dividends paid, divided
    by net income applicable to common stock. The 1998 common dividend payout
    ratio excludes the $983 million dividends paid on the Common Stock owned by
    FAHI.
(7)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.
(8)Total managed assets include funds employed, plus receivables previously
    securitized or sold and currently managed by Heller.
 
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 the Securities Exchange Act of 1934, which are generally identified
by the words "anticipates", "believes", "estimates", "expects", "plans",
"intends" and similar expressions. These statements are subject to certain
risks, uncertainties and contingencies, which could cause our 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 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 sources of our operating revenues can be classified in two broad
categories:
 
  . net interest income; and
 
  . non-interest income.
 
    Net interest income represents the total interest income we earn,
principally through our financing and leasing activities, less the total
interest expense we pay on our 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;
 
                                       37
<PAGE>
 
  . late fees;
 
  . structuring fees;
 
  . syndication fees; and
 
  . prepayment fees.
 
    Other income includes:
 
  . real estate participation income;
 
  . gains from sales of investments and from sales and securitizations of
    lending assets; and
 
  . equipment residual gains.
 
    Our primary expenses, other than interest expense, are operating expenses,
including employee compensation and general and administrative expenses, and
provisions for credit losses.
 
    In May 1998, we issued 38,525,000 shares of Class A Common Stock in the
IPO. We received net proceeds of $986 million, of which (1) $450 million was
used to repay our indebtedness consisting of a subordinated note to Fuji
America Holdings issued February 24, 1998 for a previously declared dividend,
and (2) $533 million was paid as a cash dividend to Fuji America Holdings. In
addition, we issued 505,912 shares of restricted Class A Common Stock to our
management during 1998. Before May 1998, Fuji America Holdings owned 100% of
our outstanding Common Stock. After the IPO and the issuance of shares to
management, 90,080,912 shares of common stock of Heller were outstanding,
resulting in Fuji America Holdings owning 79% of the voting interest and 57% of
the economic interest in our Common Stock.
 
    In May 1998, we purchased the 21% interest held by Fuji Bank in
International Group for total cash consideration of approximately $83 million.
The Company financed this acquisition by issuing senior debt. See "Item 13.
Certain Relationships and Related Transactions--Purchase of Interest in
International Group from Fuji Bank".
 
    On November 30, 1998, we acquired the U.S. assets of the Dealer Products
Group of Dana Commercial Credit Corporation and the stock of the Dealer
Products Group's international subsidiaries (Dealer Products Group) for
approximately $775 million. This amount, which included the assumption and
repayment of approximately $260 million of foreign debt, is subject to any
purchase price adjustments to be finalized in 1999. The U.S. and international
divisions of the Dealer Products Group provide customized leasing and financing
to commercial enterprises primarily for the acquisition of computer and
telecommunications equipment. The consolidation of the Dealer Products Group
assets and subsidiaries resulted in an increase of approximately $625 million
in total assets and approximately 400 additional employees as of December 31,
1998 as compared to December 31, 1997. This acquisition had a minimal favorable
impact on our 1998 net income, as the 1998 results include only one month of
Dealer Products Group operations.
 
    During 1998, we reorganized our Domestic Commercial Finance segment into
five business units designed to improve our operating efficiency, both by
generating additional revenues and by reducing the costs of doing business--See
"Item 1. Business". In conjunction with this initiative, we incurred a one time
restructuring charge of $17 million during the fourth quarter of 1998. The
majority of this cost related to severance benefits
 
                                       38
<PAGE>
 
associated with the approximate 15% reduction in our domestic workforce. The
charge also included costs related to leases on offices we will no longer
occupy and the write down of leasehold improvements related to these offices.
We expect the reorganization to reduce future costs by more than $20 million on
an annual basis.
 
    Our results of operations may vary significantly from quarter to quarter
based upon the timing of certain events, such as securitizations and net
investment gains. See Note 23 to the Consolidated Financial Statements.
 
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
 
 Results of Operations
 
    Overview. For the year ended December 31, 1998:
 
  . Net income totaled $193 million compared with $158 million for the prior
    year, an increase of 22%. This represents our sixth consecutive year of
    record net income.
 
  . Net income applicable to common stock was $172 million for the year
    ended December 31, 1998. This represents an increase of 19% from $144
    million for the prior year and reflects an increase of $29 million in
    operating revenues, due to growth in both net interest income and non-
    interest income, coupled with a decrease in the provision for losses of
    $87 million, or 53% from December 31, 1997.
 
  . Earnings were reduced by a one time charge of $17 million, relating to
    our restructuring initiative, which was recorded in the fourth quarter.
 
  . The increase in net interest income, as compared to the prior year, is
    due to growth in lending assets and investments. See "--Operating
    Revenues--Net Interest Income."
 
  . The decrease in provision for losses is due to a significant increase in
    recoveries coupled with a decrease in writedowns. Our allowance for
    losses of receivables at year end was in excess of 100% of nonearning
    impaired receivables.
 
  . New business lending volume totaled a record $7.2 billion, an increase
    of 20% over the prior year. This increase was the result of our
    significant investment in building leadership positions in our
    businesses and in expanding market coverage.
 
  . Our factoring volume totaled $19.4 billion in 1998, an increase of 21%
    from the prior year, due to significant growth of Factofrance.
 
    Operating Revenues. The following table shows our operating revenues for
the years ended December 31, 1998 and 1997:
 
<TABLE>
<CAPTION>
                                                   For the Year Ended December
                                                               31,
                                                  -----------------------------
                                                       1998           1997
                                                  -------------- --------------
                                                         Percent        Percent
                                                  Amount of AFE  Amount of AFE
                                                  ------ ------- ------ -------
                                                      (dollars in millions)
      <S>                                         <C>    <C>     <C>    <C>
      Net interest income........................  $423    3.6%   $408    4.0%
      Non-interest income:
       Fees and other income.....................   206    1.7     206    2.1
       Factoring commissions.....................   124    1.0     104    1.0
       Income of international joint ventures....    30    0.3      36    0.4
                                                   ----    ---    ----    ---
         Total operating revenues................  $783    6.6%   $754    7.5%
                                                   ====    ===    ====    ===
</TABLE>
 
 
                                       39
<PAGE>
 
    Net Interest Income. The following table shows our net interest income for
the years ended December 31, 1998 and 1997:
 
<TABLE>
<CAPTION>
                                         For the Year
                                             Ended
                                         December 31,    Increase/(Decrease)
                                         --------------- ---------------------
                                          1998    1997    Amount     Percent
                                         -------  ------ ---------  ----------
                                               (dollars in millions)
      <S>                                <C>      <C>    <C>        <C>
      Interest income..................  $ 1,047  $ 924   $     123       13.3%
      Interest expense.................      624    516         108       20.9
                                         -------  -----   ---------
       Net interest income.............  $   423  $ 408   $      15        3.7
                                         =======  =====   =========
       Net interest income as a
        percentage of AFE..............      3.6%   4.0%
</TABLE>
 
    Net interest income totaled $423 million for the year ended December 31,
1998, an increase of $15 million, or 4%, from the comparable prior year period.
This increase was driven by strong growth in lending assets and investments
offset by tightening net interest margins.
 
    Average funds employed totaled $11.8 billion for 1998, up 17% from $10.1
billion in 1997 due to record new business lending volume of $7.2 billion
during the year.
 
    Net interest income as a percentage of AFE decreased to 3.6% at December
31, 1998 from 4.0% at December 31, 1997. This decline reflects the competitive
pricing pressures in certain product groups and the impact of the CMBS product,
which carries a significantly lower net interest margin than other receivables.
The lower yielding CMBS portfolio decreased our total net interest margin by
approximately 0.30% for the twelve months ended December 31, 1998. Total net
interest margin for 1998 was also reduced by 0.05% as a result of interest
expense recorded on the $450 million note related to the Fuji America Holdings
dividend paid in February 1998.
 
    Interest rates we charge vary depending on:
 
  . risks and maturities of loans;
 
  . competition;
 
  . our current costs of borrowing;
 
  . state usury laws; and
 
  . other governmental regulations.
 
    Our 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 and corporate based lending
rates.
 
    We use interest rate swaps as an important tool for financial risk
management. They enable us to match more closely the interest rate and maturity
characteristics of our assets and liabilities. As such, we use interest rate
swaps to:
 
  . change the characteristics of fixed rate debt to that of variable rate
    liabilities;
 
  . alter the characteristics of specific fixed rate asset pools to more
    closely match the interest terms of the underlying financing; and
 
  . modify the variable rate basis of a liability to more closely match the
    variable rate basis used for variable rate receivables.
 
 
                                       40
<PAGE>
 
    The following table shows a comparative analysis of the year-end principal
outstanding and average interest rates we paid on our debt as of December 31,
1998 and 1997, before and after giving effect to interest rate swaps:
 
<TABLE>
<CAPTION>
                                        For the Year Ended December 31,
                                  --------------------------------------------
                                          1998                   1997
                                  ---------------------  ---------------------
                                  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...............  $2,692   5.52%  N/A    $2,560   5.71%  N/A
      Fixed rate debt............   3,886   6.31  6.17%    3,951   6.90  6.67%
      Variable rate debt.........   2,879   5.34  5.59     2,051   5.44  6.01
                                   ------                 ------
      Total......................  $9,457   5.79  5.92    $8,562   6.19  6.44
                                   ======                 ======
</TABLE>
 
    Non-Interest Income. The following table shows our non-interest income for
the years ended December 31, 1998 and 1997:
 
<TABLE>
<CAPTION>
                                       For the Year
                                           Ended
                                       December 31,    Increase/(Decrease)
                                       --------------  ----------------------
                                        1998    1997    Amount      Percent
                                       ------  ------  ---------   ----------
                                             (dollars in millions)
      <S>                              <C>     <C>     <C>         <C>
      Factoring commissions........... $  124  $  104   $      20         19.2%
      Income of international joint
       ventures.......................     30      36          (6)       (16.7)
      Fees and other income:
       Fee income and other(1)........    130     111          19         17.1
       Net investment gains...........     59      69         (10)       (14.5)
       Securitization gains...........     17      26          (9)       (34.6)
                                       ------  ------   ---------
         Total fees and other income.. $  206  $  206   $      --           --
                                       ------  ------   ---------
           Total non-interest income.. $  360  $  346   $      14          4.0
                                       ======  ======   =========
      Non-interest income as a
       percentage of AFE..............    3.1%    3.5%
</TABLE>
--------
(1) Fee income and other consists primarily of loan servicing income, late
    fees, prepayment fees, other miscellaneous fees and equipment residual
    gains.
 
    Our non-interest income is composed of:
 
  . factoring commissions;
 
  . income of international joint ventures; and
 
  . fees and other income.
 
    Factoring commissions increased $20 million, or 19%, in 1998 versus 1997
due to significant growth in international factoring volume and the
consolidation of Factofrance for the full year of 1998 versus nine months in
1997, offset by some compression in factoring commission rates. Our total 1998
factoring volume, adjusted for the impact of the Factofrance consolidation for
twelve months in 1998 versus nine months in 1997, increased 21% from the prior
year, including a significant increase in factoring volume recorded by
Factofrance of 34%.
 
    Income of international joint ventures represents our share of the annual
earnings or losses of joint ventures. The $6 million decrease in income from
international joint ventures in 1998 versus 1997 was due primarily to the
consolidation of Factofrance as described above.
 
 
                                       41
<PAGE>
 
    Fees and other income totaled $206 million for 1998, unchanged from the
prior year. An increase in fee income and other was offset by decreases in net
investment gains and lower securitization income. Fee income and other
increased $19 million, or 17% as compared to the prior year as we recognized
increased prepayment income, fees on available lines of credit, as well as
increased income on asset sales of Real Estate Finance and Small Business
Finance as compared to the prior year. Net investment gains decreased $10
million, or 14% due to lower gains on real estate investments. Net investment
gains are generated primarily from investment activity of Corporate Finance and
junior participating lending activity of Real Estate Finance.
 
    During 1998, we generated $17 million of securitization gains, a decrease
of $9 million from the prior year. Securitization gains in 1998 resulted from
two CMBS securitizations totaling $2 billion, a $96 million securitization of
the unguaranteed portion of SBA 7(a) loans and a $434 million sale of equipment
receivables to a conduit. The lower level of securitization gains in 1998 is
due to lower income realization on the CMBS securitizations. We did not retain
any interest in the first CMBS transaction completed in the first quarter of
1998 totaling $1.1 billion. In the second CMBS securitization completed in the
fourth quarter of 1998, we sold all of the unrated and "B" rated securities to
third parties on a non-recourse basis. We retained an interest in the SBA
securitization, as required by the SBA, and an interest in the equipment sales
transaction.
 
    Operating Expenses. The following table shows our operating expenses for
the years ended December 31, 1998 and 1997:
 
<TABLE>
<CAPTION>
                                          For the
                                        Year Ended
                                       December 31,    Increase/(Decrease)
                                       --------------  ----------------------
                                        1998    1997    Amount      Percent
                                       ------  ------  ---------   ----------
                                             (dollars in millions)
      <S>                              <C>     <C>     <C>         <C>
      Salaries and other
       compensation..................  $  227  $  214   $      13          6.1%
      General and administrative
       expenses......................     172     143          29         20.3
                                       ------  ------   ---------
       Total.........................  $  399  $  357   $      42         11.8
                                       ======  ======   =========
      Operating expenses as a
       percentage of AFE.............     3.4%    3.5%
</TABLE>
 
    Operating expenses, excluding the impact of the Factofrance consolidation,
increased by $21 million, or 6%, in 1998, as compared to 1997. This increase is
primarily due to investment in lower risk businesses, increased information
technology expenses including amounts associated with year 2000 compliance
efforts and investment in our national brand building marketing campaign
(Straight Talk, Smart Deals). See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000 Compliance."
 
    Operating expenses as a percentage of average funds employed decreased to
3.4% as of December 31, 1998 from 3.5% at December 31, 1997 which is reflective
of our focus on improving operating efficiency.
 
    In conjunction with our restructuring initiative, which resulted in a one-
time charge of $17 million, we expect annual savings in operating expenses in
excess of $20 million beginning in 1999.
 
 
                                       42
<PAGE>
 
    Allowance for Losses. The following table shows the changes in our
allowance for losses of receivables, including our provision for losses of
receivables and repossessed assets, for the years ended December 31, 1998 and
1997:
 
<TABLE>
<CAPTION>
                                          For the
                                        Year Ended
                                       December 31,    Increase/(Decrease)
                                       --------------  ----------------------
                                        1998    1997    Amount      Percent
                                       ------  ------  ---------   ----------
                                             (dollars in millions)
      <S>                              <C>     <C>     <C>         <C>
      Balance at the beginning of the
       year..........................  $  261  $  225   $      36         16.0%
       Provision for losses..........      77     164         (87)       (53.0)
       Writedowns....................    (145)   (169)         24         14.2
       Recoveries....................      64      23          41        178.3
       Factofrance consolidation.....      --      18         (18)         N/M
       Dealer Products Group
        acquisition .................      18      --          18          N/M
       Transfers and other...........      (4)     --          (4)         N/M
                                       ------  ------   ---------
      Balance at the end of the year.  $  271  $  261        $ 10          3.8%
                                       ======  ======   =========
</TABLE>
 
    The provision for losses decreased to $77 million in 1998 from $164 million
in 1997. This decrease reflects the continued strong asset quality of our
portfolio coupled with higher levels of recoveries and lower levels of
writedowns. Net writedowns for 1998 totaled $81 million or 0.7% of average
lending assets, compared to $146 million or 1.5% for the same period in 1997.
Excluding a $40 million writedown of CMBS receivables, net writedowns were $41
million or 0.4% of average lending assets for the year.
 
    Net writedowns for 1998 were within our stated writedown target of 0.75% of
average lending assets. Gross writedowns totaled $145 million for 1998 versus
$169 million for 1997, while recoveries totaled $64 million in 1998 versus $23
million for 1997. The increase in recoveries for 1998 related primarily to
Corporate Finance and Real Estate Finance assets that were originated prior to
1990 under different underwriting criteria.
 
    As of December 31, 1998, the ratio of our allowance for losses of
receivables to receivables was 2.3%, compared to 2.4% as of December 31, 1997.
The decrease in this ratio reflected the continued improvement of the credit
quality of our portfolio. We intend 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 our portfolio.
 
    Income Taxes. Our effective income tax rate was 32% for 1998 and 28% for
1997, 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.
 
 Lending Assets and Investments
 
    Total lending assets and investments increased $1.5 billion, or 13%, during
1998 due to record new business originations of $7.2 billion and an approximate
$625 million increase in assets from the Dealer Products Group acquisition,
offset by $6.4 billion of paydowns, loan sales, syndications and
securitizations. During 1998, new business volume represented a 20% increase
over 1997, as we realized the benefit of the market positions held by Corporate
Finance, Real Estate Finance and Small Business Finance.
 
 
                                       43
<PAGE>
 
    The following table presents our lending assets and investments by business
line and asset type as of December 31, 1998 and 1997:
 
<TABLE>
<CAPTION>
                                                         December 31,
                                                -------------------------------
                                                     1998            1997
                                                --------------- ---------------
                                                Amount  Percent Amount  Percent
                                                ------- ------- ------- -------
                                                     (dollars in millions)
      <S>                                       <C>     <C>     <C>     <C>
      By Business Category:
      Domestic Commercial Finance
       Corporate Finance....................... $ 3,784    28%  $ 3,066    26%
       Real Estate Finance.....................   2,044    15     2,323    20
       Leasing Services........................   2,840    21     2,314    19
       Small Business Finance..................   1,013     8       766     6
       Commercial Services.....................     401     3       361     3
       Other...................................     687     5       737     6
                                                -------   ---   -------   ---
      Total Domestic Commercial Finance........  10,769    80     9,567    80
      International Factoring and Asset Based
       Finance(1)..............................   2,661    20     2,361    20
                                                -------   ---   -------   ---
         Total lending assets and investments.. $13,430   100%  $11,928   100%
                                                =======   ===   =======   ===
      By Asset Type:
       Receivables............................. $11,854    88%  $10,722    90%
       Repossessed assets......................       3    --        14    --
                                                -------   ---   -------   ---
         Total lending assets..................  11,857    88    10,736    90
       Equity and real estate investments......     617     5       488     4
       Debt securities.........................     400     3       311     3
       Operating leases........................     321     2       195     1
       International joint ventures............     235     2       198     2
                                                -------   ---   -------   ---
         Total lending assets and investments.. $13,430   100%  $11,928   100%
                                                =======   ===   =======   ===
         Total managed assets.................. $13,664         $11,800
         Average managed assets................  13,007          10,687
         Funds employed........................  11,989          10,673
         Average funds employed................  11,814          10,081
</TABLE>
--------
(1) Includes $231 million in investments in international joint ventures,
    representing 2% of total lending assets and investments in 1998, and $198
    million in investments in international joint ventures, representing 2% of
    total lending assets and investments, in 1997.
 
    As of December 31, 1998, our domestic commercial finance portfolio remained
well diversified between Corporate Finance, Leasing Services, and Real Estate
Finance:
 
 . Corporate Finance increased its lending assets and investments to $3.8
  billion as a result of $2.7 billion in new business volume, which was
  partially offset by loan syndications and runoff in the portfolio.
 
 . Leasing Services grew to $2.8 billion, or 21% of our total lending assets and
  investments, at December 31, 1998, primarily due to the Dealer Products Group
  acquisition of approximately $625 million in assets offset by the December
  1998 equipment sale of $434 million in receivables.
 
 . Real Estate Finance decreased to 15% of our total lending assets and
  investments as of December 31, 1998 versus 20% at December 31, 1997 as new
  business volume of $2.2 billion was offset by payoffs and CMBS
  securitizations totaling $2 billion.
 
 
                                       44
<PAGE>
 
    Concentrations of lending assets of 5% or more at December 31, 1998 and
1997, based on the standard industrial classifications of the borrowers, were
as follows:
 
<TABLE>
<CAPTION>
                                                         December 31,
                                                 -----------------------------
                                                      1998           1997
                                                 -------------- --------------
                                                 Amount Percent Amount Percent
                                                 ------ ------- ------ -------
                                                     (dollars in millions)
      <S>                                        <C>    <C>     <C>    <C>
      Department and general merchandise retail
       stores ..................................  $935      8%   $511      5%
      Computers ................................   811      7     164      2
      General industrial machines ..............   732      6     637      6
      Automotive ...............................   667      6     714      7
      Transportation ...........................   666      6     294      3
      Food, grocery and miscellaneous retail ...   650      5     603      6
</TABLE>
 
    With respect to the above table:
 
  . 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 computers category consists of software/hardware distributors and
    manufacturers, plastic component manufacturers and disk drive designers.
 
  . The general industrial machines classification is distributed among
    machinery used for many different industrial applications.
 
  . The automotive category is primarily comprised of auto parts
    distributors and wholesalers, resale and leasing services in the
    automotive and aircraft industries and maintenance services for
    automotive and aircraft parts.
 
  . A majority of the lending assets in the transportation category arise
    from chartered aircraft services and transportation services for
    freight, cargo and other various packages.
 
  . 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.
 
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
 
 Results of Operations
 
  Overview. During and for the year ended December 31, 1997:
 
  . We continued our significant investment in building leadership positions
    in our businesses and in expanding market coverage, as demonstrated by
    record new business volume of $6 billion for the year.
 
  . Credit quality of our portfolio was strengthened due to the continued
    growth of transactions secured by real estate, receivables, inventory and
    equipment as well as the substantial reduction in our portfolio of
    Corporate Finance and Real Estate Finance transactions originated prior
    to 1990 under different underwriting criteria.
 
  . Our net income totaled $158 million compared with $133 million for the
    prior year, an increase of 19%. This represented our fifth consecutive
    year of record net income.
 
  . Net income applicable to common stock was $144 million, 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.
 
 
                                       45
<PAGE>
 
  . Operating revenues as a percentage of AFE rose to 7.5% in 1997 from 6.1%
    in 1996. See "--Operating Revenues--Non-Interest Income."
 
  . New business lending volume totaled a record $6.0 billion, an increase of
    47% over the prior year. Our factoring volume totaled $14.1 billion in
    1997, a $7.1 billion increase from the prior year, primarily due to the
    consolidation of Factofrance.
 
  . The credit quality of our portfolio was demonstrated by the low level of
    nonearning assets, which totaled $155 million, or 1.4% of lending assets,
    at December 31, 1997. In addition, our allowance for losses of
    receivables at year end was significantly in excess of 100% of nonearning
    impaired receivables.
 
  . Our portfolio of Corporate Finance and Real Estate Finance assets
    originated prior to 1990 under different underwriting criteria was
    substantially reduced during 1997 and, as of December 31, 1997,
    represented only 4% of total lending assets and investments.
 
    Operating Revenues. The following table sets forth our 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 shows our net interest income for
the years ended December 31, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                             For the
                                           Year Ended
                                            December
                                               31,        Increase/(Decrease)
                                           ------------  ---------------------
                                           1997   l996    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 totaled $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 our lower risk, but lower yielding, transactions secured by
receivables, inventory and equipment, competitive pricing pressures in certain
product groups and higher originations of CMBS receivables, which carry a lower
yield than other Heller products.
 
 
                                       46
<PAGE>
 
    The following table presents a comparative analysis of the year-end
principal outstanding and average interest rates we paid on our debt as of
December 31, 1997 and 1996, before and after giving effect to interest rate
swaps:
 
<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 shows our 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)........    111      76          35         46.1
       Net investment gains...........     69       3          66          N/M
       Securitization gains...........     26      --          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 income and equipment residual
    gains.
 
    Factoring commissions increased $49 million, or 89%, and income from
international joint ventures decreased $8 million, or 18% from 1997 to 1996 due
primarily to the consolidation of Factofrance for the last nine months of 1997.
As a result of this consolidation, we believe Heller became the largest factor
in the world.
 
    Fees and other income totaled $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 our agreement with a mortgage broker.
 
    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
writedowns during the year totaling $53 million on one Corporate Finance
transaction originated prior to 1990 under different underwriting criteria.
 
    During 1997, we generated $26 million of securitization gains, primarily
through a CMBS securitization in the second quarter. We did not retain any
residual risk in this securitization transaction, as all of the securities were
sold to third parties on a nonrecourse basis.
 
 
                                       47
<PAGE>
 
    Operating Expenses. The following table shows our 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 our continued investment in developing leadership
positions for our asset based businesses and expansion of loan origination and
portfolio management resources in our 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 presents the changes in our
allowance for losses of receivables, including our 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 totaled $23 million in
1997 versus $55 million for 1996. Net writedowns, excluding those on the
Corporate Finance and Real Estate Finance portfolio originated prior to 1990
under different underwriting criteria, totaled $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.
 
    As of December 31, 1997, the ratio of our allowance for losses of
receivables to receivables was 2.4%, compared to 2.6% as of December 31, 1996.
The decrease in this ratio reflected the continued improvement of the credit
quality of our portfolio.
 
    Income Taxes. Our effective income tax rate was 28% for 1997 and 23% for
1996, 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.
 
                                       48
<PAGE>
 
 Lending Assets and Investments
 
    Total lending assets and investments increased $2.3 billion, or 24%, during
1997. This reflected:
 
  . 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
we realized the benefit of the market positions held by Leasing Services, Small
Business Finance, Corporate Finance and Real Estate Finance. In addition, we
liquidated 50% of the remaining portion of the Corporate Finance and Real
Estate Finance portfolio originated under different underwriting criteria prior
to 1990, which as of December 31, 1997 represented 4% of total lending assets
and investments and is included as part of "Other" lending assets and
investments in the table below.
 
    The following table presents our lending 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:
      Domestic Commercial Finance
       Corporate Finance........................ $ 3,066    26%  $2,890    30%
       Real Estate Finance......................   2,323    20    1,655    17
       Leasing Services.........................   2,314    19    1,933    20
       Commercial Services......................     361     3      907    10
       Small Business Finance...................     766     6      403     4
       Other....................................     737     6    1,223    13
                                                 -------   ---   ------   ---
      Total Domestic Commercial Finance.........   9,567    80    9,011    94
      International Factoring and Asset Based
       Finance (1)(2)...........................   2,361    20      609     6
                                                 -------   ---   ------   ---
         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    90    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
         Average managed assets.................  10,687          9,356
         Funds employed.........................  10,673          9,030
         Average funds employed.................  10,081          8,727
</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.
 
 
                                       49
<PAGE>
 
    Our portfolio was concentrated in senior secured lending, as 89% of the
portfolio was originated on a senior secured basis. During 1997:
 
  . Real Estate Finance grew to $2.3 billion in lending assets and
    investments at December 31, 1997, as originations of CMBS receivables
    totaled $1.1 billion versus $500 million in 1996.
 
  . Leasing Services experienced new business originations of $1.6 billion
    or 79% higher than 1996 which was partially offset by a $267 million
    equipment securitization and syndications of $138 million of
    receivables.
 
  . Corporate Finance generated new business volume of over $2.0 billion in
    1997 which was partially offset by syndications and runoff in the
    portfolio.
 
  . The decrease in the lending assets and investments for Commercial
    Services is due to the sale of $500 million of factored accounts
    receivable.
 
    Our 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, 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 other miscellaneous
       retail....................................   603      6     669      8
      Business services..........................   556      5     435      5
      Department and general merchandise retail
       stores....................................   511      5     987     12
</TABLE>
 
    With respect to the above 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.
 
Liquidity and Capital Resources
 
    We manage liquidity to fund asset growth and meet debt obligations
primarily by:
 
    .monitoring the relative maturities of assets and liabilities; and
 
  . borrowing funds through the U.S. and international money and capital
    markets and bank credit markets.
 
                                       50
<PAGE>
 
    Our 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 1998, our major funding requirements included:
 
    .$7.2 billion of longer-term loans, leases and investments funded;
 
    .$874 million of short-term loans funded;
 
    .the retirement of $2.0 billion of senior notes;
 
    .the Dealer Products Group acquisition for $775 million; and
 
    .common and preferred dividends of over $1 billion.
 
    Our major sources of funding these requirements, other than $360 million of
cash flows from operations, included:
 
  . loan repayments and investment proceeds of $3.2 billion;
 
  . the sale, securitization or syndication of $4.1 billion of loans and
    investments;
 
  . the issuance of $2.8 billion of senior notes;
 
  . the increase in short-term debt of $249 million;
 
  . the net proceeds from the IPO of $986 million;
 
  . the net proceeds of $122 million from the issuance of Series D Preferred
    Stock; and
 
  . a reduction of $292 million in the cash balance from the high level at
    the beginning of the year.
 
    While our portfolio demonstrated increasing liquidity in both its longer
term loans and in the increased proportion of factored receivables and
revolving loans, we continued to maintain a conservative funding posture, with
commercial paper and short-term borrowings amounting to 35% of total debt at
December 31, 1998 compared to 36% at the end of 1997.
 
    As of December 31, 1998:
 
  . Our committed bank credit and asset sale facilities totaled $5.1 billion
    and represented 142% of our 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, 1998.
 
  . We had approximately $3.7 billion in available liquidity support under
    three agreements, the longest of which is a 5-year facility expiring
    April 8, 2002. The total committed credit and asset sale facilities
    include $414 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 consolidated international subsidiaries are
    funded primarily through short-term money market and bank borrowings,
    which are supported by $920 million of committed foreign bank credit
    facilities in local currencies.
 
    Our factored accounts receivable facility allows us to sell an undivided
interest of up to $550 million in a designated pool of factored accounts
receivable to five bank-supported
 
                                       51
<PAGE>
 
conduits on a limited recourse basis. As part of our array of financing
options, we utilized this facility during the year so that, as of December 31,
1998, we had sold $475 million of factored accounts receivable.
 
    Through our wholly-owned subsidiary, Factofrance, we have an additional
factored accounts receivable sale facility. This facility allows us to sell an
undivided interest of up to 1 billion French francs in a designated pool of our
factored accounts receivable to one bank-sponsored conduit on a limited
recourse basis. As of December 31, 1998, approximately 1 billion French francs
(or $188 million) of receivables were sold under this facility.
 
    In July 1998, we filed with the Securities and Exchange Commission a shelf
registration statement covering the sale of up to $5 billion in debt
securities, senior preferred stock and Class A Common Stock. As of December 31,
1998, $4.2 billion was available under this shelf registration.
 
    In December 1998, we established a 364-day asset backed sale facility which
allows us to sell up to $550 million of our equipment receivables to two bank-
sponsored conduits on a limited recourse basis. As of December 31, 1998, $434
million of equipment receivables were sold under this facility.
 
    In December 1998, we also established a $250 million committed warehouse
line, which expires in June 1999, to finance CMBS. As of December 31, 1998, we
had not borrowed under this facility.
 
    In December 1998, we issued $125 million of Senior Preferred Stock, Series
D at a purchase price of $100 per share. We used the net proceeds from the sale
for general corporate purposes.
 
    In addition to these alternate sources of liquidity, we have access to $500
million of additional liquidity support under the Keep Well Agreement between
Heller and Fuji Bank. This agreement, which cannot be terminated by either
party prior to December 31, 2002, also provides that Fuji Bank will maintain
our net worth at an amount equal to $500 million. Fuji Bank has never been
required to make any capital contribution or advance any funds to us under the
Keep Well Agreement.
 
    Our 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, 1998 and December 31, 1997. Leverage and the level of
commercial paper and short-term borrowings continued to remain within ranges we
have targeted to maintain a strong financial position.
 
Accounting Developments
 
    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This Statement establishes accounting and reporting
standards requiring all derivative instruments (including certain derivative
instruments embedded in other contracts) to be recorded in the balance sheet as
either an asset or liability measured at its fair value. Changes in the fair
value of the derivative are to be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows gains and losses on derivatives to offset related results on the
hedged items in the income statement and requires that a company must document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. SFAS 133 is effective for fiscal years beginning after June 15,
1999. The Company is assessing the impact of this statement and will adopt it
in its 2000 interim financial statements.
 
 
                                       52
<PAGE>
 
Year 2000 Compliance
 
    We have adopted a phased approach to assessing and, where necessary,
remediating or otherwise addressing, year 2000 issues. Phases include:
 
  . awareness, which, while ongoing, is substantially complete;
 
  . assessment, which was substantially completed in 1998 with respect to
    information technology systems and potential issues relating to
    borrowers, vendors, international affiliates and environmental factors;
 
  . remediation or implementation of contingency solutions, which is
    substantially complete for all but one of the information technology
    systems deemed mission-critical, will be completed for that system in
    the second quarter of 1999, and is scheduled for completion in 1999 for
    all other matters; and
 
  . validation, which is scheduled for completion on the final mission-
    critical information technology system and certain information
    technology infrastructure in the second quarter of 1999, and will
    continue throughout 1999 for all other matters. As part of the
    validation process, we are also assessing the need for any re-
    verification of client server hardware and software represented as
    compliant by the vendor.
 
    We have completed the assessment of year 2000 risk relating to the Dealer
Products Group leasing assets and subsidiaries acquired in late 1998. We have
engaged a third party to complete remediation and validation activities, which
are underway and scheduled for completion in 1999.
 
    We have made, and will continue to make, certain investments in our
software applications and systems to ensure that our systems function properly
through and beyond the year 2000. We have (1) three loan processing systems,
(2) a lease processing system, (3) a factoring system, and (4) systems for
general ledger processing, payroll, accounts payable, fixed assets, treasury
and other smaller applications. We have established plans to modify, upgrade or
replace each of these systems for compliance and have established an overall
plan to bring all of these systems into compliance by the end of 1999.
 
    We continue to address the impact of the year 2000 issue on our
consolidated international subsidiaries and our international joint venture
companies. As a result of the risk assessment substantially completed with
respect to these international companies in 1998, significant remediation
activity and additional readiness validation are underway for completion in
1999.
 
    In addition to information technology systems, we are assessing potential
year 2000 impacts on our material vendors and borrowers, as well as year 2000
issues relating to environmental factors such as facilities and general
utilities.
 
    With respect to vendors, we have categorized vendors with reference to
materiality and availability of other sources for the provided services and
supplies. We are making inquiry of those vendors deemed material. Responses are
reviewed to assess the need for any follow-up action. This assessment and any
resulting remediation or contingency solutions are scheduled for completion
during 1999.
 
    With respect to borrowers, a year 2000 risk assessment has been
incorporated into our underwriting and portfolio management activities in order
to evaluate exposure due to any lack of compliance on the part of borrowers. We
categorize prospective and existing borrowers by level of year 2000 risk, and
are underwriting new transactions and managing portfolio accounts accordingly.
 
 
                                       53
<PAGE>
 
    Finally, we are incorporating year 2000 contingency planning into our
overall business resumption program in consideration of facilities and other
environmental factors. The planning component of this effort is scheduled for
completion in the first quarter of 1999, with implementation to occur
throughout the year.
 
    We have incurred approximately $10 million to date of expenses related to
the year 2000 issue and estimate that we will incur an additional amount of
approximately $6 million through the end of 1999. We will expense remediation,
compliance, maintenance and modification costs as incurred.
 
    We continue to bear some risk related to the year 2000 issue and could be
materially adversely affected if our own remediation and contingency planning
efforts fall behind schedule or if third parties with whom we have material
relationships (e.g., vendors, including those providing contingency plans or
outsourced technology services such as mainframe and application support,
borrowers and power companies) do not appropriately address their own year 2000
compliance issues.
 
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 the Securities
Exchange Act of 1934) that are based on the beliefs of our management, as well
as assumptions made by, and information currently available to, our 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 our current views and are subject to certain risks,
uncertainties and contingencies which could cause our 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:
 
  . the success or failure of our efforts to implement our business
    strategy;
 
  . effects of economic conditions in the real estate markets, the capital
    markets or certain other markets or industries we serve and the
    performance of borrowers;
 
  . 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;
 
  . currency exchange rate fluctuations, economic conditions and competition
    in international markets, and other international factors;
 
  . actions of our competitors and our ability to respond to such actions;
 
  . the cost of our capital, which depends in part on our portfolio quality,
    ratings, prospects and outlook and general market conditions;
 
  . the adequacy of our allowance for losses of receivables;
 
  . our ability to attract and retain qualified and experienced management,
    sales and credit personnel; and
 
  . changes in governmental regulations, tax rates and similar matters.
 
    We assume no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
 
                                       54
<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, 1998 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. 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 high
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 need for 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
                                          Executive Vice President and
                                           Controller
 
 
 
                                      55
<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,
1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
 
                                          Arthur Andersen LLP
 
Chicago, Illinois
January 18, 1999
 (Except with respect to Note 25, as to
 which the date is February 15, 1999)
 
                                      56
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                               December 31,
                                                              ----------------
                                                               1998     1997
                                                              -------  -------
                                                               (in millions)
<S>                                                           <C>      <C>
                           ASSETS
                           ------
Cash and cash equivalents.................................... $   529  $   821
Receivables (Note 5)
  Commercial loans
    Term loans...............................................   3,233    2,597
    Revolving loans..........................................   1,832    1,674
  Real estate loans..........................................   1,718    2,238
  Factored accounts receivable...............................   2,543    2,223
  Equipment loans and leases.................................   2,528    1,990
                                                              -------  -------
    Total receivables........................................  11,854   10,722
  Less: Allowance for losses of receivables (Note 5).........     271      261
                                                              -------  -------
    Net receivables..........................................  11,583   10,461
Equity and real estate investments (Note 6)..................     617      488
Debt securities (Note 6).....................................     400      311
Operating leases (Note 6)....................................     321      195
Investments in international joint ventures (Note 6).........     235      198
Other assets (Note 6)........................................     681      387
                                                              -------  -------
    Total assets............................................. $14,366  $12,861
                                                              =======  =======
            LIABILITIES AND STOCKHOLDERS' EQUITY
            ------------------------------------
Senior debt (Note 7)
  Commercial paper and short-term borrowings................. $ 3,681  $ 3,432
  Notes and debentures.......................................   6,768    6,004
                                                              -------  -------
    Total debt...............................................  10,449    9,436
Credit balances of factoring clients.........................   1,441    1,255
Other payables and accruals..................................     504      405
                                                              -------  -------
    Total liabilities........................................  12,394   11,096
Minority interest............................................      10       87
Stockholders' equity (Notes 11 and 12)
  Cumulative Perpetual Senior Preferred Stock, Series A......     125      125
  Noncumulative Perpetual Senior Preferred Stock, Series C...     150      150
  Noncumulative Perpetual Senior Preferred Stock, Series D...     125      --
  Class A Common Stock ($.25 par; 500,000,000 shares
   authorized; 39,030,912 shares issued and 38,738,091 shares
   outstanding) (Notes 2 and 13).............................      10      --
  Class B Common Stock ($.25 par; 300,000,000 shares
   authorized; 51,050,000 shares issued and outstanding)
   (Note 2)..................................................      13       13
  Additional paid in capital.................................   1,435      672
  Retained earnings..........................................     111      730
  Treasury stock (292,821 shares) (Note 13)..................      (8)     --
  Accumulated other comprehensive income.....................       1      (12)
                                                              -------  -------
    Total stockholders' equity...............................   1,962    1,678
                                                              -------  -------
    Total liabilities and stockholders' equity............... $14,366  $12,861
                                                              =======  =======
</TABLE>
 
  The accompanying Notes to Consolidated Financial Statements are an integral
                           part of these statements.
 
 
                                       57
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                             For the Year Ended
                                                                December 31,
                                                             ------------------
                                                              1998  1997  1996
                                                             ------ ----- -----
                                                               (in millions)
<S>                                                          <C>    <C>   <C>
Interest income............................................. $1,047 $ 924 $ 807
Interest expense............................................    624   516   452
                                                             ------ ----- -----
  Net interest income.......................................    423   408   355
Fees and other income (Note 14).............................    206   206    79
Factoring commissions.......................................    124   104    55
Income of international joint ventures......................     30    36    44
                                                             ------ ----- -----
  Operating revenues........................................    783   754   533
Operating expenses (Note 15)................................    399   357   247
Provision for losses (Note 5)...............................     77   164   103
Restructuring charge (Note 16)..............................     17   --    --
                                                             ------ ----- -----
  Income before taxes and minority interest.................    290   233   183
Income tax provision (Note 18)..............................     93    66    43
Minority interest...........................................      4     9     7
                                                             ------ ----- -----
  Net income................................................ $  193 $ 158 $ 133
                                                             ====== ===== =====
  Dividends on preferred stock.............................. $   21 $  14 $  10
                                                             ====== ===== =====
  Net income applicable to common stock..................... $  172 $ 144 $ 123
                                                             ====== ===== =====
  Basic and diluted net income applicable to common stock
   per share (Note 19)...................................... $ 2.23 $2.82 $2.41
                                                             ====== ===== =====
  Pro forma basic net income applicable to common stock per
   share (Note 19).......................................... $ 1.92 $1.60
                                                             ====== =====
  Pro forma diluted net income applicable to common stock
   per share (Note 19)...................................... $ 1.91 $1.60
                                                             ====== =====
</TABLE>
 
 
  The accompanying Notes to Consolidated Financial Statements are an integral
                           part of these statements.
 
 
                                       58
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                          For the Year Ended
                                                             December 31,
                                                         ----------------------
                                                          1998    1997    1996
                                                         ------  ------  ------
                                                            (in millions)
<S>                                                      <C>     <C>     <C>
OPERATING ACTIVITIES
 Net income............................................  $  193  $  158  $  133
 Adjustments to reconcile net income to net cash
  provided by operating activities:
 Provision for losses..................................      77     164     103
 Losses from equity investments........................      33      50     103
 Amortization and depreciation.........................      25      23      14
 Provision for deferred tax asset (benefit)............      33     (19)     12
 Increase (decrease) in accounts payable and accrued
  liabilities..........................................       2      29      (1)
 Undistributed income of international joint ventures..     (20)    (19)    (38)
 Increase (decrease) in interest payable...............      21      11     (11)
 Other.................................................      (4)      9     (36)
                                                         ------  ------  ------
  Net cash provided by operating activities............     360     406     279
INVESTING ACTIVITIES
 Increase in longer-term loans
 Due to acquisition of Dealer Products Group...........    (579)    --      --
 Due to fundings.......................................  (6,486) (5,311) (3,372)
 Collections of principal..............................   2,810   2,904   2,521
 Loan sales, securitizations and syndications..........   4,068   2,238     757
 Net increase in short-term loans and advances to
  factoring clients
 Due to consolidation of Factofrance...................     --   (1,018)    --
 Other.................................................    (874)   (526)   (427)
 Investment in operating leases
 Due to acquisition of Dealer Products Group...........     (35)    --      --
 Other.................................................    (170)   (119)    (33)
 Investment in equity interests and other investments..    (536)   (369)   (272)
 Dealer Products Group goodwill........................    (187)    --      --
 Sales of investments and equipment on lease...........     362     365     168
 Factofrance goodwill and noncompetition agreement.....     --      (96)    --
 Other.................................................     (54)     26       3
                                                         ------  ------  ------
  Net cash used for investing activities...............  (1,681) (1,906)   (655)
FINANCING ACTIVITIES
 Senior note issues....................................   2,780   2,599     976
 Retirement of notes and debentures....................  (2,020) (1,411) (1,358)
 Increase (decrease) in commercial paper and other
  short-term borrowings
 Due to consolidation of Factofrance...................     --      966     --
 Other.................................................     249    (279)    522
 Net proceeds from preferred stock issuance............     122     147     --
 Net proceeds from common stock issuance...............     991     --      --
 Repurchase of Class A Common Stock (Note 13)..........      (8)    --      --
 Net (increase) decrease in advances to affiliates.....     (32)     49       5
 Dividends paid on preferred and common stock..........  (1,027)    (57)    (68)
 Other.................................................     (26)     11      (4)
                                                         ------  ------  ------
  Net cash provided by financing activities............   1,029   2,025      73
Increase (decrease) in cash and cash equivalents.......    (292)    525    (303)
Cash and cash equivalents at the beginning of the year.     821     296     599
                                                         ------  ------  ------
Cash and cash equivalents at the end of the year.......  $  529  $  821  $  296
                                                         ======  ======  ======
</TABLE>
 
 
  The accompanying Notes to Consolidated Financial Statements are an integral
                           part of these statements.
 
                                       59
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                               Noncum.
                              Perp. Sr. Perpetual                                      Accum.
                    Perpetual   Pref.   Sr. Pref. Class A  Class B                      Other
                    Sr. Pref.   Stock     Stock    Common   Common  Treasury   Add'l   Compre-                  Compre-
                      Stock    Series   Series D   Stock    Stock     Stock   Paid In  hensive Retained         hensive
                    Series A     B/C    (Note 11) (Note 2) (Note 2) (Note 13) Capital  Income  Earnings Total   Income
                    --------- --------- --------- -------- -------- --------- -------  ------- -------- ------  -------
                                                              (in millions)
<S>                 <C>       <C>       <C>       <C>      <C>      <C>       <C>      <C>     <C>      <C>     <C>
BALANCE AT
 DECEMBER 31,
 1995.............    $125       --        --       --       $13       --     $  675    $(19)    $590   $1,384
Comprehensive
 Income:
Net income........     --        --        --       --       --        --        --      --       133      133   $133
 Other
  comprehensive
  income, net of
  tax:
 Unrealized gain
  on securities,
  net of tax of
  $6..............     --        --        --       --       --        --        --      --       --        18     18
                                                                                                                 ----
 Other
  comprehensive
  income..........     --        --        --       --       --        --        --       18      --       --      18
                                                                                                                 ----
Comprehensive
 income...........     --        --        --       --       --        --        --      --       --       --    $151
                                                                                                                 ====
Preferred stock
 dividends (Notes
 11 and 12).......     --        --        --       --       --        --        --      --       (10)     (10)
Common stock
 dividends (Note
 12)..............     --        --        --       --       --        --        --      --       (58)     (58)
                      ----      ----      ----      ---      ---       ---    ------    ----     ----   ------
BALANCE AT
 DECEMBER 31,
 1996.............    $125       --        --       --       $13       --     $  675    $ (1)    $655   $1,467
Comprehensive
 Income:
Net income........     --        --        --       --       --        --        --      --       158      158   $158
 Other
  comprehensive
  income, net of
  tax:
 Unrealized gain
  on securities,
  net of tax of $
  (2).............     --        --        --       --       --        --        --      --       --        (5)    (5)
 Foreign currency
  translation
  adjustments, net
  of tax of $ (2).     --        --        --       --       --        --        --      --       --        (6)    (6)
                                                                                                                 ----
 Other
  comprehensive
  income..........     --        --        --       --       --        --        --      (11)     --       --     (11)
                                                                                                                 ----
Comprehensive
 income...........     --        --        --       --       --        --        --      --       --       --    $147
                                                                                                                 ====
Issuance of
 Noncumulative
 Perpetual Senior
 Preferred Stock,
 Series B.........     --        150       --       --       --        --         (3)    --       --       147
Preferred stock
 dividends (Notes
 11 and 12).......     --        --        --       --       --        --        --      --       (14)     (14)
Common stock
 dividends (Note
 12)..............     --        --        --       --       --        --        --      --       (69)     (69)
                      ----      ----      ----      ---      ---       ---    ------    ----     ----   ------
BALANCE AT
 DECEMBER 31,
 1997.............    $125      $150       --       --       $13       --     $  672    $(12)    $730   $1,678
Comprehensive
 Income:
Net income........     --        --        --       --       --        --        --      --       193      193   $193
 Other
  comprehensive
  income, net of
  tax:
 Unrealized gain
  on securities,
  net of tax of
  $7..............     --        --        --       --       --        --        --      --       --        14     14
 Foreign currency
  translation
  adjustments, net
  of tax of $ (1).     --        --        --       --       --        --        --      --       --        (1)    (1)
                                                                                                                 ----
 Other
  comprehensive
  income..........     --        --        --       --       --        --        --       13      --       --      13
                                                                                                                 ----
Comprehensive
 income...........     --        --        --       --       --        --        --      --       --       --    $206
                                                                                                                 ====
Issuance of
 Noncumulative
 Perpetual Senior
 Preferred Stock,
 Series D.........     --        --        125      --       --        --         (3)    --       --       122
Issuance of Class
 A Common Stock
 (Note 2).........     --        --        --        10      --        --        981     --       --       991
Repurchase of
 Class A Common
 Stock (Note 13)..     --        --        --       --       --         (8)      --      --       --        (8)
Preferred stock
 dividends (Notes
 11 and 12).......     --        --        --       --       --        --        --      --       (21)     (21)
Common stock
 dividends (Notes
 2 and 12)........     --        --        --       --       --        --       (215)    --      (791)  (1,006)
                      ----      ----      ----      ---      ---       ---    ------    ----     ----   ------
BALANCE AT
 DECEMBER 31,
 1998.............    $125      $150      $125      $10      $13       $(8)   $1,435    $  1     $111   $1,962
                      ====      ====      ====      ===      ===       ===    ======    ====     ====   ======
</TABLE>
  The accumulated other comprehensive income balance included $22 million, $8
million and $13 million of unrealized gains on securities available for sale
at December 31, 1998, 1997 and 1996, respectively. Accumulated other
comprehensive income also included deferred foreign currency translation
adjustments, net of tax, of $(21) million, $(20) million and $(14) million at
December 31, 1998, 1997 and 1996, respectively.
 
  The accompanying Notes to Consolidated Financial Statements are an integral
                           part of these statements.
 
                                      60
<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 provides its products and services to mid-
sized and small businesses principally through two business segments, namely
Domestic Commercial Finance and International Factoring and Asset Based
Finance. The Domestic Commercial Finance segment is comprised of five business
units: (i) Heller Corporate Finance ("Corporate Finance"), (ii) Heller Real
Estate Financial Services ("Real Estate Finance"), (iii) Heller Leasing
Services ("Leasing Services"), (iv) Heller Small Business Finance ("Small
Business Finance"), and (v) Heller Commercial Services ("Commercial
Services"). The International Factoring and Asset Based segment, managed by
Heller International Group, Inc. ("International Group"), provides
international factoring and asset based financing to medium size and small
companies.
 
  Prior to 1998, all of the common stock of the Company was owned by Heller
International Corporation ("HIC"), a wholly-owned subsidiary of The Fuji Bank,
Limited ("Fuji Bank"), of Tokyo, Japan. In addition, Fuji Bank directly owned
21% of the outstanding shares of 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.
 
  Effective January 1998, Fuji Bank formed Fuji America Holdings, Inc.
("FAHI"), to combine Fuji Bank's United States non-bank operations under one
holding company and transferred ownership of the Company from HIC to FAHI.
 
  In May 1998, the Company issued 38,525,000 shares of Class A Common Stock in
an initial public offering (the "Offering") and 505,912 shares of restricted
Class A Common Stock were issued to management of the Company during 1998.
After the Offering and the issuance of shares to management, there were
90,080,912 shares of common stock of the Company issued resulting in FAHI's
ownership of 79% of the voting interest and 57% of the economic interest of
the Company's issued common stock. See Note 2 "Initial Public Offering" for
more details. In May 1998, the Company also purchased the 21% interest held by
Fuji Bank in International Group and now owns 100% of International Group.
 
 Basis of Presentation--
 
  The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant inter-company
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.
 
 
                                      61
<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, lease 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
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 of the estimated value of the equipment, or by assessing the
value of the property underlying the receivable. 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
reflects the Company's estimates of inherent losses within its lending
portfolio based on general economic factors, related industry performance,
historical losses and other judgmental factors. This total allowance
requirement is then compared to the existing allowance for losses and
adjustments are made, if necessary.
 
 Securitized Receivables--
 
  Certain commercial mortgage, equipment and small business loans and leases
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 difference between the allocated carrying value of
the receivables and the fair value of the securities sold, in accordance with
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing
 
                                      62
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
of Financial Assets and Extinguishment of Liabilities" ("SFAS 125"). If the
Company does not retain any interest 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 are recorded at estimated fair market value based on
estimated future cash flows discounted at a market rate of interest and
adjusted for recourse reserves and certain other expenses at the time of the
transaction and are classified 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. Discounts and deferred fees attributed to the loans sold are
accelerated into income.
 
  According to 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 as SFAS 125, 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 and when servicing fees vary from market rates.
 
 Investments in Joint Ventures--
 
  Investments in unconsolidated joint ventures represent investments in
companies with operations in 16 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."
 
  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 is
earned according to the provisions of the lease.
 
  Available for sale 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. Securities that are held to
maturity are recorded at amortized cost.
 
                                      63
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
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 any 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 were included in the
consolidated United States federal income tax return of HIC through 1997 and
in the consolidated United States federal income tax return of FAHI from
January 1998 through the date of the Offering. Subsequent to the Offering, the
Company files its own United States federal income tax return. The Company
records future tax benefits as soon as it is more likely than not that such
benefits will be realized.
 
  International Group filed a separate United States federal income tax return
through April 1998. Subsequent to that date, International Group is included
in the consolidated United States federal income tax return of the Company.
 
 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 are used to lower funding costs, diversify
sources of funding, alter interest rate exposure arising from mismatches
between assets and liabilities and to reduce the Company's exposure to foreign
currency fluctuations. The Company is not a trader in derivative securities,
nor has it used speculative derivative products for the purpose of generating
earnings from changes in market conditions.
 
  Before entering into a derivative transaction, management determines that a
high correlation exists between the change in value of the hedged item and the
value of the derivative. At the inception of each transaction, 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
or be repaid early, before the related derivative matures. 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 derivative 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 financial risk
position and regularly reviews interest rate sensitivity, foreign exchange
exposure, funding needs and liquidity. These positions 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.
 
 
                                      64
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  The Company enters into interest rate swap agreements in order to modify the
interest characteristics of its outstanding assets and liabilities for the
purpose of limiting exposure to changes in interest rates. The interest rate
swap agreements are designated as hedges of their underlying assets and
liabilities. Interest rate swap agreements entered into by the Company are
generally held to maturity and the differential paid or received, as interest
rates change, is accrued and recognized as an adjustment of interest expense
or interest income over the life of the respective agreement. The related
amount payable to or receivable from counterparties is included in other
liabilities or other assets. Gains or losses on terminated interest rate swaps
that were hedges of underlying assets or 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 also periodically enters into forward currency exchange
contracts. 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. Through these
contracts, the Company primarily sells the respective local currency and buys
U.S. dollars. 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. 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. 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.
 
 Stock Based Compensation--
 
  The Company accounts for stock option and stock awards in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). In accordance with APB 25, no compensation expense is
recognized for stock options or awards issued under its stock incentive plan
as the exercise price of the stock options equaled the market value of the
stock on the grant dates.
 
  The restricted stock issued during 1998 was recorded as deferred
compensation at the issue price and is amortized to compensation expense on a
straight-line basis over the vesting period.
 
 Reclassifications--
 
  Certain prior year amounts have been reclassified to conform to the current
year's presentation.
 
2. Initial Public Offering
 
  In May 1998, the Company issued 38,525,000 shares of Class A Common Stock in
an initial public offering (the "Offering"). The net proceeds to the Company
were $986 million, $450 million of which was used to repay indebtedness of the
Company consisting of a $450 million subordinated note to Fuji America
Holdings, Inc. ("FAHI"), a wholly owned subsidiary of The Fuji Bank, Limited
("Fuji Bank"), issued February 24, 1998 for a previously declared dividend to
FAHI, and $533 million of which was paid as a cash dividend to FAHI. The
51,050,000 outstanding Class B Common Shares are held by FAHI. In addition,
505,912 shares of restricted Class A Common Stock were issued to management of
the Company during 1998. The holders of Class A Common Stock are entitled to
one vote per share and the holders of Class B Common Stock are entitled to
three votes per share (except that the outstanding shares of Class B Common
Stock may never represent more than 79% of the combined voting power of all
outstanding shares of the Company's voting stock). After the Offering and the
issuance of shares to management, there were 90,080,912 shares of common stock
of the Company
 
                                      65
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
issued resulting in FAHI's ownership of 79% of the voting interest and 57% of
the economic interest of the Company's issued common stock. Prior to May 1998,
FAHI owned 100% of the issued and outstanding common stock of the Company.
 
  In anticipation of an initial public offering, the Company amended its
Restated Certificate of Incorporation increasing the number of authorized
shares of Common Stock. The total number of shares of stock which the Company
has authority to issue is 852 million, of which 2 million shares, no par
value, are designated "Preferred Stock", 50 million shares, of the par value
of $0.01 each, are designated "Senior Preferred Stock" and 800 million shares,
of the par value of $0.25 each, are designated "Common Stock." The Company's
Certificate of Incorporation, as amended, now 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.
 
3. Acquisition of Factofrance
 
  In April 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 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 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, 1998 and 1997. The pro forma combined income statements are
presented as if the acquisition had been effective January 1, 1997. The
combined historical results of operations of the Company and Factofrance for
1998 and 1997 have been adjusted to reflect the amortization of goodwill, the
amortization of the noncompetition agreement and the costs of financing for
the transaction.
 
                                      66
<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,
                                                                  --------------
                                                                   1998   1997
                                                                  ------- ------
                                                                  (in millions)
                                                                   (unaudited)
      <S>                                                         <C>     <C>
      Interest income............................................ $ 1,047 $ 940
      Interest expense...........................................     624   526
                                                                  ------- -----
        Net interest income......................................     423   414
      Fees and other income......................................     206   215
      Factoring commissions......................................     124   118
      Income of international joint ventures.....................      30    33
                                                                  ------- -----
        Operating revenues.......................................     783   780
      Operating expenses.........................................     399   377
      Provision for losses.......................................      77   167
      Restructuring charge.......................................      17   --
                                                                  ------- -----
        Income before income taxes and minority interest.........     290   236
      Income tax provision.......................................      93    67
      Minority interest..........................................       4    10
                                                                  ------- -----
        Net income............................................... $   193 $ 159
                                                                  ======= =====
</TABLE>
 
4. Acquisition of the Dealer Products Group
 
  On November 30, 1998, the Company acquired, through its subsidiaries, the
U.S. assets of the Dealer Products Group of Dana Commercial Credit Corporation
and the stock of the Dealer Products Group's international subsidiaries
(collectively, "Dealer Products Group") for approximately $775 million,
subject to any purchase price adjustments to be finalized in 1999. The
purchase price includes the assumption and repayment of approximately $260
million of the international subsidiaries' debt. The U.S. and international
subsidiaries of the Dealer Products Group provide customized leasing and
financing to commercial enterprises primarily for the acquisition of computer
and telecommunications equipment. The Dealer Products Group is a recognized
leader in the leasing industry and has operations in the United States,
Canada, United Kingdom, Germany, Switzerland and France.
 
  The Dealer Products Group acquisition was accounted for using the purchase
method of accounting in accordance with Accounting Principles Board Opinion
No. 16, "Business Combinations." Preliminary estimates of goodwill related to
the acquisition totaled $187 million and is being amortized over 25 years. The
Company's 1998 consolidated statement of income includes the results of
operations of the Dealer Products Group since the acquisition date.
 
  The following table presents unaudited pro forma combined income statements
of the Company and the Dealer Products Group for the years ended December 31,
1998 and 1997. The pro forma combined income statements are presented as if
the acquisition had been effective January 1, 1997. The combined historical
results of operations of the Company and the Dealer Products Group for 1998
and 1997 have been adjusted to reflect the amortization of goodwill and the
costs of financing for the transaction.
 
 
                                      67
<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,
                                                                  -------------
                                                                   1998   1997
                                                                  ------ ------
                                                                  (in millions)
                                                                   (unaudited)
      <S>                                                         <C>    <C>
      Interest income............................................ $1,116 $1,000
      Interest expense...........................................    663    561
                                                                  ------ ------
        Net interest income......................................    453    439
      Fees and other income......................................    217    218
      Factoring commissions......................................    124    104
      Income of international joint ventures.....................     30     36
                                                                  ------ ------
        Operating revenues.......................................    824    797
      Operating expenses.........................................    435    394
      Provision for losses.......................................     87    176
      Restructuring charge.......................................     17    --
                                                                  ------ ------
        Income before income taxes and minority interest.........    285    227
      Income tax provision.......................................     89     63
      Minority interest..........................................      4      9
                                                                  ------ ------
        Net income............................................... $  192 $  155
                                                                  ====== ======
</TABLE>
 
5. Lending Assets
 
  Lending assets include receivables and repossessed assets.
 
  Total receivables at December 31, 1998 consist of $9.5 billion of domestic
commercial finance receivables and $2.4 billion of international factoring and
asset based finance receivables. Of the international receivables, $2.3
billion represent factored accounts receivable of which $2.1 billion relate to
Factofrance and $0.2 billion are from the other foreign consolidated
subsidiaries. Total receivables at December 31, 1997 consist of $8.6 billion
of domestic receivables and $2.1 billion of foreign receivables.
 
 Diversification of Credit Risk--
 
  Concentrations of lending assets of 5% or more at December 31, 1998 and
1997, based on the standard industrial classification of the borrower, are as
follows:
 
<TABLE>
<CAPTION>
                                                         December 31,
                                                 -----------------------------
                                                      1998           1997
                                                 -------------- --------------
                                                 Amount Percent Amount Percent
                                                 ------ ------- ------ -------
                                                     (dollars in millions)
      <S>                                        <C>    <C>     <C>    <C>
      Department and general merchandise retail
       stores...................................  $935      8%   $511      5%
      Computers.................................   811      7     164      2
      General industrial machines...............   732      6     637      6
      Automotive................................   667      6     714      7
      Transportation............................   666      6     294      3
      Food, grocery and other miscellaneous
       retail...................................   650      5     603      6
</TABLE>
 
 
                                      68
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  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 computers category consists of
software/hardware distributors and manufacturers, plastic component
manufacturers, and disk drive designers. The total of this category increased
in 1998 due to the Dealer Products Group acquisition. The general industrial
machines classification is distributed among machinery used for many different
industrial applications. The automotive category is primarily comprised of
auto parts distributors and wholesalers, resale and leasing services in the
automotive and aircraft industries, and maintenance services for automotive
and aircraft parts. The lending assets in the transportation category
primarily arise from chartered aircraft services and transportation services
of freight, cargo, and various packages. 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.
 
 Contractual Maturity of Loan Receivables--
 
  The contractual maturities of the Company's receivables at December 31,
1998, which are presented in the table below, should not be regarded as a
forecast of cash flows (in millions):
 
<TABLE>
<CAPTION>
                                                                 After
                                 1999   2000   2001   2002  2003  2003   Total
                                ------ ------ ------ ------ ---- ------ -------
   <S>                          <C>    <C>    <C>    <C>    <C>  <C>    <C>
   Commercial loans............ $  953 $  515 $  606 $  759 $561 $1,671 $ 5,065
   Real estate loans...........    242    200    172     90   56    958   1,718
   Factored accounts
    receivable.................  2,543    --     --     --   --     --    2,543
   Equipment loans and leases..    746    561    405    248  200    368   2,528
                                ------ ------ ------ ------ ---- ------ -------
     Total..................... $4,484 $1,276 $1,183 $1,097 $817 $2,997 $11,854
                                ====== ====== ====== ====== ==== ====== =======
</TABLE>
 
  Commercial loans consist principally of senior loans secured by receivables,
inventory or property plant and equipment. Real estate loans are principally
collateralized by first mortgages on commercial and residential real estate.
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 1999, $2.9 billion have fixed interest rates and $4.5 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 or repossessed assets, both of which are classified as nonearning,
as set forth in the following table:
 
<TABLE>
<CAPTION>
                                                             December 31,
                                                         ----------------------
                                                            1998        1997
                                                         ----------  ----------
                                                         (dollars in millions)
      <S>                                                <C>         <C>
      Impaired receivables.............................  $      208  $      141
      Repossessed assets...............................           3          14
                                                         ----------  ----------
        Total nonearning assets........................  $      211  $      155
                                                         ==========  ==========
      Ratio of total nonearning assets to total lending
       assets..........................................         1.8%        1.4%
</TABLE>
 
  Nonearning assets include $26 million and $19 million in 1998 and 1997,
respectively, for consolidated international subsidiaries.
 
                                      69
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  The average investment in impaired receivables was $160 million and $236
million for the years ended December 31, 1998 and 1997, respectively.
 
  The Company had $14 million and $13 million of loans that are considered
troubled debt restructurings at December 31, 1998 and December 31, 1997,
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,
                                 ----------------------  ----------------------
                                  1998    1997    1996    1998    1997    1996
                                 ------  ------  ------  ------  ------  ------
                                       Domestic                Foreign
                                 ----------------------  ----------------------
                                               (in millions)
      <S>                        <C>     <C>     <C>     <C>     <C>     <C>
      Interest income which
       would have been
       recorded................  $   15  $   16  $   40  $   15  $   12  $    6
      Interest income recorded.       4       3      13     --        1       1
                                 ------  ------  ------  ------  ------  ------
      Effect on interest
       income..................  $   11  $   13  $   27  $   15  $   11  $    5
                                 ======  ======  ======  ======  ======  ======
</TABLE>
 
 Loan Modifications--
 
  The Company had $11 million of receivables at December 31, 1998 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 $531,000 has been recorded
on these receivables under modified terms, along with approximately $506,000
of cash interest collections during 1998. At December 31, 1998, 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,
                                                         ----------------------
                                                          1998    1997    1996
                                                         ------  ------  ------
                                                            (in millions)
      <S>                                                <C>     <C>     <C>
      Balance at the beginning of the year.............. $  261  $  225  $  231
        Provision for losses............................     77     164     103
        Writedowns......................................   (145)   (169)   (163)
        Recoveries......................................     64      23      55
        Factofrance consolidation.......................    --       18     --
        Dealer Products Group acquisition...............     18     --      --
        Transfers and other.............................     (4)    --       (1)
                                                         ------  ------  ------
      Balance at the end of the year.................... $  271  $  261  $  225
                                                         ======  ======  ======
</TABLE>
 
 
                                      70
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  Impaired receivables with identified reserve requirements were $136 million
and $62 million at December 31, 1998 and 1997, respectively.
 
<TABLE>
<CAPTION>
                                                            December 31,
                                                        ----------------------
                                                           1998        1997
                                                        ----------  ----------
                                                        (dollars in millions)
      <S>                                               <C>         <C>
      Identified reserve requirements for impaired
       receivables..................................... $       44  $       27
      Additional allowance for losses of receivables...        227         234
                                                        ----------  ----------
        Total allowance for losses of receivables...... $      271  $      261
                                                        ==========  ==========
      Ratio of total allowance for losses of
       receivables to nonearning impaired receivables..        130%        185%
</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.
 
6. 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,
                                                           ---------------------
                                                              1998       1997
                                                           ---------- ----------
                                                           (dollars in millions)
      <S>                                                  <C>        <C>
      Total receivables................................... $    3,625 $    3,356
      Factoring volume....................................     24,201     18,154
      Net income..........................................         52         55
</TABLE>
 
  The following table shows the investment in international joint ventures by
geographic region:
 
<TABLE>
<CAPTION>
                                                               December 31,
                                                           ---------------------
                                                              1998       1997
                                                           ---------- ----------
                                                           (dollars in millions)
      <S>                                                  <C>        <C>
      Europe.............................................. $      194 $      160
      Latin America.......................................         21         22
      Asia/Pacific........................................         16         16
      North America.......................................          4        --
                                                           ---------- ----------
        Total............................................. $      235 $      198
                                                           ========== ==========
</TABLE>
 
  The Company owns interests of 40% to 50% in these joint ventures. The
Company's largest investment in international joint ventures is NMB-Heller
Holding N.V., which accounts for 56% 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. The Company's
investment in NMB-Heller Holding N.V. totaled $131 million and $107 million at
December 31, 1998 and 1997, respectively. NMB-Heller Holding N.V. had total
receivables of $2.8 billion and $2.2 billion, and revenues of $180 million and
$151 million at December 31, 1998 and 1997, respectively.
 
 
                                      71
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 Other Investments--
 
  The following table sets forth a summary of the major components of equity
and real estate investments (in millions):
 
<TABLE>
<CAPTION>
                                                                  December 31,
                                                                  -------------
                                                                   1998   1997
                                                                  ------ ------
      <S>                                                         <C>    <C>
      Real estate investments.................................... $  271 $  268
      Equity interests and investments...........................    258    205
      Available for sale equity securities.......................     88     15
                                                                  ------ ------
        Total Equity and real estate investments................. $  617 $  488
                                                                  ====== ======
</TABLE>
 
  Real estate investments are acquisition, development and construction
investment transactions. At December 31, 1998, the Company held investments in
207 projects with balances ranging up to $8.2 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 $52
million, $7 million and $28 million at December 31, 1998, 1997 and 1996,
respectively, and are recorded in stockholders' equity on a net of tax basis.
 
  The Company's debt securities are all available for sale debt securities and
consist of purchased investments in debt securities and $112 million of
securities retained in connection with the Company's various securitizations
of which $56 million are rated "BB" or higher. No losses have been realized on
the subordinated securities to date. Net unrealized holding losses on total
available for sale debt securities were $17 million at December 31, 1998, net
unrealized holding gains were $6 million at December 31, 1997, and net
unrealized holding losses were $7 million at December 31, 1996. These amounts
are recorded in stockholder's equity on a net of tax basis. Cash and cash
equivalents includes $9 million of short-term debt securities at December 31,
1998, which are available for sale.
 
  Included in cash and cash equivalents at December 31, 1998 and 1997,
respectively, are $168 million and $664 million of short-term debt securities
that are held to maturity.
 
  Equipment on lease is primarily comprised of aircraft and related equipment.
Noncancellable future minimum rental receipts under the leases are $37
million, $36 million, $25 million, $13 million and $6 million for 1999 through
2003. All aircraft and related equipment was under lease as of December 31,
1998.
 
 
                                      72
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 Other Assets--
 
  The following table sets forth a summary of the major components of other
assets:
 
<TABLE>
<CAPTION>
                                                                  December 31,
                                                                  -------------
                                                                   1998   1997
                                                                  ------ ------
                                                                  (in millions)
      <S>                                                         <C>    <C>
      Other Assets:
        Goodwill................................................. $  269 $   82
        Deferred income tax benefits, net of allowance of $5 and
         $8 in 1998 and 1997, respectively.......................    229    163
        Prepaid expenses and other assets........................    106     76
        Furniture, fixtures and equipment........................     59     37
        Non-Compete Agreement....................................     12     15
        Repossessed assets.......................................      3     14
        Net advances to affiliates...............................      3    --
                                                                  ------ ------
          Total other assets..................................... $  681 $  387
                                                                  ====== ======
</TABLE>
 
  Noncash investing activities include $4 million and $17 million of
receivables which were classified as repossessed assets during the periods
ended December 31, 1998 and 1997, respectively. See Note 18 for additional
information on deferred income tax benefits.
 
7. 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 26% of total debt at
December 31, 1998. Combined commercial paper and short-term borrowings
represent 35% of total debt at December 31, 1998.
 
  The following table is a summary of the Company's commercial paper and
short-term borrowings as of December 31, 1998 and 1997:
 
<TABLE>
<CAPTION>
                                                                   December 31,
                                                                   -------------
                                                                    1998   1997
                                                                   ------ ------
                                                                   (in millions)
      <S>                                                          <C>    <C>
      Domestic commercial paper................................... $2,450 $2,279
      Factofrance commercial paper................................    242    281
      Factofrance short-term borrowings...........................    858    685
      Other consolidated subsidiaries short-term borrowings.......    131    187
                                                                   ------ ------
        Commercial paper and short-term borrowings................ $3,681 $3,432
                                                                   ====== ======
</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.
 
                                      73
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
<TABLE>
<CAPTION>
                                                      1998     1997     1996
                                                     -------  -------  -------
                                                      (dollars in millions)
      <S>                                            <C>      <C>      <C>
      Commercial Paper--domestic:
        Average interest rate
          During the year...........................    5.71%    5.67%    5.50%
          During the year, including the effect of
           commitment fees..........................    5.83     5.78     5.65
          At year-end, including the effect of
           commitment fees..........................    5.59     5.99     5.63
        Average borrowings.......................... $ 2,619  $ 2,917  $ 2,367
        Maximum month-end borrowings................   2,974    3,264    2,613
        End of period borrowings....................   2,450    2,279    2,576
</TABLE>
 
  Factofrance commercial paper issued as of December 31, 1998 had an average
interest rate of 3.58% and its short-term borrowings at December 31, 1998 had
an average interest rate of 3.56%. 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, 1998, the
Company had total committed credit and asset sale facilities of $5.1 billion,
and available credit and asset sale facilities of $4.4 billion. This includes
$414 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 approximately $3.7 billion in available liquidity support
under three agreements, the longest, of which, is a 5-year facility expiring
April 8, 2002. The Company's 364-day bank credit facilities will expire on
April 6, 1999 and October 26, 1999. They each include a term loan option which
expires one year after the option exercise date. The terms of the bank credit
facilities require the Company to maintain stockholders' equity of $1 billion.
Under the terms of the debt covenants of the agreements, the Company could
have borrowed an additional $7.7 billion of debt at December 31, 1998.
 
  The Company has a factored accounts receivable sale facility of its domestic
accounts receivable 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 on a limited recourse basis. The Company had sold
$475 million of receivables under this facility as of December 31, 1998. 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, through its wholly-owned subsidiary, Factofrance, has an
additional factored accounts receivable sale facility. This facility allows
the subsidiary to sell an undivided interest of up to 1 billion French francs
in a designated pool of its factored accounts receivable to one bank-sponsored
conduit on a limited recourse basis. As of December 31, 1998, approximately 1
billion French francs (or $188 million) of receivables were sold under this
facility.
 
  In July 1998, the Company filed with the Securities and Exchange Commission
a shelf registration statement covering the sale of up to $5 billion in debt
securities, senior preferred stock and Class A Common Stock. As of December
31, 1998, there was $4.2 billion available under this shelf registration.
 
  During December 1998, the Company established a $250 million secured
committed warehouse line, available to finance fixed rate commercial mortgage
loans. The facility expires in June 1999. As of December 31, 1998, the Company
had not drawn any funds under this facility.
 
  In December 1998, the Company established a 364-day facility which allows
the Company to sell up to $550 million of its equipment receivables to two
bank-sponsored conduits on a limited recourse basis. As of December 31, 1998,
the Company has sold $434 million of receivables under this facility.
 
 
                                      74
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  Notes and debentures--The scheduled maturities of debt outstanding at
December 31, 1998, other than commercial paper and short-term borrowings and
excluding the net unamortized premium of $3 million, are as follows:
 
<TABLE>
<CAPTION>
                                   Scheduled Maturities at December 31,
                                 -----------------------------------------------
                                                                   After
                                  1999    2000   2001  2002  2003  2003   Total
                                 ------  ------  ----  ----  ----  -----  ------
                                           (dollars in millions)
   <S>                           <C>     <C>     <C>   <C>   <C>   <C>    <C>
   Various fixed rate notes and
    debentures.................  $1,052  $1,336  $703  $542  $ 43  $210   $3,886
     Fixed weighted average
      rate.....................    7.22%   5.46% 6.20% 6.60% 5.90% 6.94%    6.31%
   Various floating rate notes
    and debentures.............  $1,464  $1,127  $150  $ 45  $ 22  $ 71   $2,879
     Floating weighted average
      rate.....................    5.24%   5.47% 5.92% 5.45% 5.47% 4.00%    5.34%
   Total notes and debentures..  $2,516  $2,463  $853  $587  $ 65  $281   $6,765
</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. The Company has outstanding $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 2003.
 
  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 excluding
the net unamortized premium of $3 million before and after the effect of the
swap agreements. The Company has $26 million of French franc denominated fixed
rate debt and $140 million of French franc denominated variable rate debt
which support French franc denominated assets.
 
<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>
   1998:
     United States dollar..   $3,554     6.58%  6.24%   $2,739     5.41%  5.59%   $6,293
     Japanese yen..........      306     3.26   5.45       --       --     --        306
                              ------                    ------                    ------
      Total................   $3,860     6.32%  6.17%   $2,739     5.41%  5.59%   $6,599
                              ======                    ======                    ======
   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
                              ======                    ======                    ======
</TABLE>
 
  The contractual interest rates for the U.S. dollar denominated fixed rate
debt range between 5.63% and 9.13% at December 31, 1998. 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 0.12% to
0.15%, the Federal Funds rate plus 0.25% to 0.40%, the one-month London Inter-
Bank Offered Rate ("LIBOR") plus 0.14%, three-month LIBOR plus 0.05% to 0.90%,
six-month LIBOR plus 0.25% or the Prime rate less 2.60% to 2.75%.
 
                                      75
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
8. 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.
 
  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, 1998 and 1997. 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
                                                                ---------------
                                                                 1998    1997
                                                                ------- -------
                                                                 (in millions)
      <S>                                                       <C>     <C>
      Interest rate swap agreements............................ $ 4,620 $ 4,553
      Cross currency interest rate swap agreements.............     616     612
      Basis swap agreements....................................   2,471   1,470
      Forward currency exchange contracts......................     820     623
      Purchased options........................................     --       74
      Interest rate cap agreements.............................      20     --
</TABLE>
 
 
                                      76
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  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.
 
  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 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
                                                                ---------------
                                                                 1998    1997
                                                                ------- -------
                                                                 (in millions)
      <S>                                                       <C>     <C>
      Loan commitments......................................... $ 2,188 $ 2,154
      Letters of credit and financial guarantees...............     709     754
      Factoring credit guarantees..............................     286     285
      Investment commitments...................................     123     130
</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, 1998, the contractual amount of
guarantees includes $5 million related to international joint ventures. 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.
 
9. 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.
 
                                      77
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
10. Rental Commitments
 
  The Company and its consolidated subsidiaries have minimum rental
commitments under noncancellable operating leases at December 31, 1998, as
follows (in millions):
 
<TABLE>
      <S>                                                                   <C>
      1999................................................................. $ 21
      2000.................................................................   21
      2001.................................................................   19
      2002.................................................................   19
      2003.................................................................   18
      Thereafter...........................................................   43
                                                                            ----
                                                                            $141
                                                                            ====
</TABLE>
 
  The total rent expense, net of rental income from subleases, was $34
million, $30 million and $23 million for the years ended December 31, 1998,
1997 and 1996, respectively.
 
11. 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 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.
 
  Noncumulative Perpetual Senior Preferred Stock ($.01 Par Value; stated
value, $100; 6.95%; 1,250,000 shares authorized and outstanding)--In December
1998, the Company publicly issued 1,250,000 shares of 6.95% Noncumulative
Perpetual Senior Preferred Stock, Series D ("Series D Preferred Stock"), at
$100 per share and received proceeds of $125 million less underwriting costs
of two percent. The Series D Preferred Stock is not redeemable prior to
February 15, 2009. On or after such date, the Series D 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.
 
  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
 
                                      78
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
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 $1,962 million at December 31,
1998. 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.
 
12. 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
unless all current and full cumulative dividends on the Series A Preferred
Stock and the current dividends on the Series C and Series D 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, Series C and Series D Preferred
Stock, unless all current and full cumulative dividends on the Series A,
Series C and Series D Preferred Stock have been paid.
 
  The Company declared and paid dividends on the Series A Preferred Stock of
$11 million and $10 million in 1998 and 1997, respectively, and declared and
paid dividends of $10 million on the Series C Preferred Stock in 1998. In
1997, the Company also paid dividends of $4 million on the Series B Preferred
Stock.
 
  Common Stock dividends paid by the Company in 1998 consisted of over $1
billion paid in cash and included dividends paid to FAHI of $450 million paid
in the form of a subordinated note dated February 24, 1998 and $533 million
paid in May 1998 subsequent to the Offering. In 1997, the Company paid
dividends of $69 million on the Common Stock to HIC which included $43 million
paid in cash and $26 million paid in the form of preferred stock issued by
International Group.
 
13. Treasury Stock
 
  The Company has an executive deferred compensation plan ("the 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 deferred remains an asset
of the Company, and is invested in several mutual funds and Class A Common
Stock of the Company. The acquisitions of Class A Common Stock of the Company,
under this Plan, are reported as treasury stock and are included in the
calculation of basic and diluted earnings per share. At December 31, 1998,
292,821 shares of treasury stock were held by the Company through the Plan.
See Note 17 for additional information relating to the Plan.
 
                                      79
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
14. Fees and Other Income
 
  The following table summarizes the Company's fees and other income for the
years ended December 31, 1998, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                                    Year ended
                                                                   December 31,
                                                                  --------------
                                                                  1998 1997 1996
                                                                  ---- ---- ----
                                                                  (in millions)
      <S>                                                         <C>  <C>  <C>
      Fee income and other....................................... $130 $111 $76
      Net investment gains.......................................   59   69   3
      Gains on securitization of receivables.....................   17   26 --
                                                                  ---- ---- ---
        Total.................................................... $206 $206 $79
                                                                  ==== ==== ===
</TABLE>
 
  Fee income and other includes servicing income, late fees, prepayment fees,
other miscellaneous fees and equipment residual gains.
 
  The Company had realized gains from sales of total investment securities of
$92 million, $119 million and $106 million during the years ended December 31,
1998, 1997 and 1996, respectively, and had realized losses and writedowns
totaling $33 million, $50 million and $103 million for 1998, 1997 and 1996,
respectively.
 
15. Operating Expenses
 
  The following table sets forth a summary of the major components of
operating expenses:
 
<TABLE>
<CAPTION>
                                                                   Year ended
                                                                  December 31,
                                                                 --------------
                                                                 1998 1997 1996
                                                                 ---- ---- ----
                                                                 (in millions)
      <S>                                                        <C>  <C>  <C>
      Salaries and other compensation........................... $227 $214 $154
      Legal and professional fees...............................   31   26   12
      Space costs...............................................   30   30   23
      Equipment costs...........................................   24   17   12
      Business acquisition costs................................   20   15    9
      Travel and entertainment costs............................   16   15   12
      Goodwill and noncompete agreement amortization............    8    6    1
      Other.....................................................   43   34   24
                                                                 ---- ---- ----
        Total................................................... $399 $357 $247
                                                                 ==== ==== ====
</TABLE>
 
  Of the increase in operating expenses in 1998, $21 million related to the
consolidation of Factofrance for the full year 1998 versus nine months in
1997.
 
16. Restructuring Charge
 
  The Company incurred a one time charge of $17 million related to its
restructuring initiative, which includes $8 million related to severance
benefits for termination of approximately 15% of the Company's domestic
employees, and $6 million related to the termination of office leases and the
writedown of related leasehold improvements. Of the total restructuring
charge, $11 million is recorded as a liability of the Company as of December
31, 1998 and will be paid during 1999.
 
                                      80
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
17. Employee 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.
 
  Pension and Post Retirement Plans--The Company has a noncontributory defined
benefit pension plan covering substantially all of its domestic employees and
a supplemental retirement plan ("SERP") 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 Company also provides health care benefits for eligible retired
employees and their eligible dependents through the Post-retirement Health
Care Plan ("Health Care Plan").
 
  The following table summarizes the change in the benefit obligations for the
defined benefit and post-retirement health care plans at the end of the
respective year and identifies the assumptions used to determine the benefit
obligation.
 
<TABLE>
<CAPTION>
                                                             Post-retirement
                                    Defined Benefit Plan    Health Care Plan
                                         Year Ended            Year Ended
                                        December 31,          December 31,
                                    ----------------------  -------------------
                                     1998    1997    1996   1998   1997   1996
                                    ------  ------  ------  -----  -----  -----
                                            (dollars in millions)
   <S>                              <C>     <C>     <C>     <C>    <C>    <C>
   Change in benefit obligation
     Benefit obligation at January
      1...........................  $   47  $   38  $   32  $  10  $   7  $   7
      Service Cost................       4       3       3    --     --     --
      Interest Cost...............       3       3       2      1      1      1
      Actuarial (gain) loss.......      (1)      4       1     (1)     2     (1)
      Benefits paid...............      (1)     (1)    --     --     --     --
                                    ------  ------  ------  -----  -----  -----
     Benefit obligation at
      December 31.................  $   52  $   47  $   38  $  10  $  10  $   7
                                    ======  ======  ======  =====  =====  =====
   Change in plan assets
     Fair value of plan assets at
      January 1...................  $   42  $   37  $   34  $ --   $ --   $ --
      Actual return on plan
       assets.....................       9       6       3    --     --     --
      Benefits paid...............      (1)     (1)    --     --     --     --
                                    ------  ------  ------  -----  -----  -----
     Fair value of plan assets at
      December 31.................  $   50  $   42  $   37  $  --  $  --  $  --
                                    ======  ======  ======  =====  =====  =====
   Reconciliation of funded status
     Funded status................  $   (2) $   (5) $   (1) $ (10) $ (10) $  (7)
     Unrecognized prior service
      cost........................      (1)     (1)     (1)   --     --     --
     Unrecognized actuarial (gain)
      loss........................      (3)      4       2    --       1     (1)
     Unrecognized transition
      (asset) obligation..........     --       (1)     (1)     5      5      6
                                    ------  ------  ------  -----  -----  -----
      Net amount recognized in the
       statement of financial
       position at December 31....  $   (6) $   (3) $   (1) $  (5) $  (4) $  (2)
                                    ======  ======  ======  =====  =====  =====
   Weighted-average assumptions as
    of December 31:
     Discount rate................    7.00%   7.25%   7.75%  7.00%  7.25%  7.75%
     Expected return on assets....    9.00    9.00    9.00    N/A    N/A    N/A
     Rate of salary increases.....    5.00    6.00    6.00    N/A    N/A    N/A
</TABLE>
 
 
                                      81
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  Components of net pension cost for the defined benefit plan and the
postretirement healthcare plan for the following periods are:
 
<TABLE>
<CAPTION>
                                                                  Postretirement
                                                                    Healthcare
                                       Defined Benefit Plan         Plan Year
                                            Year Ended            Ended December
                                           December 31,                31,
                                       ------------------------   --------------
                                        1998     1997     1996    1998 1997 1996
                                       ------   ------   ------   ---- ---- ----
                                                  (in millions)
      <S>                              <C>      <C>      <C>      <C>  <C>  <C>
      Service cost...................  $    4   $    3   $    3   $--  $--  $--
      Interest cost..................       4        3        3      1    1    1
      Expected return on plan assets.      (4)      (3)      (3)   --   --   --
      Prior service cost and
       transition amount.............      (1)      (1)      (1)   --   --   --
                                       ------   ------   ------   ---- ---- ----
        Net periodic benefit cost....  $    3   $    2   $    2   $  1 $  1 $  1
                                       ======   ======   ======   ==== ==== ====
</TABLE>
 
  The SERP has an unfunded benefit obligation of $3 million at December 31,
1998 and $4 million at December 31, 1997 and 1996. The SERP has an
unrecognized prior service cost of $2 million at December 31, 1998, 1997 and
1996. The unrecognized actuarial gain was $4 million, $2 million and $1
million for the years ended December 31, 1998, 1997 and 1996, respectively.
The ending accrued benefit cost recognized was $5 million, $4 million and $3
million at December 31, 1998, 1997 and 1996, respectively. The net periodic
pension cost for the SERP was approximately $1 million for the years ended
December 31, 1998, 1997 and 1996. The weighted average assumptions as of
December 31, 1998, 1997, and 1996 for the SERP were equal to the discount rate
and rate of salary increases applied for the defined benefit plan.
 
  In conjunction with the Dealer Products Group acquisition, approximately 215
domestic employees of the Dealer Products Group became eligible to participate
in the defined benefit plan and the SERP as of December 1, 1998 and are
subject to the defined benefit plan provisions regarding service from that
date. The eligible employees were granted vested service under the defined
benefit plan since their date of hire with the Dealer Products Group. The
Company's pension expense for 1998 was not materially affected by the
additional employees. The increase in pension expense for 1999 related to the
new employees is expected to be less than $1 million.
 
  The Company adjusts the discount and salary rates, as well as the rates of
return on assets, for the defined benefit plan and the SERP 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 and salary rate at December 31, 1998 is not expected to materially affect
pension expense in 1999. The change in the discount rate at December 31, 1997
increased 1998 pension expense by $1 million. The Company decreased the salary
rate assumption to 5% at December 31, 1998, based upon the Company's
expectation that a greater portion of future salary increases will be provided
in the form of incentive compensation, which is not currently covered under
Heller's retirement plans.
 
  The Company also adjusts the discount, salary and health care cost trend
rates for the Health Care Plan 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 post retirement benefit obligation,
under the terms of the Health Care Plan, as amended, was calculated using
relevant actuarial assumptions and health care cost trend rates projected at
annual rates ranging from 8.5% in 1998 trending down to 5.5% in 2004 and
thereafter. The effect of a 1.0% annual increase in those assumed cost trend
rates would increase the accumulated post retirement benefit obligation by $1
million, while annual service and interest cost components in the aggregate
would not be materially affected. The effect of a 1.0% annual decrease in
these assumed cost trend rates would decrease the accumulated post retirement
benefit obligation by $1 million, while annual service and interest cost
components
 
                                      82
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
in the aggregate would not be materially affected. The change in the discount
rate at December 31, 1998 had no effect on the 1998 expense and is expected to
increase 1999 expense by less than $1 million. The change in the discount rate
at December 31, 1997 increased 1998 expense by less than $1 million.
 
  Executive Deferred Compensation Plan--The Company has an Executive Deferred
Compensation Plan (the "Plan"), a nonqualified 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 deferred remains an asset
of the Company and may be invested, at the participant's discretion, into
certain mutual funds and Class A Common Stock of the Company. Payment of
amounts deferred is made in a lump sum or in annual installments over a five,
ten or fifteen year period as determined by the participant.
 
  The acquisition of Class A Common Stock of the Company, under this plan, is
reported as treasury stock. At December 31, 1998, 292,821 shares of treasury
stock were held by the Company through the Plan. Plan assets, other than
treasury stock, totaled $24 million at December 31, 1998 and 1997.
 
  Earnings on plan assets totaled $4 million, $5 million and $1 million in
1998, 1997 and 1996, respectively, and are included as part of fees and other
income. Compensation expense of these same amounts was also recorded in each
of these years.
 
  Long Term Incentive Plans--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 $4 million in 1998 and $3
million in 1997 and 1996. These plans will terminate in 1999.
 
  1998 Stock Incentive Plan--The Company adopted a stock-based incentive plan,
The Heller Financial, Inc. 1998 Stock Incentive Plan (the "Stock Incentive
Plan"), covering non-employee directors and employees of the Company and its
subsidiaries (collectively, "Participants").
 
  The Stock Incentive Plan provides for the grant of incentive and non-
qualified stock options, restricted stock, stock appreciation rights,
performance shares and performance units ("Awards"). The terms of the Awards
are set forth in award agreements ("Award Agreements"). The Compensation
Committee, in its sole discretion, selects the employees to whom Awards will
be granted and determines the type, size and terms and conditions applicable
to each Award. The Compensation Committee also has the authority to interpret,
construe and implement the provisions of the Stock Incentive Plan. Awards to
non-employee directors will be made by members of the Company's Board of
Directors who are not otherwise entitled to participate in the Stock Incentive
Plan, or will be based on a formula developed by the Board of Directors or the
Compensation Committee.
 
  Under the Stock Incentive Plan, 4,890,011 shares of Class A Common Stock are
available for Awards as of December 31, 1998. During 1998, the Company awarded
shares of restricted stock and non-qualified options to purchase shares of
Class A Common Stock as discussed below:
 
  Restricted Stock--The Company issued 505,912 shares of restricted Class A
Common Stock in connection with the Offering. As of December 31, 1998, 486,538
restricted shares were outstanding. All restricted shares were issued at $27
per share which equaled the fair market value on the date of issue. The
outstanding shares vest on January 1, 2001, if the Company achieves certain
net income growth targets as specified in the Restricted Stock Award
Agreements. If the Company does not achieve these growth targets by January 1,
2001, the restricted stock will vest on January 1, 2004. The holder of
restricted stock generally has the rights of a stockholder of the Company,
including the right to vote and to receive cash dividends prior to the end of
the vesting period. Compensation expense related to these shares totaled $5
million during 1998.
 
                                      83
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  Stock Options--The Company granted options to purchase 1,322,202 shares of
Class A Common Stock, at exercise prices ranging from $22 to $29.94 per share
which equaled the fair market value on the grant dates. No compensation
expense related to the stock option grants was recorded as the option exercise
prices were equal to the fair market values on the dates of grant. Each option
represents the right to purchase one share of Class A Common Stock. The
options, which vest 100% on January 1, 2001, expire ten years from the date of
grant. There were no options exercisable at December 31, 1998 and 30,250
options were forfeited during 1998.
 
  Employee Stock Purchase Plan--The Company adopted an Employee Stock Purchase
Plan (the "ESPP") which offers the Company's employees the opportunity to
purchase Class A Common Stock at a discount through payroll deductions. The
ESPP meets the requirements of Section 423 of the Internal Revenue Code. All
regular full-time and part-time employees of the Company are eligible to
participate in the ESPP after six months of employment. Employees desiring to
purchase stock through ESPP may elect to reduce their pay by up to 10% in any
payroll period. These payroll deductions accumulate during a three-month
"purchase period." At the end of each purchase period, the payroll deductions
are used to purchase Class A Common Stock at a price equal to 85% of the fair
market value of the Class A Common Stock on the last day of the respective
purchase period. The Company purchases shares of Class A Common Stock in the
open market to satisfy purchases under the ESPP. During 1998, the Company
incurred expenses related to the ESPP of $142,000.
 
  Accounting for Stock-Based Compensation Plans--The Company accounts for the
stock options in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"). Under APB No. 25,
the Company does not recognize compensation expense on the issuance of its
stock options as the option terms are fixed and the exercise price equals the
market price of the underlying stock on the grant date. If the Company were to
implement Statement of Financial Accounting Standard No. 123, "Accounting for
Stock Based Compensation" ("SFAS No. 123"), the Company's net income
applicable to common stock for 1998 and pro-forma diluted earnings per share
would have been $169 million and $1.88, respectively. The weighted average
fair value of each option granted during 1998 was $9.08. The annual cost of
the stock options was determined using a Black-Scholes option-pricing model
that assumed the following for 1998: a ten-year option life, risk-free
interest rate of 5.67%, dividend yield of 1.6%, and volatility of 19.44% based
on industry peers' volatility.
 
18. Income Taxes
 
  The provision for income taxes is summarized in the following table:
 
<TABLE>
<CAPTION>
                                                                1998  1997  1996
                                                                ----  ----  ----
                                                                (in millions)
      <S>                                                       <C>   <C>   <C>
      Current:
        Federal................................................ $35   $107  $60
        Utilization of investment and foreign tax credits......  (4)   (46) (29)
                                                                ---   ----  ---
          Net federal..........................................  31     61   31
        State..................................................   5      5   (4)
        Foreign................................................  24     19    4
                                                                ---   ----  ---
          Total current........................................  60     85   31
                                                                ---   ----  ---
      Deferred:
        Federal................................................  32    (17)  11
        State..................................................   1     (2)   1
                                                                ---   ----  ---
          Total deferred.......................................  33    (19)  12
                                                                ---   ----  ---
                                                                $93   $ 66  $43
                                                                ===   ====  ===
</TABLE>
 
                                      84
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  The Company, including its wholly-owned domestic subsidiaries, filed a
consolidated United States federal income tax return with FAHI through the
date of the Offering (and with HIC in 1997 and 1996) and from that date
forward, files its own United States federal income tax return. International
Group filed a separate United States federal income tax return through the
date of the Offering. Subsequent to that date, International Group is included
in the consolidated United States federal income tax return of the Company.
 
  The Company records future tax benefits for deductible temporary differences
if it is more likely than not that these benefits will be realized. In periods
during which the Company filed consolidated income tax returns with FAHI or
HIC, the Company recorded income tax expense as if it were a separate
taxpayer. Included in income tax expense are amounts relating to the
International Group.
 
  The Company made payments of its United States federal income tax of $20
million from the date of the Offering through December 1998 related to its
consolidated return for that period. 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 agreements between FAHI and the
Company through April 1998, and between HIC and the Company during 1997 and
1996 each company, covered by the agreements, 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
the tax allocation agreements, net payments of $6 million were made to FAHI
through April 1998 and payments of $73 million and $43 million were made to
HIC in 1997 and 1996, 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>
                                                                 1998  1997  1996
                                                                 ----  ----  ----
                                                                 (in millions)
      <S>                                                        <C>   <C>   <C>
      Tax provision at statutory rate..........................  $101  $82   $64
      State and foreign income taxes, net of federal income tax
       effects.................................................    31   23     8
      Income of foreign subsidiaries and joint ventures and
       foreign tax credit utilization..........................   (37) (32)  (13)
      Resolution of tax issues.................................    (3)  (2)   (7)
      Other, net...............................................     1   (5)   (9)
                                                                 ----  ---   ---
                                                                 $ 93  $66   $43
                                                                 ====  ===   ===
</TABLE>
 
 
                                      85
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  The significant components of the deferred tax assets and deferred tax
liabilities at December 31, 1998 and 1997 are shown below:
 
<TABLE>
<CAPTION>
                                                                December 31,
                                                                --------------
                                                                 1998    1997
                                                                ------  ------
                                                                (in millions)
      <S>                                                       <C>     <C>
      Deferred Tax Assets:
        Allowance for loan losses.............................. $  112  $   97
        Foreign tax credits....................................      5       8
        Lease portfolio acquisitions...........................     58     --
        Net operating losses...................................     48      41
        Equity interests and other investments.................     25      22
        Terminated swap income.................................      1       5
        Accrued expenses.......................................     29      25
                                                                ------  ------
      Gross deferred tax assets................................    278     198
      Valuation allowance......................................     (5)     (8)
                                                                ------  ------
      Gross deferred tax assets, net of valuation allowance....    273     190
      Deferred Tax Liabilities:
        Repossessed properties................................. $   (3) $   (6)
        Fixed assets and deferred income from lease financing..    (28)    (17)
        Unrealized appreciation of securities available for
         sale..................................................    (13)     (4)
                                                                ------  ------
      Gross deferred tax liabilities...........................    (44)    (27)
                                                                ------  ------
      Net deferred tax asset................................... $  229  $  163
                                                                ======  ======
</TABLE>
 
  Provision has not been made for United States or additional foreign taxes on
$179 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 United States tax liability. The amount of withholding tax that
would be payable upon remittance of the entire amount of undistributed
earnings is approximately $18 million.
 
  The Company had unused foreign tax credit carryforwards of $5 million and $8
million at December 31, 1998 and 1997, 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, 1998 and 1997.
 
  The Company has recorded a net deferred tax asset of $229 million as of
December 31, 1998. 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.
 
                                      86
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
19. Basic and Diluted Net Income Per Share and Pro Forma Net Income Per Share
 
  Net income applicable to common stock per share on a basic and diluted basis
for the periods indicated is calculated as follows:
 
<TABLE>
<CAPTION>
                          Quarter Ended December 31,   Twelve Months Ended December 31,
                          --------------------------- -----------------------------------
                              Basic        Diluted          Basic            Diluted
                          ------------- ------------- ----------------- -----------------
                           1998   1997   1998   1997    1998     1997     1998     1997
                          ------ ------ ------ ------ -------- -------- -------- --------
<S>                       <C>    <C>    <C>    <C>    <C>      <C>      <C>      <C>
Net Income applicable to
 common stock (in
 millions)..............  $   41 $   31 $   41 $   31 $    172 $    144 $    172 $    144
                          ====== ====== ====== ====== ======== ======== ======== ========
Average equivalent
 shares of common stock
 outstanding (in
 thousands).............  90,081 51,050 90,081 51,050   77,050   51,050   77,200   51,050
Stock Options...........     --     --       4    --       --       --         5      --
                          ------ ------ ------ ------ -------- -------- -------- --------
  Total Average
   equivalent shares....  90,081 51,050 90,085 51,050   77,050   51,050   77,205   51,050
                          ====== ====== ====== ====== ======== ======== ======== ========
Net income per share....  $ 0.46 $ 0.61 $ 0.46 $ 0.61 $   2.23 $   2.82 $   2.23 $   2.82
                          ====== ====== ====== ====== ======== ======== ======== ========
</TABLE>
 
  The table below identifies the pro forma net income applicable to common
stock per share on a basic and diluted basis. Pro forma basic net income
applicable to common stock per share is computed based on net income
applicable to common stock divided by the average number of shares outstanding
after the Company's initial public offering. Pro forma diluted net income
applicable to common stock per share is computed based on net income
applicable to common stock divided by the average number of shares outstanding
after the offering plus the dilutive effect of stock options.
 
<TABLE>
<CAPTION>
                          Quarter Ended December 31,   Twelve Months Ended December 31,
                          --------------------------- -----------------------------------
                              Basic        Diluted          Basic            Diluted
                          ------------- ------------- ----------------- -----------------
                           1998   1997   1998   1997    1998     1997     1998     1997
                          ------ ------ ------ ------ -------- -------- -------- --------
<S>                       <C>    <C>    <C>    <C>    <C>      <C>      <C>      <C>
Net Income applicable to
 common stock (in
 millions)..............  $   41 $   31 $   41 $   31 $    172 $    144 $    172 $    144
                          ====== ====== ====== ====== ======== ======== ======== ========
Pro forma shares (in
 thousands):
  Shares of common stock
   outstanding..........  90,081 90,081 90,081 90,081   89,797   89,797   90,073   90,073
  Stock Options.........     --     --       4      4      --       --         5        5
                          ------ ------ ------ ------ -------- -------- -------- --------
  Total pro forma
   shares...............  90,081 90,081 90,085 90,085   89,797   89,797   90,078   90,078
                          ====== ====== ====== ====== ======== ======== ======== ========
Net income per share....  $ 0.46 $ 0.34 $ 0.46 $ 0.34 $   1.92 $   1.60 $   1.91 $   1.60
                          ====== ====== ====== ====== ======== ======== ======== ========
</TABLE>
 
20. Related Parties
 
  Several financial, administrative or other service arrangements exist
between the Company and Fuji Bank, FAHI 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
 
                                      87
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
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 1998, 1997 and 1996. 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.
 
  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 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.
 
  In connection with the Offering, the Keep Well Agreement was 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.
 
  Purchase of Interest in International Group from Fuji Bank. In connection
with the Offering, the Company purchased Fuji Bank's interest in International
Group for total cash consideration of approximately $83 million, $54 million
of which was for the International Group common stock owned by Fuji Bank,
valued at book value, and $29 million of which was for the International Group
preferred stock owned by Fuji Bank, valued at a modest premium over book
value.
 
  Services Provided by Fuji Bank and HIC for the Company. Certain employees of
Fuji Bank performed managerial, administrative and other related functions for
the Company during 1998, 1997, and 1996. Certain employees of HIC also
performed managerial, administrative, and other related functions for the
Company during 1997 and 1996. In conjunction with the ownership transfer of
the Company from HIC to FAHI in January 1998, the majority of HIC's employees
were transferred to the Company. The Company compensated Fuji Bank for the use
of such individuals' services at a rate which reflects current costs. The
amount paid to Fuji Bank for these services was $1 million in 1998. The
amounts paid to Fuji Bank and HIC for these services were $2 million and $77
million, respectively, for 1997 and $2 million and $60 million for 1996.
Additionally, certain subsidiaries of Fuji Bank act as registrar and paying
agent for certain debt issuances by the Company. These services are provided
at market rates.
 
  Services Provided by the Company for Fuji Bank and Affiliates. The Company
performs services for its affiliates, including FAHI, and charges them for the
cost of the work performed. The amount paid to the Company by FAHI was less
than $1 million in 1998. Additionally, the Company guaranteed payment under a
deferred compensation arrangement between FAHI and certain of its employees
who were providing services to the Company. 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.
 
  Intercompany Receivables, Payables, Transactions and Financial
Instruments. At December 31, 1998, other receivables included net amounts due
from affiliates of $3 million, and at December 31, 1997, other
 
                                      88
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
liabilities included net amounts due to affiliates of $29 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 FAHI, advances, administrative fees and costs charged to
other subsidiaries of FAHI and amounts payable to FAHI 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 1998, the Company paid interest of $1.7
million to FAHI related to these notes.
 
  The Company was party to a $200 million notional amount interest rate swap
agreement with FAHI. The purpose of this agreement was to manage the Company's
exposure to interest rate fluctuations. Under this agreement, the Company paid
interest to the counterparty at a variable rate based on the commercial paper
rate published by the Board of Governors of the Federal Reserve System. The
counterparty paid interest to the Company at a fixed rate of 5.57%. This
agreement, which FAHI assumed from HIC in January 1998, was terminated in June
1998. Under the terms of this agreement, the Company's interest expense
increased by $58,000 and $295,000 in 1998 and 1997, respectively. In
conjunction with the termination of this agreement, the Company paid a
termination fee to FAHI of approximately $1 million.
 
  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.
 
  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 $272,000 and $235,000 in 1998 and 1997,
respectively.
 
  Fuji Bank, and one of its subsidiaries, provided uncommitted lines of credit
to consolidated international subsidiaries totaling $27 million and $29
million at December 31, 1998 and 1997, respectively. Borrowings under these
facilities totaled $2 million and $5 million at December 31, 1998 and 1997,
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 $475 million of receivables under this facility as
of December 31, 1998. 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 1998 for services provided under this agreement.
 
  In conjunction with the formation of FAHI, the Company purchased, at book
value, less than $10 million of real estate receivables from HIC on December
31, 1997.
 
21. 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.
 
                                      89
<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, 1998 and 1997, are as follows:
 
<TABLE>
<CAPTION>
                                                       December 31,
                                           ---------------------------------------
                                                  1998                1997
                                           ------------------- -------------------
                                                     Estimated           Estimated
                                           Carrying    Fair    Carrying    Fair
                                            Value      Value    Value      Value
                                           --------  --------- --------  ---------
                                                       (in millions)
      <S>                                  <C>       <C>       <C>       <C>
      Net receivables..................... $11,583    $11,887  $10,461    $10,883
      Total investments...................   1,338      1,391      994      1,044
      Debt................................  10,449     10,456    9,436      9,371
      Swap agreements:
        Asset.............................       9         50        4         12
        Liability.........................     (14)      (106)      (7)      (111)
      Forward contracts...................       2          2       23         23
</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, 1998 and 1997 plus an adjustment for normal
spread, credit quality and the remaining terms of the loans.
 
  Carrying and fair values of the 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, 1998 and 1997, using
a rate appropriate for returns on equity 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, 1998 and 1997. 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, 1998 and 1997. The estimated fair
value represents the mark to market loss and mark to market gain outstanding
as of December 31, 1998 and 1997, respectively, as based upon quoted market
prices obtained from independent financial institutions. Forward contracts are
carried at fair value. The fair value on forward contracts at December 31,
1997 includes the fair value relating to $74 million in notional amount of
purchased options. The fair values of loan commitments, letters of credit and
guarantees are negligible.
 
22. Operating Segments
 
  The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," in 1998
which requires segments to be reported based upon the way management organizes
segments within the Company for making operating decisions and assessing
performance.
 
                                      90
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  The Company's two reportable segments, Domestic Commercial Finance and
International Factoring and Asset Based Finance, are identified based upon the
Company's strategic business units whose long-term financial performance is
affected by similar economic conditions. Each segment is managed separately by
its own President.
 
  Domestic Commercial Finance--This segment consists of five business units:
(i) Heller Corporate Finance ("Corporate Finance") which provides
collateralized cash flow and asset based lending, (ii) Heller Real Estate
Financial Services ("Real Estate Finance") which provides secured real estate
financing, (iii) Heller Leasing Services ("Leasing Services") which provides
debt and lease financing of small and large ticket equipment and commercial
aircraft, (iv) Heller Small Business Finance ("Small Business Finance") which
provides financing to small businesses, primarily under U.S. Small Business
Administration ("SBA") loan programs, and (v) Heller Commercial Services
("Commercial Services") which provides factoring and receivables management
services. Domestic Commercial Finance also includes transactions for domestic
business activities which the Company is no longer pursuing.
 
  International Factoring and Asset Based Finance--This segment, managed by
International Group, provides factoring and receivables management services,
asset based financing, acquisition financing, leasing and vendor finance
and/or trade finance programs through four majority owned subsidiaries and
joints ventures with operations in 16 countries in Europe, Asia/Pacific and
Latin America.
 
  The Company evaluates the performance of its operating segments based on net
income. Inter-segment sales and transfers are not significant. The accounting
policies of the reportable segments are consistent with those of the Company,
as described in Note 1, "Summary of Significant Accounting Policies."
 
  Summarized financial information concerning the Company's reportable
segments is shown in the following table.
 
<TABLE>
<CAPTION>
                                                    International
                                          Domestic  Factoring and
                                         Commercial  Asset Based  Consolidated
                                          Finance      Finance      Company
                                         ---------- ------------- ------------
      <S>                                <C>        <C>           <C>
      Total assets:
        1998............................  $11,278      $3,088       $14,366
        1997............................   10,278       2,583        12,861
        1996............................    9,302         624         9,926
      Revenues:
        1998............................  $ 1,163      $  244       $ 1,407
        1997............................    1,083         187         1,270
        1996............................      903          82           985
      Income of international joint
       ventures
        1998............................  $   --       $   30       $    30
        1997............................      --           36            36
        1996............................      --           44            44
      Net interest income:
        1998............................  $   381      $   42       $   423
        1997............................      382          26           408
        1996............................      351           4           355
      Net income:
        1998............................  $   163      $   30       $   193
        1997............................      145          13           158
        1996............................      111          22           133
</TABLE>
 
                                      91
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  Net income of Domestic Commercial Finance was reduced by a one-time charge of
$17 million ($12 million net of tax) relating to the restructuring initiative
in 1998. International Factoring and Asset Based Finance net income was reduced
by minority interest of $4 million, $9 million and $7 million in 1998, 1997 and
1996, respectively.
 
  The following table shows certain financial information by geographic region
for the years ended December 31, 1998, 1997 and 1996. The Company has
attributed revenues to the specific region of transaction origination.
 
<TABLE>
<CAPTION>
                                       For the Year Ended December 31,
                              -------------------------------------------------
                              United        Other   Asia/   Latin
                              States France Europe Pacific America Consolidated
                              ------ ------ ------ ------- ------- ------------
                                                (in millions)
      <S>                     <C>    <C>    <C>    <C>     <C>     <C>
      Long-lived assets
        1998................. $  502  $102   $237    $17     $39      $  897
        1997.................    225    94    146     17      44         526
        1996.................    153    84    156     15      31         439
      Total revenues
        1998................. $1,159  $188   $ 31    $21     $ 8      $1,407
        1997.................  1,083   127     26     26       8       1,270
        1996.................    903    19     23     28      12         985
</TABLE>
 
 
 
                                       92
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
23. Summary of Quarterly Financial Information (Unaudited)
 
  The following financial information for the calendar quarters of 1998, 1997
and 1996, 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
        1998..................................   $ 99    $105     $109    $110
        1997..................................     92     107      104     105
        1996..................................     90      87       87      91
      Operating revenues
        1998..................................   $186    $194     $196    $207
        1997..................................    141     199      193     221
        1996..................................    131     129      124     149
      Provision for losses
        1998..................................   $ 15    $ 17     $ 27    $ 18
        1997..................................     22      34       48      60
        1996..................................     24      25       12      42
      Net income
        1998..................................   $ 48    $ 51     $ 47    $ 47
        1997..................................     39      44       40      35
        1996..................................     34      35       35      29
</TABLE>
 
24. Accounting Developments
 
  In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This Statement establishes accounting and reporting
standards requiring all derivative instruments (including certain derivative
instruments embedded in other contracts) to be recorded in the balance sheet
as either an asset or liability measured at its fair value. Changes in the
fair value of the derivative are to be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows gains and losses on derivatives to offset related results on the
hedged items in the income statement and requires that a company must
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The Company is assessing the impact of this statement and will
adopt it in its 2000 interim financial statements.
 
25. Subsequent Events
 
  On January 19, 1999, the Company awarded to various employees approximately
1.2 million options to purchase shares of the Company's Class A Common Stock
at an exercise price of $28.75. No compensation expense was recorded in
conjunction with the awards as the exercise price equaled the market value of
the stock on the date of grant. Of the options granted, a majority will vest
equally over each of the next four years. The remaining options will vest on
January 1, 2001.
 
  Also on January 19, 1999, the Company's Compensation Committee approved
approximately 17,000 stock awards of its Class A Common Stock to employees of
the Company. Compensation expense will be recorded over the one year vesting
period.
 
                                      93
<PAGE>
 
                    HELLER FINANCIAL, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  On February 15, 1999, the Company paid dividends of $0.09 per share on its
Class A and Class B Common Stock.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
  None.
 
 
                                       94
<PAGE>
 
                                   PART III
 
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
  The information required by this item pertaining to executive officers of
the Company is set forth below. The information required by this item
pertaining to directors of the Company and to compliance with Section 16(a) of
the Securities Exchange Act of 1934 is incorporated by reference to the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders.
 
                              Executive Officers
 
Richard J. AlmeidaMr. Almeida, age 56, has served as Chairman of the Board and
                  Chief Executive Officer of Heller and Heller International
                  Group, Inc. (International Group) since November 1995, and
                  as a Director of Heller and International Group since
                  November 1987. He previously served as Executive Vice
                  President and Chief Financial Officer of Heller and
                  International Group from November 1987 to November 1995. He
                  has served as Director of Fuji America Holdings, Inc.
                  (FAHI), a subsidiary of The Fuji Bank, Limited, and the
                  majority stockholder of Heller, since January 1998. He is
                  also on the Board of Directors of Fuji Bank and Trust
                  Company, a subsidiary of Fuji Bank. Prior to joining Heller
                  in 1987, Mr. Almeida served in a number of operating
                  positions, both in corporate banking and investment banking,
                  for Citicorp.
 
Nina B. Eidell    Ms. Eidell, age 46, has served as Executive Vice President
                  and Chief Human Resources Officer of Heller since 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.
 
Michael J. Litwin Mr. Litwin, age 51, has served as Executive Vice President
                  and Chief Credit Officer of Heller since January 1997, and
                  Executive Vice President of International Group since
                  January 1989. He previously served as Director of Heller
                  from April 1990 to July 1998, Senior Group President of
                  Heller from October 1990 to January 1997, and Director of
                  International Group from January 1997 to July 1998. Mr.
                  Litwin has served in various other positions since joining
                  Heller in 1971, including Assistant General Counsel.
 
Dennis P. LockhartMr. Lockhart, age 52, has served as a Director of Heller and
                  International Group and as President of International Group
                  since January 1988. In his current position, he has
                  principal responsibility for Heller's international
                  operations. Mr. Lockhart has also served as a Director of
                  Tri Valley Corporation since April 1981. Prior to joining
                  Heller 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.
 
Lauralee E. MartinMs. Martin, age 48, has served as Executive Vice President
                  and Chief Financial Officer of Heller and International
                  Group since May 1996, and Director of Gables Residential
                  Trust since January 1994. She previously served as Director
                  of Heller from May 1991 to July 1998, Director of
                  International Group from May 1996 to July 1998, and Senior
                  Group President of Heller from October 1990 to May 1996.
                  Prior to
 
                                      95
<PAGE>
 
                  joining Heller in 1986, Ms. Martin held a variety of senior
                  management positions with General Electric Credit
                  Corporation.
 
Debra H. Snider   Ms. Snider, age 44, has served as Chief Administrative
                  Officer of Heller since February 1997, General Counsel of
                  Heller and International Group since October 1995, Executive
                  Vice President and Secretary of Heller and International
                  Group since April 1995, and Secretary of FAHI since January
                  1998. She previously served as Acting General Counsel for
                  Heller and International Group 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.
 
Frederick E. Wolfert
                  Mr. Wolfert, age 44, has served as a Director of Heller
                  since July 1998 and as President and Chief Operating Officer
                  of Heller since January 1998. In this capacity, he has
                  principal responsibility for all of Heller'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.
 
Item 11. EXECUTIVE COMPENSATION
 
  The information required by this Item is incorporated by reference to the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders.
 
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  The information required by this Item is incorporated by reference to the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders.
 
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  The information required by this Item is incorporated by reference to the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders.
 
                                    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, 1998 and 1997
 
    Consolidated Statements of Income for the Years Ended December 31,
    1998, 1997 and 1996
 
    Consolidated Statements of Cash Flows for the Years Ended December 31,
    1998, 1997 and 1996
 
                                       96
<PAGE>
 
    Consolidated Statements of Changes in Stockholders' Equity for the
    Years Ended December 31, 1998, 1997 and 1996
 
    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:
 
    Any shareholder who would like a copy of the following Exhibits may
    obtain one upon request from the Company at a charge that reflects the
    reproduction cost of such Exhibits. Requests should be made to the
    Secretary, Heller Financial, Inc., 500 W. Monroe St., Chicago, IL
    60661.
 
<TABLE>
     <C>       <S>                                                          <C>
     (3)(a)    Amended and Restated Certificate of Incorporation of the
               Company, as amended and restated on April 30, 1998, is
               incorporated by reference to Exhibit 3.1 to the Company's
               Quarterly Report on Form 10-Q for the period ended March
               31, 1998 (File No. 1-6157).
     (3)(b)    Amended and Restated By-laws of the Company, adopted on
               April 27, 1998, are incorporated by reference to Exhibit
               3.2 to the Company's Quarterly Report on Form 10-Q for the
               period ended March 31, 1998 (File No. 1-6157).
     (4)(a)    Certificate of Designation, Preferences and Rights of
               Cumulative Perpetual Senior Preferred Stock, Series A, as
               filed with the Delaware Secretary of State on September
               16, 1992, is incorporated by reference to Exhibit 4(a) to
               the Company's Annual Report on Form 10-K for the Fiscal
               Year Ended December 31, 1992 (File No. 1-6157).
     (4)(b)    Certificate of Designation, Preferences and Rights of the
               Company's Fixed Rate Noncumulative Perpetual Senior
               Preferred Stock, Series C (Liquidation Preference $100.00
               Per Share) filed with the Secretary of State of Delaware
               on November 5, 1997, is incorporated 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)(c)*   Certificate of Designation, Preferences and Rights of the
               Company's Fixed Rate Noncumulative Perpetual Senior
               Preferred Stock, Series D (Liquidation Preference $100.00
               Per Share), filed with the Secretary of State of Delaware
               on December 3, 1998.
     (4)(d)    Heller Financial, Inc. Standard Multiple-Series Indenture
               Provisions dated February 5, 1987 are incorporated by
               reference to Exhibit (4)(a) to the Company's Registration
               Statement on Form S-3 dated February 5, 1987 (File No. 33-
               11757).
     (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 is incorporated by
               reference to Exhibit (4)(b) to the Company's Registration
               Statement on Form S-3 dated February 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 Securities is incorporated
               by reference to Exhibit (4)(h) to the Company's
               Registration Statement on Form S-3 dated February 24, 1993
               (File No. 33-58716).
     (4)(g)    First Supplemental Indenture dated September 29, 1995 to
               the Indenture dated February 24, 1993 between the Company
               and State Street Bank and Trust Company, as successor to
               The First National Bank of Boston, with respect to Senior
               Securities is incorporated by reference to Exhibit (4)(a)
               to the Company's Current Report on Form 8-K filed October
               3, 1995 (File No. 1-6157).
</TABLE>
 
 
                                       97
<PAGE>
 
<TABLE>
     <C>       <S>                                                          <C>
     (4)(h)    Form of Indenture dated as of February 5, 1987 between the
               Company and Chemical Bank, Trustee, with respect to Senior
               Securities is incorporated by reference to Exhibit (4)(c)
               to the Company's Registration Statement on Form S-3 dated
               February 5, 1987 (File No. 33-11757).
     (4)(i)    First Supplemental Indenture dated as of December 1, 1989
               to the Indenture dated as of February 5, 1987 between
               Chemical Bank, as Trustee, and the Company is incorporated
               by reference to Exhibit (4)(e) to the Company's Annual
               Report on Form 10-K for the Fiscal Year Ended December 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 is incorporated 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 between the
               Company and State Street Bank and Trust Company, as
               successor to Shawmut Bank Connecticut, National
               Association, as Trustee, with respect to Senior Securities
               is incorporated by reference to Exhibit 4.3 to
               the Company's Registration Statement on Form S-3 dated
               October 23, 1997 (File No. 333-38545).
     (4)(l)    First Supplemental Indenture dated as of 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 Senior Securities
               is incorporated by reference to an exhibit to the
               Company's Current Report on Form 8-K, filed October 18,
               1995 (File No. 1-6157).
     (4)(m)    Second Supplemental Indenture dated November 17, 1997 to
               the Indenture dated September 1, 1995 between the Company
               and State Street Bank and Trust Company, as Trustee, with
               respect to Senior Securities is incorporated by reference
               to Exhibit 4(a) to the Company's Current Report on Form 8-
               K filed December 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 is 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).
     (4)(o)    First Supplemental Indenture dated as of 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 Subordinated
               Securities is incorporated by reference to an exhibit 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 is 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 is 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).
</TABLE>
 
 
                                       98
<PAGE>
 
<TABLE>
     <C>       <S>                                                          
     (4)(r)    Form of Medium-Term Note, Series I (Fixed Rate) due from 9
               months to 30 years from date of issue is incorporated by
               reference to Exhibit 4(a) to the Company's Current Report
               on Form 8-K filed September 18, 1998 (File No. 1-6157).
     (4)(s)    Form of Medium-Term Note, Series I (Fixed Rate/Currency
               Indexed) due from 9 months to 30 years from date of issue
               is incorporated by reference to Exhibit 4(b) to the
               Company's Current Report on Form 8-K filed September 18,
               1998 (File No. 1-6157).
     (4)(t)    Form of Medium-Term Note, Series I (Floating Rate) due
               from 9 months to 30 years from date of issue filed as
               Exhibit 4(c) to the Company's Current Report on Form 8-K
               filed September 18, 1998 (File No. 1-6157).
     (4)(u)    Form of Medium-Term Note, Series I (Floating Rate/Currency
               Indexed) due from 9 months to 30 years from date of issue
               is incorporated by reference to Exhibit 4(d) to the
               Company's Current Report on Form 8-K filed September 18,
               1998 (File No. 1-6157).
     (10)(a)   Amended and Restated Keep Well Agreement between The Fuji
               Bank, Limited (Fuji Bank) and the Company, as amended, is
               incorporated by reference to Exhibit 4.13 to the Company's
               Registration Statement on Form S-3 dated July 8, 1998
               (File No. 333-58723).
     (10)(b)*  Registration Rights Agreement dated May 6, 1998 between
               the Company and Fuji Bank.
     (10)(c)   Services Agreement dated January 1, 1985 between the
               Company and Fuji Bank is 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).
     (10)(d)   Management Agreement dated as of January 1, 1991 between
               Heller International Corporation (HIC) and the Company is
               incorporated by reference to Exhibit (10)(m) to the
               Company's Quarterly Report on Form 10-Q for the period
               ending March 31, 1991 (File No. 1-6157).
     (10)(e)   Management Services Agreement dated as of January 2, 1998
               between Fuji America Holdings, Inc. (FAHI) and the Company
               is incorporated by reference to Exhibit 10(d) to the
               Company's Annual Report on Form 10-K for the Fiscal Year
               ended December 31, 1997, as amended on Form 10-K/A (File
               No. 1-6157).
     (10)(f)   Agreement for the Allocation of Federal, State and Foreign
               Income Tax Liability and Benefits among HIC and its
               Subsidiaries, effective as of July 1, 1996, is
               incorporated by reference 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)(g)*  Agreement for the Allocation of Federal Income Tax
               Liability and Benefits among FAHI and the Company,
               effective as of January 2, 1998.
     (10)(h)+  Management Incentive Plan (Effective January 1, 1987,
               Revised January 1, 1989) is 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)(i)+  1996-1998 Long Term Incentive Plan, effective January 1,
               1996, is incorporated by reference to Exhibit 10(h) to the
               Company's Annual Report on Form 10-K for the Fiscal Year
               ended December 31, 1997, as amended on Form 10-K/A (File
               No. 1-6157).
     (10)(j)+  1997-1999 Long Term Incentive Plan, effective January 1,
               1997, is incorporated by reference to Exhibit 10(i) to the
               Company's Annual Report on Form 10-K for the Fiscal Year
               ended December 31, 1997, as amended on Form 10-K/A (File
               No. 1-6157).
     (10)(k)+  Supplemental Executive Retirement Benefit Plan, amended
               and restated effective January 1, 1996, is incorporated by
               reference 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).
</TABLE>
 
 
                                       99
<PAGE>
 
<TABLE>
     <C>       <S>                                                          <C>
     (10)(l)+  Savings and Profit Sharing Plan, amended and restated
               effective as of January 1, 1989, is incorporated by
               reference to Exhibit (10)(q) to the Company's Annual
               Report on Form 10-K for the Fiscal Year Ended December 31,
               1996 (File No. 1-6157).
     (10)(m)+  First Amendment to Savings and Profit Sharing Plan, dated
               December 23, 1993, is 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).
     (10)(n)+  Second Amendment to Savings and Profit Sharing Plan, dated
               December 20, 1994, is 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)(o)+  Third Amendment to Savings and Profit Sharing Plan, dated
               September 9, 1996, is 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)(p)+  Fourth Amendment to Savings and Profit Sharing Plan, dated
               April 30, 1997, is incorporated by reference to Exhibit
               10(u) to the Company's Annual Report on Form 10-K for the
               Fiscal Year ended December 31, 1997, as amended on Form
               10-K/A (File No. 1-6157).
     (10)(q)+  Fifth Amendment to Savings and Profit Sharing Plan,
               effective as of April 30, 1998, is incorporated by
               reference to Exhibit 10.2 to the Company's Quarterly
               Report on Form 10-Q for the period ending June 30, 1998
               (File No. 1-6157).
     (10)(r)+  1998 Heller Financial, Inc. Stock Incentive Plan is
               incorporated by reference to Exhibit 10.1 to the Company's
               Registration Statement on Form S-2 initially filed on
               February 26, 1998, as amended (File No. 333-46915).
     (10)(s)+  Heller Financial, Inc. 1998 Employee Stock Purchase Plan
               is incorporated by reference to Exhibit 10.34 to the
               Company's Registration Statement on Form S-2 initially
               filed on February 26, 1998, as amended (File No. 333-
               46915) is incorporated by reference.
     (10)(t)+  Amended and Restated Executive Deferred Compensation Plan,
               effective as of January 1, 1998, is incorporated by
               reference to Exhibit 10 to the Company's Quarterly Report
               on Form 10-Q for the period ended September 30, 1998 (File
               No. 1-6157).
     (10)(u)+* First Amendment to Amended and Restated Executive Deferred
               Compensation Plan dated March 2, 1999.
     (10)(v)+  Employment Letter Agreement, dated as of December 31,
               1997, between the Company and Richard J. Almeida, is
               incorporated by reference to Exhibit 10(w) to the
               Company's Annual Report on Form 10-K for the Fiscal Year
               ended December 31, 1997, as amended on Form 10-K/A (File
               No. 1-6157).
     (10)(w)+* Amendment of Letter Agreement, effective as of May 6,
               1998, between the Company and Richard J. Almeida.
     (10)(x)+  Employment Letter Agreement, dated as of December 31,
               1997, between the Company and Frederick E. Wolfert, is
               incorporated by reference to Exhibit 10(x) to the
               Company's Annual Report on Form 10-K for the Fiscal Year
               ended December 31, 1997, as amended on Form 10-K/A (File
               No. 1-6157).
     (10)(y)+* Amendment of Letter Agreement, effective as of May 6,
               1998, between the Company and Frederick E. Wolfert.
     (10)(z)+  Form of Change in Control Agreement is incorporated by
               reference to Exhibit 10.32 to the Company's Registration
               Statement on Form S-2 initially filed on February 26,
               1998, as amended (File No. 333-46915).
</TABLE>
 
 
                                      100
<PAGE>
 
<TABLE>
     <C>       <S>                                                          <C>
     (12)*     Computation of Ratio of Earnings to Combined Fixed Charges
               and Preferred Stock Dividends
     (21)*     Subsidiaries of the Registrant
     (23)*     Consent of Independent Public Accountants
     (27)*     Financial Data Schedule
</TABLE>
--------
  *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. 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:
 
<TABLE>
<CAPTION>
     Date of Report    Item Description
     --------------    ---- -----------
     <C>               <C>  <S>
     October 13, 1998  5, 7 A report filing a press release announcing the
                            signing of a purchase agreement to acquire assets
                            associated with the US and international
                            information technology leasing business of Dana
                            Corporation.
     October 19, 1998  5, 7 A report filing a press release announcing the
                            declaration of dividends on the Company's common
                            and preferred stocks.
     October 20, 1998  5, 7 A report filing a press release announcing earnings
                            for the quarter ending September 30, 1998.
     November 24, 1998 5, 7 A report filing a press release announcing a new
                            business structure and senior leadership changes
                            designed to increase operating revenues, optimize
                            operational efficiencies and improve return on
                            shareholders' equity.
     November 25, 1998 5, 7 Report of (i) the filing of a Prospectus Supplement
                            under the Company's Registration Statement on Form
                            S-3 (File No. 333-58723) for the public offering of
                            1,250,000 shares of Fixed Rate Noncumulative
                            Perpetual Senior Preferred Stock, Series D,
                            and (ii) the filing of the forms of related
                            documents.
     December 3, 1998   5,7 A report filing a press release announcing the
                            acquisition of assets of Dana Corporation's leasing
                            operation.
     January 20, 1999   5,7 A report filing a press release announcing (i)
                            earnings for the year ending December 31, 1998,
                            (ii) selection by the Board of Directors of April
                            23, 1999 as the date for the Annual Meeting of
                            Stockholders, and (iii) selection by the Board of
                            Directors of March 1, 1999 as the record date for
                            voting at the Annual Meeting of Stockholders.
     January 20, 1999   5,7 A report filing a press release announcing the
                            declaration of dividends on the Company's common
                            and preferred stocks.
</TABLE>
 
                                      101
<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/ Lawrence G. Hund
                                          By: _________________________________
                                                      Lawrence G. Hund
                                                 Executive Vice President,
                                              Controller, and Chief Accounting
                                                          Officer
 
                                          Dated: March 11, 1999
 
                                      102