UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K


            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended October 31, 1997

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

             For the transition period from __________ to__________
                                -----------------
                         Commission File Number 1-4146-1
                                -----------------


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

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

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

         Registrant's telephone number, including area code 847-734-4000

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

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

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

As of November 30, 1997, the number of shares  outstanding  of the  registrant's
common stock was 1,600,000.


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

<PAGE>


                         NAVISTAR FINANCIAL CORPORATION
                                AND SUBSIDIARIES

                                    FORM 10-K

                           Year Ended October 31, 1997
<TABLE>
<CAPTION>

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

PART II

Item  5.    Market for the Registrant's Common Equity and
            Related Stockholder Matters.................................      1
Item  6.    Selected Financial Data (A).................................      1
Item  7.    Management's Discussion and Analysis of Financial
            Condition and Results of Operations (A).....................      2
Item  8.    Financial Statements........................................      8
            Independent Auditors' Report................................     31
            Supplementary Financial Data................................     32
Item  9.    Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure.........................     35

PART III

Item 10.    Directors and Executive Officers of the
            Registrant (A)..............................................     35
Item 11.    Executive Compensation (A)..................................     35
Item 12.    Security Ownership of Certain Beneficial Owners
            and Management (A)..........................................     35
Item 13.    Certain Relationships and Related
            Transactions (A)............................................     35

PART IV

Item 14.    Exhibits, Financial Statement Schedules and
            Reports on Form 8-K.........................................     35

SIGNATURES- Principal Accounting Officer ...............................     36
               - Directors..............................................     37

POWER OF ATTORNEY.......................................................     37

EXHIBITS       .........................................................    E-1

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

<PAGE>





                                     PART I


Item 1.  Business

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

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

Item 2.  Properties

     The Corporation's  properties  principally  consist of office equipment and
leased  office space in Rolling  Meadows,  Illinois;  Columbus,  Ohio;  Atlanta,
Georgia;  Plano, Texas; Mt. Laurel, New Jersey; and San Ramon,  California.  The
office  equipment  owned and in use by the  Corporation  is not  significant  in
relation to the total assets of the Corporation.

Item 3.  Legal Proceedings

     There were no  material  pending  legal  proceedings  other than  ordinary,
routine litigation incidental to the business of the Corporation.

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

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


                                     PART II


Item    5.    Market for the Registrant's Common Equity and
              Related Stockholder Matters

     See Note 13 to Consolidated Financial Statements.

Item    6.    Selected Financial Data

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


<PAGE>


Item    7.    Management's Discussion and Analysis of
              Financial Condition and Results of Operations


     Certain   statements   under  this  caption   constitute   "forward-looking
statements"   under  the   Securities   Reform  Act,  which  involve  risks  and
uncertainties.  Navistar  Financial  Corporation's  actual  results  may  differ
significantly  from the results  discussed in such  forward-looking  statements.
Factors  that might  cause such a  difference  include,  but are not limited to,
those discussed under the heading "Business Outlook".


Financing Volume

     In fiscal 1997  industry  demand for Class 5 through 8 trucks was  slightly
higher than 1996 and 9% lower than 1995.  Financing  support  provided to retail
customers over the last three years was as follows:
<TABLE>
<CAPTION>

                                                      1997      1996      1995
<S>                                                  <C>       <C>       <C>
Retail and Lease Financing: ($ millions)
Finance market share of new International
   trucks sold in the U.S.                            13.2%     16.3%     14.4%

Purchases of receivables and
   equipment leased to others                        $1,036    $1,135    $1,113

Serviced retail notes and lease
   financing balances (including
   sold notes) at October 31                         $2,253    $2,200    $1,960
</TABLE>


     During  1997,  the  Corporation's  finance  market  share  fell  below 1996
performance due to the highly  competitive  commercial  financing  market.  As a
result of the lower finance market share, purchases of receivables and equipment
leased to others in 1997 were below 1996. Purchases of receivables and equipment
leased to others in 1996 were  consistent  with those of 1995 as the increase in
finance market share was offset by the lower industry demand for Class 5 through
8 trucks.

     Financing support provided to Transportation's  dealers over the last three
years was as follows:

<TABLE>
<CAPTION>
                                                       1997      1996      1995
<S>                                                  <C>       <C>       <C>
Wholesale Financing: ($ millions)
Percent of wholesale financing of
   new International trucks sold to
   Transportation's dealers in the U.S.                 94%       94%       93%

Purchases of receivables                             $2,773    $2,706    $2,979

Serviced wholesale note balances
   (including sold notes) at
   October 31                                        $  691    $  685    $  854
</TABLE>


<PAGE>


Item  7.  Management's Discussion and Analysis of
          Financial Condition and Results of Operations (continued)


Financing Volume (continued)

     In spite of the strong liquidity in the commercial  financing  market,  the
Corporation's   finance   percentage  of  new   International   trucks  sold  to
Transportation's  dealers  remained  at 94%.  In 1997 the volume of  receivables
purchased  was  slightly  higher  than 1996 and 7% below 1995 in response to the
truck industry demand. Although dealer inventory levels at October 31, 1997 were
comparable  to the 1996 year end levels,  fiscal 1997 average  dealer  inventory
levels were  approximately  22% below 1996. In response to the continued  strong
customer demand,  Transportation's  dealers significantly increased the level of
truck  inventory  during  the  fourth  quarter of fiscal  1997.  Wholesale  note
balances  at  October  31,  1996 were 25% below  1995  year end  balances.  This
significant  decline occurred  primarily in the fourth quarter of fiscal 1996 as
average dealer inventory levels during fiscal 1996 were approximately 22% higher
than fiscal 1995.


Results of Operations

     The components of net income over the last three years were as follows:
<TABLE>
<CAPTION>

                                                       1997     1996     1995
<S>                                                   <C>      <C>      <C>
Income before income taxes: ($ millions)
     Finance operations                               $68.6    $74.2    $53.1
     Insurance operations                               6.0      6.3      5.6
        Income before taxes                            74.6     80.5     58.7
     Taxes on income                                   28.9     31.1     22.5
        Net income                                    $45.7    $49.4    $36.2

Return on average equity                               16.1%    18.1%    15.0%
</TABLE>

     The  Corporation's  1997  return on  average  equity of 16.1% was below its
record 18.1% in 1996 primarily due to lower average dealer  inventory levels and
gains on sales of retail notes,  partially  offset by lower  borrowing costs and
provision  for losses.  Income in 1996 was 37% higher than 1995  primarily  as a
result of higher  gains on sales of retail  notes and higher  average  wholesale
note balances.

     Finance Operations:

     Retail note and lease financing  revenue for 1997 was $106 million compared
with $98  million and $73  million in 1996 and 1995,  respectively.  Included in
these  amounts is operating  lease  revenue of $29  million,  $14 million and $9
million in 1997, 1996 and 1995, respectively. The higher operating lease revenue
is the result of an increase in operating  lease  balances due to a market shift
toward lease financing.  For operating  leases,  the Corporation  recognizes the
entire lease payment as revenue and records  depreciation  expense on the assets
under lease.

<PAGE>


Item    7.    Management's Discussion and Analysis of
              Financial Condition and Results of Operations (continued)


Results of Operations - Finance Operations (Continued)

     Also included in retail note and lease  finance  revenue are gains on sales
of retail note  receivables of $13 million,  $20 million and $5 million in 1997,
1996 and 1995,  respectively,  on sales of $987  million,  $985 million and $740
million,  respectively.  The higher gains on sales in fiscal 1996  resulted from
higher margins on retail notes due to declining  market  interest rates prior to
the sale in November 1995. During a declining  interest rate environment,  NFC's
acquisition  spreads may improve as the Corporation's  cost of borrowing differs
from the time when interest rates are quoted to borrowers and the time when such
notes are acquired. In addition,  unless hedged, the effective interest rate for
each sale is based on a market interest rate at the time of the sale,  which may
be up to six months after the Corporation acquired the retail notes.

     In fiscal 1997 wholesale note revenue  decreased  36.2% from 1996 primarily
as a result of lower  average  outstanding  note  balances  and lower  yields in
response to the competitive commercial financing market.  Wholesale note revenue
increased  5% in 1996 to $57 million as a result of higher  average  outstanding
note balances  offset in part by lower average yields  relating to a lower prime
interest rate.

     Borrowing  costs decreased 10.6% in 1997 to $73 million from $82 million in
1996 primarily due to lower wholesale  funding  requirements and lower borrowing
rates. During 1997 the Corporation's  weighted average interest rate on all debt
declined to 6.4% from 6.5% in 1996. The  Corporation's  1996 borrowing  costs of
$82 million were  slightly less than the $84 million in 1995 due to a decline in
the  Corporation's  weighted average interest rate offset in part by higher debt
balances to support receivable balances. During 1996, the Corporation's weighted
average  interest rate on all debt declined to 6.5% from 7.4% in 1995  primarily
due to lower  market  interest  rates and the maturity of high fixed rate public
debt  during  1995 and 1996.  The ratio of debt to equity was  4.3:1,  4.7:1 and
5.2:1 at October 31, 1997, 1996, and 1995, respectively.

     Credit,  collection and administrative expenses increased to $31 million in
1997 from $28 million in 1996 and 1995.  The increase in 1997 compared with 1996
and 1995 was primarily due to employee related costs,  retail marketing  efforts
and training and development programs.

     The provision for losses on receivables totaled $3 million in 1997 compared
with $9 million in 1996 and $3 million in 1995. During 1997 and 1996 competitive
freight rates and higher fuel costs have impacted NFC's customers'  abilities to
meet obligations and have resulted in higher  delinquencies,  repossessions  and
credit losses as compared to 1995.  Notes and account  write-offs  (recoveries),
including  sold notes  totaled  $2 million in 1997,  $5 million in 1996 and $(1)
million in 1995.  The  Corporation's  allowance  for losses as a  percentage  of
serviced  finance  receivables was .72%, .74% and .62% at October 31, 1997, 1996
and 1995, respectively.


<PAGE>


Item  7. Management's Discussion and Analysis of
         Financial Condition and Results of Operations (continued)


Results of Operations - Finance Operations (Continued)

     Depreciation  and other  expenses in 1997  increased to $19 million from $9
million in 1996. The increase is primarily the result of a larger  investment in
equipment under operating leases.

     Insurance Operations:

     Harco National Insurance  Company's  ("Harco") pretax income was $6 million
in each of the three  years ended  October  31,  1997.  Harco's  gross  premiums
written in 1997 were $49 million, 10% and 8% below 1996 and 1995,  respectively.
The  insurance  industry  continues to be over  capitalized  which  results in a
highly competitive market and places pressure on Harco's volume and margins. The
ratio of losses to earned  premiums  during 1997 was 70% compared to 73% and 71%
in 1996 and 1995,  respectively.  The loss ratio improvement is primarily due to
favorable experience in the liability lines.


Liquidity and Funds Management

     Navistar  Financial  has  traditionally   obtained  the  funds  to  provide
financing  to  Transportation's  dealers  and  retail  customers  from  sales of
receivables,  commercial paper, short and long-term bank borrowings,  medium and
long-term debt issues and equity capital. The Corporation's current debt ratings
have made sales of finance  receivables the most economical  source of cash. The
Corporation's   insurance   operation   generates  its  funds  through  internal
operations and has no external borrowings.

     Operations  provided $142 million in cash in 1997 primarily due to the cash
provided  from net income of $46 million and an increase in accounts  payable to
affiliated  companies of $107 million.  Investing  activities used $1 million in
cash.  During 1997, the purchase of $1,036 million of receivables  and equipment
leased to others was funded  primarily  with $958  million of proceeds  from the
sale of receivables and principal  collections of $94 million. The cash provided
by  operations  and the $209 million of proceeds  from the issuance of long term
debt were used  principally to lower bank  borrowings by $311 million and to pay
dividends of $40 million. See also the "Statements of Consolidated Cash Flow" on
page 11.

     Over the last three  years,  operations  provided  $225 million in cash and
proceeds  from the sale of retail  receivables  totaled  $2,667  million.  These
amounts were used  principally to fund the purchase of receivables and equipment
leased to others of $3,007, net of principal collections on the receivables, and
to pay dividends of $75 million.


<PAGE>


Item  7.  Management's Discussion and Analysis of
          Financial Condition and Results of Operations (continued)


Liquidity and Funds Management (Continued)

     Receivable  sales  were a  significant  source of funding in 1997 and 1996.
Through the  asset-backed  public market,  the Corporation has been able to fund
fixed rate retail note receivables at rates offered to companies with investment
grade ratings.  During fiscal 1997 and 1996, the Corporation  sold $987 and $985
million,  respectively,  of retail  notes,  through  Navistar  Financial  Retail
Receivables Corporation ("NFRRC"), a wholly-owned  subsidiary,  to owner trusts,
which in turn, sold notes and  certificates  to investors.  At October 31, 1997,
the remaining shelf registration available to NFRRC for issuance of asset-backed
securities was $1,473 million.

     At October 31, 1997, Navistar Financial Securities  Corporation ("NFSC"), a
wholly-owned  subsidiary  of the  Corporation,  had  in  place  a  $600  million
revolving wholesale note trust that provides for the continuous sale of eligible
wholesale  notes on a daily basis.  During 1997, a $100 million  tranche matured
and the trust  issued a $200  million  tranche of  investor  certificates  which
matures in 2003. The trust is funded by securities sold to the public  comprised
of two $100 million tranches of investor  certificates maturing in 1998 and 1999
and two $200  million  tranches  of investor  certificates  maturing in 2003 and
2004. At October 31, 1997, the remaining  shelf  registration  available to NFSC
for issuance of investor certificates was $200 million.

     On May 30, 1997, the Corporation  sold $100 million of Senior  Subordinated
Notes due June 2002.  The net proceeds  from the sale of the Notes  offered were
approximately  $98 million after the deduction of underwriting  fees and certain
other expenses.

     During fiscal 1997, the Corporation entered into sale/leaseback  agreements
involving  vehicles  subject to retail finance leases and operating  leases with
end users.  Total proceeds were $111 million and the  outstanding  capital lease
obligations at October 31, 1997 were $96 million.

     The  Corporation  has a $925 million bank revolving  credit  facility and a
$400 million asset-backed  commercial paper ("ABCP") program supported by a bank
liquidity facility,  which mature in March 2001. See Note 10 to the Consolidated
Financial Statements for further discussion.

     In November 1997, the Corporation sold $500 million of retail notes through
NFRRC to an owner trust,  which in turn,  sold notes to investors.  A gain of $7
million was recognized on the sale.

     The  Corporation  manages  sensitivity  to interest rate changes by funding
floating  rate assets with floating rate debt,  primarily  borrowings  under the
bank  revolving  credit  agreement,  and fixed rate assets with fixed rate debt,
equity and floating rate debt.  Management  has limited the amount of fixed rate
assets funded with floating rate debt by selling  retail  receivables on a fixed
rate  basis  and,  to  a  lesser  extent,  by  utilizing   derivative  financial
instruments.  See  Notes  1 and 14 to  the  Consolidated  Financial  Statements.
Corporate policy prohibits the use of derivatives for speculative purposes.


<PAGE>


Item    7.    Management's Discussion and Analysis of
              Financial Condition and Results of Operations (continued)


Liquidity and Funds Management (Continued)

     Under a state law enacted  February 14, 1997, the  Corporation was relieved
of any liability  under the Notice of  Deficiency  issued on February 1, 1994 by
the Illinois  Department of Revenue to the Corporation for the fiscal years 1989
through 1991. See Note 8 to the  Consolidated  Financial  Statements for further
discussion.


Year 2000

     The  Corporation  has and will continue to make certain  investments in its
information  systems and  applications  to ensure they are year 2000  compliant.
Spending  for  these  modifications  has not had and is not  expected  to have a
material  impact  on  the  Corporation's   financial  condition  or  results  of
operations in any given year.


New Accounting Standards

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS
No. 130") and Statement of Financial Accounting Standards No. 131,  "Disclosures
about Segments of an Enterprise and Related Information," ("SFAS No. 131"). SFAS
No. 130 establishes  standards for reporting and display of comprehensive income
and its components. SFAS No. 131 establishes standards for reporting information
about operating  segments,  and related disclosures about products and services,
geographic areas and major customers.  These statements are effective for fiscal
years  beginning  after  December 15,  1997.  These  standards  expand or modify
disclosures and, accordingly,  will have no impact on the Corporation's reported
financial condition, results of operations or cash flows.


Business Outlook

     The truck  industry in 1998 is forecasted to be consistent  with 1997.  The
competitive  commercial  financing  market will  continue to put pressure on the
Corporation's retail and wholesale financing activity and margins.

     Management  believes  that  collections  on  the  outstanding   receivables
portfolio plus cash available from the  Corporation's  various  funding  sources
will  permit   Navistar   Financial  to  meet  the  financing   requirements  of
Transportation's dealers and retail customers through 1998 and beyond.


<PAGE>


<TABLE>
<CAPTION>
                                                                           Page
Item 8.  Financial Statements and Supplementary Data


   Navistar Financial Corporation and Subsidiaries:

     <S>                                                                     <C>
     Statements of Consolidated Income and Retained Earnings
       for the years ended October 31, 1997, 1996 and 1995..............      9
     Statements of Consolidated Financial Condition as of
       October 31, 1997 and 1996 .......................................     10
     Statements of Consolidated Cash Flow for the years ended
       October 31, 1997, 1996 and 1995..................................     11
     Notes to Consolidated Financial Statements.........................     12
     Independent Auditors' Report.......................................     31
     Supplementary Financial Data.......................................     32
</TABLE>


<PAGE>





                Navistar Financial Corporation and Subsidiaries
-------------------------------------------------------------------------------

             Statements of Consolidated Income and Retained Earnings
-------------------------------------------------------------------------------
                               Millions of Dollars

<TABLE>
<CAPTION>

  For the years ended October 31                        1997     1996    1995
-------------------------------------------------------------------------------

  <S>                                                 <C>      <C>      <C>
  Revenues
       Retail notes and lease financing.............. $105.8   $ 97.7   $ 73.3
       Wholesale notes...............................   36.1     56.6     54.1
       Accounts......................................   31.2     26.6     29.2
       Servicing fee income..........................   20.0     20.5     18.3
       Insurance premiums earned.....................   33.3     42.0     44.6
       Marketable securities.........................    8.5      9.4      8.7
           Total.....................................  234.9    252.8    228.2

  Expenses
       Cost of borrowing:
           Interest expense..........................   65.9     73.2     75.1
           Other.....................................    7.0      8.4      9.1
           Total.....................................   72.9     81.6     84.2
       Credit, collection and administrative.........   31.0     28.2     27.9
       Provision for losses on receivables...........    2.5      9.3      2.6
       Insurance claims and underwriting.............   35.1     44.4     46.7
       Depreciation expense and other................   18.8      8.8      8.1
           Total.....................................  160.3    172.3    169.5

  Income Before Taxes................................   74.6     80.5     58.7


  Taxes on Income....................................   28.9     31.1     22.5

  Net Income.........................................   45.7     49.4     36.2

  Retained Earnings
       Beginning of year.............................  107.4     84.0     56.8
       Dividends paid................................  (40.0)   (26.0)    (9.0)
       End of year................................... $113.1   $107.4   $ 84.0
</TABLE>





                 See Notes to Consolidated Financial Statements.


<PAGE>





                Navistar Financial Corporation and Subsidiaries
-------------------------------------------------------------------------------


                 Statements of Consolidated Financial Condition
-------------------------------------------------------------------------------
                               Millions of Dollars

<TABLE>
<CAPTION>
As of October 31                                            1997          1996
-------------------------------------------------------------------------------

<S>                                                      <C>          <C>
ASSETS

Cash and Cash Equivalents..............................  $   10.7     $    6.7
Marketable Securities..................................     114.2        128.1
Receivables
     Finance receivables...............................   1,223.2      1,205.2
     Allowance for losses..............................     (12.0)       (11.6)
         Receivables, net..............................   1,211.2      1,193.6

Amounts Due from Sales of Receivables..................     233.3        264.3
Equipment on Operating Leases, Net.....................     124.1        101.1
Repossessions..........................................      13.0         13.2
Other Assets...........................................     104.1         86.8

Total Assets...........................................  $1,810.6     $1,793.8


LIABILITIES AND SHAREOWNER'S EQUITY

Short-Term Debt........................................  $  141.0     $   99.4
Accounts Payable and Other Liabilities.................     191.3         86.4
Senior and Subordinated Debt...........................   1,082.7      1,206.4
Dealers' Reserves......................................      22.2         22.3
Unpaid Insurance Claims and Unearned Premiums..........      85.6         99.6

Commitments and Contingencies

Shareowner's Equity
     Capital stock (Par value $1.00, 1,600,000 shares
       issued and outstanding) and paid-in capital.....    171.0         171.0
     Retained earnings.................................    113.1         107.4
     Unrealized gains on marketable securities.........      3.7           1.3
         Total.........................................    287.8         279.7

Total Liabilities and Shareowner's Equity.............. $1,810.6      $1,793.8
</TABLE>




                 See Notes to Consolidated Financial Statements.


<PAGE>




                 Navistar Financial Corporation and Subsidiaries
-------------------------------------------------------------------------------

                      Statements of Consolidated Cash Flow
-------------------------------------------------------------------------------
                               Millions of Dollars

<TABLE>
<CAPTION>
For the years ended October 31                      1997      1996      1995
-------------------------------------------------------------------------------
<S>                                              <C>       <C>       <C>
Cash Flow From Operations

  Net income.................................... $  45.7   $  49.4   $  36.2
  Adjustments to reconcile net income to
    cash provided from operations:
  Gains on sales of receivables.................   (13.4)    (20.2)     (5.2)
  Depreciation and amortization.................    22.5      15.3      11.1
  Provision for losses on receivables...........     2.5       9.3       2.6
  Increase (decrease) in accounts payable
    to affiliated companies.....................   107.0     (65.0)     73.2
  Other.........................................   (22.3)    (17.3)     (6.7)
        Total...................................   142.0     (28.5)    111.2

Cash Flow From Investing Activities

  Proceeds from sold retail notes...............   958.2     982.1     726.8
  Purchase of retail notes and
    lease receivables...........................  (969.7) (1,069.0) (1,089.3)
  Principal collections on retail notes and
    lease receivables...........................    93.8      70.2     113.2
  Acquisitions (over)/under cash collections of
    wholesale notes and accounts receivable.....   (59.9)    163.0     (77.1)
  Purchase of marketable securities.............   (65.3)    (63.0)    (61.9)
  Proceeds from sales and maturities of
    marketable securities.......................    84.8      67.7      67.3
  Purchase of equipment leased to others........   (66.3)    (65.9)    (23.9)
  Sale of equipment leased to others............    23.8       9.7       5.2
        Total...................................    (0.6)     94.8    (339.7)

Cash Flow From Financing Activities

  Net increase (decrease) in short-term debt....    41.6       48.9   (368.7)
  Net (decrease) increase in bank
    revolving credit facility usage.............  (311.0)     (56.0)   405.0
  Net (decrease) increase in asset-backed
    commercial paper facility usage.............   (15.3)      88.1    275.8
  Principal payments on long-term debt..........   (21.6)    (117.5)  (100.0)
  Proceeds from long-term debt..................   208.9          -        -
  Dividends paid to Transportation..............   (40.0)     (26.0)    (9.0)
        Total...................................  (137.4)     (62.5)   203.1

Increase/(Decrease) in Cash and
  Cash Equivalents..............................     4.0        3.8    (25.4)

Cash and Cash Equivalents at Beginning of Year..     6.7        2.9     28.3
Cash and Cash Equivalents at End of Year........ $  10.7    $   6.7  $   2.9

Supplementary disclosure of cash
  flow information:
  Interest paid................................. $  59.7    $  76.3  $  74.3
  Income taxes paid............................. $  23.8    $  32.2  $  14.6
</TABLE>



                 See Notes to Consolidated Financial Statements.


<PAGE>




                 NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                   FOR THE THREE YEARS ENDED OCTOBER 31, 1997

                               MILLIONS OF DOLLARS



1. SUMMARY OF ACCOUNTING POLICIES


Principles of Consolidation

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

Nature of Operations

     The Corporation is a financial services  organization that provides retail,
wholesale and lease financing of products sold by Transportation and its dealers
within the United States.  The  Corporation  also provides  commercial  physical
damage and liability insurance coverage to  Transportation's  dealers and retail
customers and to the general  public  through an  independent  insurance  agency
system.

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.

Revenue on Receivables

     Revenue from finance  receivables is recognized  using the interest method.
Revenue on operating leases is recognized on a straight-line basis over the life
of the lease. Recognition of revenue is suspended when management determines the
collection of future income is not probable.  Income  recognition  is resumed if
collection doubts are removed.


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


1. SUMMARY OF ACCOUNTING POLICIES (Continued)


Allowance for Losses on Receivables

     The allowance for losses on receivables is established  through a charge to
the provision for losses. The allowance is an estimate of the amount adequate to
absorb  losses  on  existing  receivables  that may  become  uncollectible.  The
allowance  is  maintained  at an  amount  management  considers  appropriate  in
relation  to the  outstanding  receivables  portfolio  based on such  factors as
overall  portfolio  quality,  historical  loss  experience and current  economic
conditions.

     Under various agreements,  Transportation and its dealers may be liable for
a portion of customer  losses or may be required to repurchase  the  repossessed
collateral at the receivable  principal value. The Corporation's  losses are net
of these  benefits.  Receivables  are charged off to the allowance for losses as
soon as the receivable is determined to be uncollectible.

Receivable Sales

     The  Corporation  securitizes  and sells  receivables to public and private
investors  with  limited  recourse.  The  Corporation  continues  to service the
receivables, for which a servicing fee is received. Servicing fees are earned on
a level  yield  basis over the terms of the  related  sold  receivables  and are
included in servicing fee income.  Gains or losses on sales of  receivables  are
credited or charged to financing revenue in the period in which the sales occur.
An adequate  allowance  for credit  losses is provided  prior to the  receivable
sales.

Insurance Operations

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

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


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


1. SUMMARY OF ACCOUNTING POLICIES (Continued)


Income Taxes

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

Cash and Cash Equivalents

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

Marketable Securities

     Marketable securities are classified as available-for-sale and are reported
at fair value. The difference  between amortized cost and fair value is recorded
as an adjustment to shareowner's equity, net of applicable deferred taxes.

Derivative Financial Instruments

     The Corporation  uses  derivatives  such as forward  contracts and interest
rate swaps to reduce its exposure to interest rate volatility. The Corporation's
primary  use of such  financial  instruments  is to hedge the fair  value of its
fixed rate receivables  against changes in market interest rates in anticipation
of the sale of such receivables.

     All  derivative  financial  instruments  are held for  purposes  other than
trading,  and the  Corporation's  policy  prohibits the use of  derivatives  for
speculative purposes.  Gains or losses related to hedges of anticipated sales of
receivables  are deferred and are recognized as income when the  receivables are
sold.  The  principal  balance  of  receivables  expected  to  be  sold  by  the
Corporation equals or exceeds the notional amount of open derivative contracts.

New Accounting Standards

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS
No. 130") and Statement of Financial Accounting Standards No. 131,  "Disclosures
about Segments of an Enterprise and Related Information," ("SFAS No. 131"). SFAS
No. 130 establishes  standards for reporting and display of comprehensive income
and its components. SFAS No. 131 establishes standards for reporting information
about operating  segments,  and related disclosures about products and services,
geographic areas and major customers.  These statements are effective for fiscal
years  beginning  after  December 15,  1997.  These  standards  expand or modify
disclosures and, accordingly,  will have no impact on the Corporation's reported
financial condition, results of operations or cash flows.


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


1. SUMMARY OF ACCOUNTING POLICIES (Continued)


Reclassification

     Certain amounts for prior years have been  reclassified to conform with the
presentation used in the 1997 financial statements.


2. TRANSACTIONS WITH AFFILIATED COMPANIES


Wholesale Notes, Wholesale Accounts and Retail Accounts

     In   accordance   with  the   agreements   between  the   Corporation   and
Transportation  relating to financing of wholesale notes, wholesale accounts and
retail accounts, the Corporation receives interest income from Transportation at
agreed upon  interest  rates  applied to the average  outstanding  balances less
interest amounts paid by dealers on wholesale notes and wholesale accounts.  The
Corporation  purchases  wholesale notes and accounts from  Transportation at the
principal amount of the receivables.  Revenue collected from  Transportation was
$54.7 in 1997, $49.8 in 1996 and $55.7 in 1995

Retail Notes and Lease Financing

     In accordance with agreements  between the Corporation and  Transportation,
Transportation  may be liable for certain losses on the finance  receivables and
may be required to  repurchase  the  repossessed  collateral  at the  receivable
principal value.  Losses recorded by Transportation  were $10.1 in 1997, $9.5 in
1996 and $0.6 in 1995.

Support Agreements

     Under  provisions  of certain  public and private  financing  arrangements,
agreements  with  Transportation  and Navistar  provide  that the  Corporation's
consolidated  income before interest expense and income taxes will be maintained
at  not  less  than  125%  of  its  consolidated  interest  expense.  No  income
maintenance  payments were required  during the three-year  period ended October
31, 1997.

Administrative Expenses

     The Corporation pays a fee to Transportation  for data processing and other
administrative  services  based on the actual  cost of services  performed.  The
amount of the fee was $2.1 in 1997 and $2.4 in 1996 and 1995.

Accounts Payable

     Accounts payable and other liabilities  include $131.5 and $24.5 payable to
Transportation at October 31, 1997 and 1996, respectively.


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


3. INDUSTRY SEGMENTS


     Information by industry segment is summarized as follows:

<TABLE>
<CAPTION>

                                                   1997        1996        1995
-------------------------------------------------------------------------------
<S>                                            <C>         <C>         <C>
Revenues:
    Finance operations.......................  $  193.5    $  201.6    $  175.1
    Insurance operations.....................      41.4        51.2        53.1
      Total revenues.........................  $  234.9    $  252.8    $  228.2

Income before taxes:
    Finance operations.......................  $   68.6    $   74.2    $   53.1
    Insurance operations.....................       6.0         6.3         5.6
      Total income before taxes..............  $   74.6    $   80.5    $   58.7

Assets at end of year:
    Finance operations.......................  $1,659.3    $1,626.9    $1,701.9
    Insurance operations.....................     151.3       166.9       172.8
      Total assets at end of year............  $1,810.6    $1,793.8    $1,874.7
</TABLE>

4. MARKETABLE SECURITIES


     The fair value of marketable  securities is based on quoted market  prices,
when  available.  If a quoted  price is not  available,  fair value is estimated
using quoted  market  prices for similar  financial  instruments.  The following
table sets forth, by type of security  issuer,  the amortized cost and estimated
fair values at October 31:

<TABLE>
<CAPTION>
                                                 1997                  1996
                                       ----------------------------------------
                                        Amortized     Fair    Amortized    Fair
                                           Cost      Value       Cost     Value
-------------------------------------------------------------------------------
<S>                                    <C>        <C>        <C>        <C>
U.S. government and
    agency securities................. $  26.6    $  27.1    $  41.7    $  41.5
Mortgage and
    asset-backed secuurities..........    37.8       38.2       42.4       42.2
Corporate debt and other securities...    30.3       30.1       30.6       30.3
    Total debt securities.............    94.7       95.4      114.7      114.0

Equity securities.....................    13.5       18.8       11.3       14.1
    Total............................. $ 108.2    $ 114.2    $ 126.0    $ 128.1
</TABLE>



<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


4. MARKETABLE SECURITIES (Continued)


     Net unrealized gains and losses on marketable securities were $6.0 and $2.1
at October 31, 1997 and 1996, respectively. Unrealized losses were not material.

     Contractual  maturities of marketable  debt securities at October 31, 1997,
are as follows:

<TABLE>
<CAPTION>
                                                        Amortized         Fair
                                                           Cost          Value
-------------------------------------------------------------------------------
<S>                                                       <C>           <C>
Due in one year or less.................................. $  17.4       $  17.4
Due after one year through five years....................    11.8          11.8
Due after five years through ten years...................    18.1          18.5
Due after ten years......................................     9.6           9.5
                                                             56.9          57.2
Mortgage- and asset-backed securities....................    37.8          38.2
    Total (Excludes equity securities)................... $  94.7       $  95.4
</TABLE>

     Actual  maturities may differ from the  contractual  maturities  because of
prepayments by the issuers.

     Proceeds from sales or maturities  of marketable  securities  available for
sale were $84.8 during 1997 and $67.7 during 1996.  The related  realized  gains
and losses were not material.

     All marketable  securities at October 31, 1997 and 1996 were held by Harco,
of which  $14.5 and $16.7,  respectively,  were on deposit  with  various  state
departments of insurance or otherwise restricted as to use.


5. FINANCE RECEIVABLES


     Finance receivable balances,  net of unearned finance income, at October 31
are summarized as follows:

<TABLE>
<CAPTION>
                                                             1997         1996
-------------------------------------------------------------------------------
<S>                                                       <C>          <C>
Retail notes and lease financing.......................   $  706.5     $  733.3

Wholesale notes........................................       45.7        100.5

Accounts:
     Retail                                                  396.6        314.7
     Wholesale.........................................       74.4         56.7
         Total.........................................      471.0        371.4
              Total finance receivables................   $1,223.2     $1,205.2
</TABLE>

<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


5.  FINANCE RECEIVABLES (continued)


     Contractual  maturities of finance  receivables  including unearned finance
income at October 31, 1997, are summarized as follows:


<TABLE>
<CAPTION>
                                                Retail    Wholesale    Accounts
-------------------------------------------------------------------------------
<S>                                             <C>         <C>          <C>
Due in fiscal year:
    1998   .................................... $239.4      $ 40.7       $471.0
    1999   ....................................  190.1         5.0            -
    2000   ....................................  160.9           -            -
    2001   ....................................  130.5           -            -
    2002   ....................................   90.6           -            -
Due after 2002.................................   17.8           -            -
       Gross finance receivables...............  829.3        45.7        471.0
Unearned finance income........................  122.8           -            -
       Total finance receivables............... $706.5      $ 45.7       $471.0
</TABLE>

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

     The  Corporation's  primary  business is to provide  wholesale,  retail and
lease   financing   for  new  and  used  trucks  sold  by   Transportation   and
Transportation's  dealers,  and as a result the  Corporation's  receivables  and
leases have significant  concentration in the trucking industry. On a geographic
basis, there is not a disproportionate  concentration of credit risk in any area
of the United States. The Corporation  retains as collateral a security interest
in the equipment  associated with wholesale notes, retail notes and leases other
than accounts.

     The Corporation  sells finance  receivables to public and private investors
with limited  recourse  provisions.  Outstanding sold receivable net balances at
October 31 are as follows:

<TABLE>
<CAPTION>
                                                             1997         1996
-------------------------------------------------------------------------------
<S>                                                       <C>          <C>
Retail notes............................................  $1,422.2     $1,366.4
Wholesale notes.........................................     545.5        500.0
     Total..............................................  $1,967.7     $1,866.4
</TABLE>

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


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


5. FINANCE RECEIVABLES (Continued)


     During fiscal 1997, in two separate sales,  the Corporation sold a total of
$987 of retail  notes,  net of unearned  finance  income,  through  NFRRC to two
individual owner trusts.  The owner trusts, in turn, sold notes and certificates
to investors. At October 31, 1997, the remaining shelf registration available to
NFRRC for issuance of asset-backed securities was $1,473.

     NFSC has in place a revolving  wholesale  note trust that  provides for the
continuous  sale of eligible  wholesale  notes up to $600.  During  1997, a $100
tranche of  investor  certificates  matured  and NFSC  issued a $200  tranche of
investor  certificates.  The trust is comprised of two $100 tranches of investor
certificates  maturing  in 1998  and  1999 and two  $200  tranches  of  investor
certificates maturing in 2003 and 2004. At October 31, 1997, the remaining shelf
registration available to NFSC for issuance of investor certificates was $200.

     NFRRC and NFSC have  limited  recourse  on the sold  receivables  and their
assets are  available  to satisfy  the claims of their  creditors  prior to such
assets becoming available to the Corporation or affiliated companies.  The terms
of retail  receivable  sales require the  Corporation  to maintain cash reserves
with the trusts as credit  enhancement for public sales.  The cash reserves held
by the trusts are restricted for use by the securitized  sales  agreements.  The
maximum  exposure under all receivable  sale recourse  provisions at October 31,
1997 was $245.8; however, management believes the reserves to be adequate.

     On  January  1,  1997,  the  Corporation  adopted  Statement  of  Financial
Accounting  Standards  No. 125 ("SFAS No. 125"),  "Accounting  for Transfers and
Servicing of  Financial  Assets and  Extinguishments  of  Liabilities",  for all
applicable   transactions.   SFAS  No.  125  requires  that  amounts  previously
classified as excess  servicing be reclassified as interest only receivables and
that such  amounts be  recorded at  estimated  fair  value.  Restatement  of the
financial statements of prior periods is not permitted. The new standard did not
have a material effect on the Corporation's net income or financial condition.

     The  following is a summary of amounts  included in "Amounts Due from Sales
of Receivables" as of October 31:

<TABLE>
<CAPTION>
                                                                1997       1996
-------------------------------------------------------------------------------
<S>                                                           <C>        <C>
Cash held and invested by trusts............................  $ 90.8     $ 85.2
Subordinated retained interests in wholesale receivables....    99.9       85.4
Subordinated retained interests in retail receivables.......    47.4       96.0
Interest only receivables...................................     7.7          -
Excess servicing............................................       -       10.1
Allowance for credit losses.................................   (12.5)     (12.4)
     Total..................................................  $233.3     $264.3
</TABLE>



<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


6. INVESTMENT IN OPERATING LEASES


     Operating leases at year-end were as follows:

<TABLE>
<CAPTION>
                                                               1997       1996
-------------------------------------------------------------------------------
<S>                                                           <C>        <C>
Investment in operating leases
Vehicles and other equipment, at cost........................ $150.0     $116.4
Less:  Accumulated depreciation..............................  (25.9)     (15.3)
Net investment in operating leases........................... $124.1     $101.1
</TABLE>

     Future minimum  rentals on operating  leases are as follows:  1998,  $30.1;
1999, $26.8; 2000, $20.4; 2001, $12.6 and $3.6 thereafter.  Each of these assets
is depreciated on a straight-line  basis over the term of the lease in an amount
necessary to reduce the leased  vehicle to its estimated  residual  value at the
end of the lease term.


7. ALLOWANCE FOR LOSSES


     The allowance for losses on receivables is summarized as follows:

<TABLE>
<CAPTION>
                                                         1997     1996     1995
-------------------------------------------------------------------------------
<S>                                                     <C>      <C>      <C>
Total allowance for losses at beginning of year.......  $24.0    $19.6    $16.2
Provision for losses..................................    2.5      9.3      2.6
Net (losses) recoveries (charged)
     credited to allowance............................   (2.0)    (4.9)     0.8
         Total allowance for losses at end of year....  $24.5    $24.0    $19.6

Allowance pertaining to:
     Owned notes......................................  $12.0    $11.6    $10.4
     Sold notes.......................................   12.5     12.4      9.2
         Total..........................................$24.5    $24.0    $19.6
</TABLE>

8. TAXES ON INCOME

         Taxes on income are summarized as follows:

<TABLE>
<CAPTION>
                                                        1997     1996     1995
-------------------------------------------------------------------------------
<S>                                                     <C>      <C>      <C>
Current:
     Federal..........................................  $29.6    $26.4    $18.9
     State and local..................................    4.1      4.4      3.1
         Total current................................   33.7     30.8     22.0

Deferred (primarily Federal)..........................   (4.8)     0.3      0.5
         Total........................................  $28.9    $31.1    $22.5
</TABLE>

<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


8. TAXES ON INCOME (continued)


     The  effective  tax rate of  approximately  38% in each of the three  years
ended October 31, 1997 differs from the statutory United States Federal tax rate
of 35% primarily  because of state and local income  taxes.  Deferred tax assets
and liabilities at October 31, comprised the following:

<TABLE>
<CAPTION>
                                                                  1997     1996
-------------------------------------------------------------------------------
<S>                                                               <C>      <C>
Deferred tax assets:
     Other postretirement benefits............................... $3.0     $2.9

Deferred tax liabilities:
     Depreciation and other......................................  2.2      6.9
     Unrealized gains on marketable securities...................  2.3      0.8
         Total deferred tax liabilities..........................  4.5      7.7
         Net deferred tax liabilities............................ $1.5     $4.8
</TABLE>

     During 1992, auditors of the Illinois Department of Revenue  ("Department")
began an income tax audit of NFC for the fiscal  years ended  October 31,  1989,
1990 and 1991. On February 1, 1994, the Department issued a Notice of Deficiency
to NFC for approximately $12 million. The Department had taken the position that
nearly 100% of NFC's income during these years should be attributed to and taxed
by Illinois.  On February 14,  1997, a state law was enacted  which  negated the
Department's  position  and  relieved  NFC  of   the  aforementioned  Notice  of
Deficiency.


9. SHORT-TERM DEBT


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

     Information regarding short-term debt is as follows:

<TABLE>
<CAPTION>
                                                       1997      1996      1995
-------------------------------------------------------------------------------
<S>                                                  <C>       <C>       <C>
Aggregate obligations outstanding:
     Daily average.................................. $109.7    $ 68.2    $ 37.8
     Maximum month-end balance......................  145.0     117.8      81.1

Weighted average interest rate:
     On average daily borrowing.....................   6.1%      6.0%      6.4%
     At October 31..................................   6.1%      5.9%      6.3%
</TABLE>

     Unused  commitments under the Corporation's  bank revolving credit facility
and bank liquidity facility supporting the asset-backed commercial paper program
are used as backup for outstanding  short-term  borrowings.  See also Note 10 to
the Consolidated Financial Statements.


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


10. SENIOR AND SUBORDINATED DEBT


     Senior and  Subordinated  Debt  outstanding  at October 31 is summarized as
follows:


<TABLE>
<CAPTION>
                                                               1997        1996
-------------------------------------------------------------------------------
<S>                                                        <C>         <C>  
Bank revolving credit, at variable rates,
     due March 2001........................................$  393.0    $  704.0

Funding under asset-backed commercial
     paper program ("ABCP"), at variable
     rates, due March 2001.................................   399.9       402.4

Capital lease obligations, 5.19% to 5.62%,
     due serially through 2003.............................    95.8           -

Subordinated term debt:
     Senior Notes, 8 7/8%, due November 1998...............    94.0       100.0
     Senior Notes, 9%, due June 2002.......................   100.0           -
              Total senior and subordinated debt...........$1,082.7    $1,206.4
</TABLE>

     The weighted average interest rate on total debt, including short-term debt
and the effect of discounts and related amortization, was 6.4%, 6.5% and 7.4% in
1997, 1996 and 1995, respectively.  The aggregate annual maturities and required
payments of debt are as follows:
<TABLE>
            <S>                                                 <C>
            Fiscal year ended October 31,
            1998                                                $   12.6
            1999                                                   111.0
            2000                                                    25.4
            2001                                                   819.6
            2002 and thereafter                                    114.1
               Total                                            $1,082.7
</TABLE>

     At October 31, 1997, the  Corporation  has a $925  contractually  committed
bank  revolving  credit  facility  and a $400 ABCP  program  supported by a bank
liquidity facility. Available funding under the ABCP program is comprised of the
$400 liquidity facility plus $14 of trust certificates issued in connection with
the  formation  of the ABCP trust.  Under the terms of the ABCP  program,  Truck
Retail  Instalment  Paper  Company  ("TRIP"),  a  special  purpose  wholly-owned
subsidiary of NFC, purchases  eligible  receivables from NFC. All assets of TRIP
are pledged to a Trust that funds the  receivables  with A1/P1 rated  commercial
paper.

     Available  funding under the amended and restated  credit  facility and the
ABCP program was $546, of which $141 provided funding backup for the outstanding
short-term  debt at October 31, 1997.  The  remaining  $405 when  combined  with
unrestricted  cash and cash  equivalents made $416 available to fund the general
business purposes of the Corporation at October 31, 1997. Under the terms of the
revolving credit facility, the Corporation is required to maintain tangible net


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


10.      SENIOR AND SUBORDINATED DEBT (Continued)


worth at a minimum of $175 and a debt to tangible  net worth ratio of no greater
than 7 to 1.  Consistent  with the  previous  revolving  credit  agreement,  the
amended  agreement  grants  security  interests  in  substantially  all  of  the
Corporation's  assets  to  the  Corporation's  debtholders.   Compensating  cash
balances are not required under the restated revolving credit facility. Facility
fees are paid quarterly regardless of usage.

     Under the terms of the 8 7/8%  Subordinated  debt agreement,  the aggregate
principal  balances  of  subordinated  debt may not exceed  75% of  consolidated
tangible net worth.

     During fiscal 1997, the Corporation entered into sale/leaseback  agreements
involving  vehicles  subject to retail  finance  and  operating  leases with end
users.  The balance,  as of October 31,  1997,  is  classified  under senior and
subordinated  debt as capital lease  obligations.  These agreements grant to the
purchasers a security interest in the underlying end user leases.


11. RETIREMENT BENEFITS


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

Pension Benefits

     Generally pension benefits are non-contributory with benefits related to an
employee's  length of service and  compensation  rate. Plan assets are primarily
invested in a dedicated  portfolio of long-term fixed income securities with the
remainder invested in high quality equity securities.

Pension Expense

     Net pension (income) expense includes the following:

<TABLE>
<CAPTION>
                                                       1997      1996      1995
      -------------------------------------------------------------------------
      <S>                                             <C>      <C>      <C>
      Service cost for benefits earned during
        the period....................................$ 0.8    $ 0.7    $ 0.5
      Interest cost on projected benefit
        obligation....................................  3.0      2.9      2.8
      Return on assets - actual (gain) loss........... (9.7)    (3.2)    (9.1)
                       - deferred gain (loss).........  5.7     (0.4)     5.8
      Net amortization costs and other costs..........    -      0.1        -
            Net pension (income) expense..............$(0.2)   $ 0.1        -
</TABLE>

<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


11. RETIREMENT BENEFITS (Continued)


Pension Assets and Liabilities

     The  plans'  funded  status  and   reconciliation   to  the  Statements  of
Consolidated Financial Condition as of October 31 were as follows:

<TABLE>
<CAPTION>
                                       Plan in Which           Plan in Which
                                       Assets Exceed        Accumulated Benefits
                                    Accumulated Benefits       Exceed Assets
                                    --------------------------------------------
                                      1997       1996        1997       1996
--------------------------------------------------------------------------------
<S>                                 <C>        <C>        <C>        <C>
Actuarial present value of:
   Vested benefits................. $ (35.8)   $ (31.5)   $  (2.2)   $  (2.0)
   Non-vested benefits.............    (4.4)      (4.0)      (0.1)      (0.1)
     Accumulated benefit
       obligation..................   (40.2)     (35.5)      (2.3)      (2.1)
   Effect of projected future
       compensation levels.........    (1.4)      (1.0)      (0.1)         -
     Total projected benefit
       obligation..................   (41.6)     (36.5)      (2.4)      (2.1)
Plan assets at fair value..........    50.1       42.7          -          -
   Funded status at October 31.....     8.5        6.2       (2.4)      (2.1)
Unrecognized net losses (gains)....    (7.3)      (5.5)       0.8        0.4
Unrecognized plan amendments.......     0.4        0.5          -          -
Unrecognized net obligation
       as of transition date.......     0.1        0.1          -          -
     Net asset (liability)......... $   1.7    $   1.3    $  (1.6)   $  (1.7)
</TABLE>

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

<TABLE>
<CAPTION>
                                                           1997    1996    1995
-------------------------------------------------------------------------------
<S>                                                        <C>     <C>     <C>
Discount rate used to determine the present value
     of the projected benefit obligations................. 7.2%    7.9%    7.5%
Expected long-term rate of return on plan assets.......... 9.6%    8.9%    9.9%
Expected rate of increase in future
     compensation levels.................................. 3.5%    3.5%    3.5%
</TABLE>



<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


11. RETIREMENT BENEFITS (Continued)



Other Postretirement Benefits

     The  components  of  expense  for other  postretirement  benefits  that are
included in the Statements of Consolidated  Income and Retained Earnings include
the following:

<TABLE>
<CAPTION>
                                                        1997     1996      1995
-------------------------------------------------------------------------------
<S>                                                     <C>     <C>      <C>
Service cost for benefits earned during the year....... $ 0.4   $ 0.4    $ 0.3
Interest cost on the accumulated benefit
     obligation........................................   0.9     0.8      0.8
Expected return on assets - actual (gain) loss.........  (0.2)    0.8     (1.5)
                          - deferred gain (loss).......  (0.3)   (1.3)     1.2
Total cost of other postretirement benefits............ $ 0.8   $ 0.7    $ 0.8
</TABLE>

     The funded status of other postretirement benefits as of October 31 were as
follows:

<TABLE>
<CAPTION>

                                                              1997        1996
-------------------------------------------------------------------------------
<S>                                                          <C>         <C>
Accumulated other postretirement benefit obligation (APBO):
Retirees and their dependents............................... $(6.2)      $(4.9)
Active employees eligible to retire.........................  (2.0)       (2.9)
Other active participants...................................  (3.4)       (3.4)

Total APBO ................................................. (11.6)      (11.2)
Plan assets at fair value...................................   4.4         3.9

APBO in excess of plan assets...............................  (7.2)       (7.3)
Unrecognized net loss.......................................   1.0         1.5

Net liability............................................... $(6.2)      $(5.8)
</TABLE>


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


11. RETIREMENT BENEFITS (Continued)


     The expected  return on plan assets was 11.1% for 1997,  10.5% for 1996 and
10.0% for 1995.  The weighted  average of discount  rates used to determine  the
accumulated  postretirement  benefit obligation was 7.4% and 8.1% at October 31,
1997 and 1996, respectively.  For 1998, the weighted average rate of increase in
the per capita cost of covered health care benefits is projected to be 8.1%. The
rate is  projected to decrease to 5.0% in the year 2004 and remain at that level
each year  thereafter.  If the cost trend rate assumptions were increased by one
percentage  point  for  each  year,  the  accumulated   postretirement   benefit
obligation  would  increase by  approximately  $1.7 and the  associated  expense
recognized  for the year ended October 31, 1997,  would increase by an estimated
$0.2.


12. LEASES

     The Corporation is obligated under  noncancelable  operating leases for the
majority of its office  facilities  and  equipment.  These leases are  generally
renewable and provide that property taxes and  maintenance  costs are to be paid
by the lessee.  At October 31, 1997,  future  minimum  lease  commitments  under
noncancelable operating leases with remaining terms in excess of one year are as
follows:

<TABLE>
           <S>                                               <C>
           Year Ended October 31,
           1998............................................. $ 1.7
           1999.............................................   1.7
           2000.............................................   1.4
           2001.............................................   0.2
           2002.............................................     -
           Thereafter.......................................     -
               Total........................................ $ 5.0
</TABLE>


13. SHAREOWNER'S EQUITY

     The number of authorized shares of capital stock as of October 31, 1997 and
1996, was 2,000,000 of which 1,600,000 shares were issued and  outstanding.  All
of the issued and outstanding  capital stock is owned by  Transportation  and no
shares are  reserved  for officers  and  employees,  or for  options,  warrants,
conversions and other rights.


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


14. FINANCIAL INSTRUMENTS


Fair Value of Financial Instruments

     The  carrying  amounts  and  estimated  fair  values  of the  Corporation's
financial instruments were as follows:

<TABLE>
<CAPTION>
                                                 1997                1996
                                      -----------------------------------------
                                       Carrying     Fair     Carrying     Fair
                                        Amount      Value     Amount      Value
-------------------------------------------------------------------------------
<S>                                   <C>        <C>        <C>        <C>
Financial assets:
   Finance receivables:
     Retail notes.................... $  607.0   $  619.0   $  662.5   $  672.1
     Wholesale notes and accounts....    516.7      516.7      471.9      471.9
   Amounts due from sales of
     receivables.....................    233.3      230.3      264.3      258.1

Financial liabilities:
   Senior and subordinated debt...... $1,082.7   $1,086.0   $1,206.4   $1,207.4
</TABLE>

     Cash and cash  equivalents  approximate fair value. The cost and fair value
of marketable securities are disclosed in Note 4.

     The fair value of truck retail notes is estimated by discounting the future
cash flows using an estimated  discount  rate  reflecting  current rates paid to
purchasers of similar types of receivables  with similar  credit,  interest rate
and prepayment risks. For other retail notes, primarily variable-rate notes that
re-price frequently,  the carrying amount approximates fair value. For wholesale
notes and retail and  wholesale  accounts,  which also reprice  frequently,  the
carrying amounts  approximate fair value as a result of the short term nature of
the receivables.

     The fair value of cash deposits included above in amounts due from sales of
receivables  approximates their carrying value. The fair values of other amounts
due from sales of receivables were derived by discounting expected cash flows at
estimated current market rates.

     For  variable-rate  debt that  reprices  frequently,  the  carrying  amount
approximates  fair value. For fixed rate debt, the fair value is estimated based
on quoted market prices where  available  and,  where not  available,  on quoted
market prices of debt with similar characteristics.


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


14. FINANCIAL INSTRUMENTS (Continued)


Derivatives Held or Issued for Purposes Other Than Trading

     The  Corporation  manages its exposure to fluctuations in interest rates by
limiting  the amount of fixed rate  assets  funded  with  variable  rate debt by
selling  fixed rate  retail  receivables  on a fixed rate basis and, to a lesser
extent,  by  utilizing  derivative  financial   instruments.   These  derivative
financial  instruments may include  interest rate swaps,  interest rate caps and
forward   interest  rate  contracts.   The  Corporation   manages   exposure  to
counter-party credit risk by entering into derivative financial instruments with
major  financial  institutions  that can be expected to fully  perform under the
terms of such  agreements.  Notional  amounts  are used to measure the volume of
derivative financial instruments and do not represent exposure to credit loss.

     The Corporation  enters into forward  interest rate contracts to manage its
exposure to fluctuations in the fair value of the retail notes anticipated to be
sold.  The  Corporation  manages  interest  rate risk by entering  into  forward
contracts to sell fixed debt  securities  or forward  interest  rate swaps whose
fair  value is highly  correlated  with that of the  Corporation's  receivables.
Gains or losses incurred with the closing of these  agreements are included as a
component of the gain or loss on sale of receivables.

     During the second half of fiscal 1997 the Corporation  entered into $500 of
interest  rate hedge  agreements  in  anticipation  of the November 1997 sale of
retail  receivables.  These hedge  agreements,  which were closed in conjunction
with the pricing of the sale,  resulted in an immaterial loss which was deferred
and  included  in the  gain on the  sale of  retail  receivables  recognized  in
November 1997.


15. LEGAL PROCEEDINGS

     The Corporation is subject to various claims arising in the ordinary course
of  business,  and are parties to various  legal  proceedings  which  constitute
ordinary routine  litigation  incidental to the business of the Corporation.  In
the opinion of the Corporation's management, none of these proceedings or claims
are material to the business or the financial condition of the Corporation



<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


16. SUBSEQUENT EVENT


     In  November  1997,  the  Corporation  sold  $500 of retail  notes,  net of
unearned  finance  income,  through NFRRC to an owner trust which, in turn, sold
notes to investors. A gain of $7.2 was recognized on the sale.


17. QUARTERLY FINANCIAL INFORMATION  (unaudited)

<TABLE>
<CAPTION>
                                                       1997
                                 ----------------------------------------------
                                    1st       2nd       3rd       4th    Fiscal
                                  Quarter   Quarter   Quarter   Quarter   Year
-------------------------------------------------------------------------------
<S>                              <C>       <C>       <C>       <C>       <C>
Revenues........................ $58.1     $57.3     $62.5     $57.0     $234.9
Interest expense................  14.3      17.2      16.7      17.7       65.9
Provision for loss
    on receivables..............   0.7       0.5       0.3       1.0        2.5
Net income......................  13.4       9.3      13.4       9.6       45.7
</TABLE>

<TABLE>
<CAPTION>
                                                        1996
                                 ----------------------------------------------
                                    1st       2nd       3rd       4th    Fiscal
                                  Quarter   Quarter   Quarter   Quarter   Year
-------------------------------------------------------------------------------
<S>                                <C>      <C>      <C>        <C>      <C>
Revenues.........................  $68.7    $60.7    $67.0      $56.4    $252.8
Interest expense.................   17.1     19.7     18.8       17.6      73.2
Provision for loss
    on receivables...............    1.1      1.6      1.7        4.9       9.3
Net income.......................   16.6      8.7     15.6        8.5      49.4
</TABLE>



<PAGE>



-------------------------------------------------------------------------------
                 Navistar Financial Corporation and Subsidiaries
-------------------------------------------------------------------------------


                Statement of Financial Reporting Responsibility
-------------------------------------------------------------------------------



     Management  of  Navistar  Financial  Corporation  and its  subsidiaries  is
responsible  for the  preparation  and for the integrity and  objectivity of the
accompanying  financial  statements  and  other  financial  information  in this
report. The financial statements have been prepared in accordance with generally
accepted   accounting   principles  and  include   amounts  that  are  based  on
management's estimates and judgments.

     The  accompanying  financial  statements  have been  audited by  Deloitte &
Touche LLP,  independent  auditors.  Management has made available to Deloitte &
Touche LLP all the Corporation's  financial records and related data, as well as
the minutes of Directors' meetings. Management believes that all representations
made to Deloitte & Touche LLP during its audit were valid and appropriate.

     Management is  responsible  for  establishing  and  maintaining a system of
internal controls throughout its operations that provides  reasonable  assurance
as to the integrity and reliability of the financial statements,  the protection
of assets from  unauthorized use and the execution and recording of transactions
in accordance with management's  authorization.  The system of internal controls
which  provides  for  appropriate  division of  responsibility  is  supported by
written policies and procedures that are updated by management as necessary. The
system is tested  and  evaluated  regularly  by the  parent  Company's  internal
auditors as well as by the independent  auditors in connection with their annual
audit of the financial statements.  The independent auditors conduct their audit
in accordance with generally  accepted auditing standards and perform such tests
of transactions  and balances as they deem necessary.  Management  considers the
recommendations of its internal auditors and independent auditors concerning the
Corporation's  system of internal  controls and takes the necessary actions that
are  cost-effective  in  the  circumstances  to  respond  appropriately  to  the
recommendations presented.  Management believes that the Corporation's system of
internal controls accomplishes the objectives set forth in the first sentence of
this paragraph.




John J. Bongiorno
President and Chief Executive Officer




Phyllis E. Cochran
Vice President and Controller



<PAGE>



                 Navistar Financial Corporation and Subsidiaries

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

                          Independent Auditors' Report



Navistar Financial Corporation:

We have audited the financial  statements of Navistar Financial  Corporation and
its subsidiaries listed in Item 8. These consolidated  financial  statements are
the  responsibility of the Corporation's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  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  accompanying  consolidated  financial  statements  present
fairly, in all material  respects,  the financial position of Navistar Financial
Corporation and its subsidiaries at October 31, 1997 and 1996 and the results of
their  operations  and their cash flow for each of the three years in the period
ended  October  31,  1997  in  conformity  with  generally  accepted  accounting
principles.




/s/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
December 15, 1997
Chicago, Illinois



<PAGE>


                          SUPPLEMENTARY FINANCIAL DATA


                Five Year Summary of Financial and Operating Data

                           Dollar amounts in millions

<TABLE>
<CAPTION>

                               1997      1996       1995       1994       1993
--------------------------------------------------------------------------------
<S>                        <C>        <C>        <C>        <C>        <C>
Results of Operations:
  Revenues.................$  234.9   $  252.8   $  228.2   $  210.8   $  231.9
  Net income ...............   45.7       49.4       36.2       34.0       22.5
  Dividends paid ...........   40.0       26.0        9.0       25.6       22.6

  Percent of net income to
    average shareowner's
    equity.................    16.1%      18.1%      15.0%      15.1%      10.3%

Financial Data:
  Finance receivables, net.$1,211.2   $1,193.6   $1,370.9   $1,094.0   $1,270.2
  Total assets ............ 1,810.6    1,793.8    1,874.7    1,534.8    1,625.2

  Total debt .............. 1,223.7    1,305.8    1,330.3    1,091.5    1,199.2
  Shareowner's equity .....   287.8      279.7      256.7      225.6      219.4

 Debt to equity ratio .....   4.3:1      4.7:1      5.2:1      4.8:1      5.5:1
  Senior debt to capital
     funds ratio...........   2.1:1      3.2:1      3.4:1      3.0:1      3.4:1


Number of employees at
  October 31...............     358        352        360        353        339
</TABLE>

<PAGE>






                    SUPPLEMENTARY FINANCIAL DATA (Continued)



Gross Finance Receivables and Leases Acquired
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
($ Millions)                  1997       1996       1995       1994       1993
-------------------------------------------------------------------------------
<S>                        <C>        <C>        <C>        <C>        <C>
Wholesale notes............$2,772.8   $2,705.8   $2,979.4   $2,306.6   $1,977.6

Retail notes and leases:
  New......................   976.2    1,064.1    1,075.0      861.9      730.0
  Used ....................   270.3      281.7      242.3      217.2      168.4
     Total................. 1,246.5    1,345.8    1,317.3    1,079.1      898.4

     Total ................$4,019.3   $4,051.6   $4,296.7   $3,385.7   $2,876.0
</TABLE>



Serviced (including sold notes) Retail Notes and
Leases With Installments Past Due Over 60 Days
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
At October 31 ($ Millions)             1997     1996     1995     1994     1993
-------------------------------------------------------------------------------
<S>                                  <C>      <C>      <C>      <C>      <C>
Original amount of notes
    and leases...................... $ 31.8   $ 14.0   $  4.2   $  3.1   $  3.6
Balance of notes and leases.........   16.2      8.0      2.2      1.3      1.3
Balance as a percent of
    total outstanding...............   0.64%    0.32%    0.10%    0.07%    0.09%
</TABLE>



Retail Note and Lease Repossessions (including sold notes)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                           1997    1996   1995    1994    1993
-------------------------------------------------------------------------------
<S>                                       <C>     <C>     <C>     <C>     <C>
Retail note and lease repossessions
    acquired as a percentage
    of average serviced retail
    note and lease balances.............. 2.69%   3.08%   0.92%   0.93%   1.94%
</TABLE>



<PAGE>


                    SUPPLEMENTARY FINANCIAL DATA (Continued)







Credit Loss Experience on Serviced (including sold notes) Receivables
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

($ Millions)                               1997    1996    1995    1994    1993
-------------------------------------------------------------------------------

<S>                                       <C>     <C>     <C>     <C>     <C>
Net losses (recoveries):
     Retail notes and leases ............ $2.2    $5.1    $ .3    $ .6    $(.1)
     Wholesale notes ....................  (.2)    (.2)    (.9)     .1      .8
     Accounts                                -       -     (.2)     .2       -
         Total .......................... $2.0    $4.9    $(.8)   $ .9    $ .7


Percent net losses (recoveries) to liquidations:
     Retail notes and leases ............  .18%    .48%    .03%    .07%   (.01)%
     Wholesale notes .................... (.01)   (.01)   (.03)    .01     .04
         Total ..........................  .05%    .13%   (.02)%   .03%    .03%


Percent  net  losses   (recoveries)   to  related   average  gross   receivables
   outstanding:
     Retail notes and leases ............  .09%    .22%    .02%    .04%      -
     Wholesale notes .................... (.02)   (.02)   (.13)    .03     .16
     Accounts                                -       -    (.05)    .08       -
         Total ..........................  .06%    .14%   (.03)%   .04%    .03%
</TABLE>




<PAGE>




Item 9.   Changes in and Disagreements With Accountants on
          Accounting and Financial Disclosure

          None


                                    PART III


Items 10, 11, 12 and 13

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


                                     PART IV


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

       Financial Statements

            See Index to Financial Statements in Item 8.

       Financial Statement Schedules

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

        Exhibits,  Including Those Incorporated By Reference

            See Index to Exhibits.

        Reports on Form 8-K

            No reports on Form 8-K were filed for the three months ended October
        31, 1997.


<PAGE>






                                    SIGNATURE




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



                         NAVISTAR FINANCIAL CORPORATION
                                  (Registrant)




By: /s/ PHYLLIS E. COCHRAN                                     December 22, 1997
        Phyllis E. Cochran
        Vice President and Controller
        (Principal Accounting Officer)

<PAGE>





                         NAVISTAR FINANCIAL CORPORATION
                                AND SUBSIDIARIES

                                   Exhibit 24
                                POWER OF ATTORNEY


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

                                   SIGNATURES

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

<TABLE>
<CAPTION>
      Signature                  Title                           Date
<S><C>                    <C>                                <C>
/s/JOHN J. BONGIORNO      President and Chief Executive      December 22, 1997
   John J. Bongiorno      Officer; Director
                          (Principal Executive Officer)

/s/R. WAYNE CAIN          Vice President and Treasurer;      December 22, 1997
   R. Wayne Cain          Director
                          (Principal Financial Officer)

/s/PHYLLIS E. COCHRAN     Vice President and Controller;     December 22, 1997
   Phyllis E. Cochran     Director
                          (Principal Accounting Officer)

/s/JORDAN H. FEIGER       Vice President, Operations;        December 22, 1997
   Jordan H. Feiger       Director


/s/JOHN R. HORNE          Director                           December 22, 1997
   John R. Horne


/s/THOMAS M. HOUGH        Director                           December 22, 1997
   Thomas M. Hough
</TABLE>


<PAGE>





                         NAVISTAR FINANCIAL CORPORATION
                                AND SUBSIDIARIES


                             SIGNATURES (Continued)
<TABLE>
<CAPTION>
    Signature                 Title                             Date

<S><C>                      <C>                              <C>
/s/ROBERT C. LANNERT        Director                         December 22, 1997
   Robert C. Lannert


/s/J. STEVEN KEATE          Director                         December 22, 1997
   J. Steven Keate


/s/THOMAS D. SILVER         Director                         December 22, 1997
   Thomas D. Silver
</TABLE>






<PAGE>



                         NAVISTAR FINANCIAL CORPORATION
                                AND SUBSIDIARIES


                                INDEX TO EXHIBITS

The  following  documents of Navistar  Financial  Corporation  are  incorporated
herein by reference:

3.1    Restated  Certificate of Incorporation of Navistar Financial  Corporation
       (as amended and in effect on December 15, 1987).  Filed on Form 8-K dated
       December 17, 1987. Commission File No. 1-4146-l.

3.2    The By-Laws of Navistar  Financial  Corporation (as amended  February 29,
       1988). Filed on Form 10-K dated January 19, 1989. Commission File No.
       1-4146-1.


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

4.2    Indenture dated as of May 30, 1997 by and between the Corporation and The
       Fuji Bank and Trust Company, as Trustee, for 9% Senior Subordinated Notes
       due 2002 for $100,000,000. Filed on Registration No. 333-30167.


10.1   Pooling and  Servicing  Agreement  dated as of  December  1, 1990,  among
       Navistar   Financial   Corporation,   as  Servicer,   Navistar  Financial
       Securities Corporation, as Seller, and The Chase Manhattan Bank (survivor
       in the merger  between The Chase  Manhattan  Bank and Chemical Bank which
       was the survivor in the merger  between  Chemical Bank and  Manufacturers
       Hanover Trust Company), as Trustee. Filed on Registration No. 33-36767.

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

10.3   Master  Inter-company  Agreement dated as of April 26, 1993,  between the
       Corporation and Transportation. Filed on Form 8-K dated April 30, 1993.
       Commission File No. 1-4146-1.

10.4   Inter-company Purchase Agreement dated as of April 26, 1993,  between the
       Corporation  and Truck Retail Instalment Paper Corp.  Filed on  Form  8-K
       dated April 30, 1993. Commission File No. 1-4146-1.

10.5   Purchase Agreement dated as of May 3, 1994,  between the  Corporation and
       Navistar  Financial Retail Receivables  Corporation,  as Purchaser,  with
       respect to Navistar Financial 1994-A  Owner Trust.  Filed on Registration
       No. 33-50291.





<PAGE>


                         NAVISTAR FINANCIAL CORPORATION
                                AND SUBSIDIARIES


                                INDEX TO EXHIBITS


10.6   Pooling  and  Servicing  Agreement  dated as of May 3,  1994,  among  the
       Corporation,  as Servicer,  and  Navistar  Financial  Retail  Receivables
       Corporation, as Seller, and Navistar Financial 1994-A Owner Trust, as
       Issuer. Filed on Registration No. 33-50291.

10.7   Trust  Agreement  dated as of May 3,  1994,  between  Navistar  Financial
       Retail Receivables Corporation, as Seller, and Chemical Bank Delaware, as
       Owner Trustee, with respect to Navistar Financial 1994-A Owner Trust.
       Filed on Registration No. 33-50291.

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

10.9   Purchase  Agreement  dated as of August 3, 1994,  between the Corporation
       and Navistar Financial Retail Receivables Corporation, as Purchaser, with
       respect to Navistar  Financial 1994-B Owner Trust.  Filed on Registration
       No. 33-50291.

10.10  Pooling and  Servicing  Agreement  dated as of August 3, 1994,  among the
       Corporation,  as Servicer,  and  Navistar  Financial  Retail  Receivables
       Corporation, as Seller, and Navistar Financial 1994-B Owner Trust, as
       Issuer. Filed on Registration No. 33-50291.

10.11  Trust Agreement dated as of August 3, 1994,  between  Navistar  Financial
       Retail Receivables Corporation, as Seller, and Chemical Bank Delaware, as
       Owner Trustee, with respect to Navistar Financial 1994-B Owner Trust.
       Filed on Registration No. 33-50291.

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

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

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





<PAGE>


                         NAVISTAR FINANCIAL CORPORATION
                                AND SUBSIDIARIES


                                INDEX TO EXHIBITS


10.15  Appendix A to Liquidity  Agreement  at Exhibit  10.20.  Filed on Form 8-K
       dated November 4, 1994.  Commission File No. 1-4146-1.

10.16  Collateral  Trust  Agreement  dated as of November  7, 1994,  between NFC
       Asset  Trust and Bankers  Trust  Company,  as Trustee.  Filed on Form 8-K
       dated November 4, 1994. Commission File No.1-4146-1.

10.17  Administration  Agreement dated as of November 7, 1994, between NFC Asset
       Trust  and the  Corporation,  as  Administrator.  Filed on Form 8-K dated
       November 4, 1994. Commission File No.1-4146-1.

10.18  Trust  Agreement  dated as of  November  7, 1994,  between  Truck  Retail
       Instalment  Paper Corp.,  as Depositor,  and Chemical Bank  Delaware,  as
       Owner Trustee.  Filed on Form 8-K dated November 4, 1994. Commission File
       No. 1-4146-1.

10.19  Servicing   Agreement   dated  as  of  November  7,  1994,   between  the
       Corporation,  as Servicer,  and Truck Retail Instalment Paper Corp. Filed
       on Form 8-K dated November 4, 1994. Commission File No. 1-4146-1.

10.20  Servicing   Agreement   dated  as  of  November  7,  1994,   between  the
       Corporation,  as Servicer,  and NFC Asset Trust.  Filed on Form 8-K dated
       November 4, 1994. Commission File No. 1-4146-1.

10.21  Receivables  Purchase  Agreement  dated as of November  7, 1994,  between
       Truck Retail  Instalment Paper Corp., as Seller,  and NFC Asset Trust, as
       Purchaser.  Filed on Form 8-K dated November 4, 1994. Commission File No.
       1-4146-1.

10.22  Retail  Receivables  Purchase  Agreement  dated as of  November  7, 1994,
       between  Truck  Retail   Instalment  Paper  Corp.  and  the  Corporation.
       Filed on Form 8-K dated November 4, 1994. Commission File No. 1-4146-1.

10.23  Lease  Receivables  Purchase  Agreement dated  as of  November  7,  1994,
       between   Truck  Retail  Instalment  Paper  Corp.   and Navistar Leasing
       Corporation.  Filed on Form 8-K dated  November 4, 1994.  Commission File
       No. 1-4146-1.

10.24  Purchase Agreement dated as of December 15, 1994, between the Corporation
       and Navistar Financial Retail Receivables Corporation, as Purchaser, with
       respect to Navistar  Financial 1994-C Owner Trust.  Filed on Registration
       No. 33-55865.






<PAGE>


                         NAVISTAR FINANCIAL CORPORATION
                                AND SUBSIDIARIES


                                INDEX TO EXHIBITS


10.25  Pooling and Servicing Agreement dated as of December 15, 1994, among  the
       Corporation,  as  Servicer,  and  Navistar  Financial  Retail Receivables
       Corporation,  as  Seller,  and  Navistar Financial 1994-C Owner Trust, as
       Issuer.  Filed on Registration No. 33-55865.

10.26  Trust Agreement dated as of December 15, 1994, between Navistar Financial
       Retail Receivables Corporation, as Seller, and Chemical Bank Delaware, as
       Owner Trustee, with respect to Navistar Financial 1994-C Owner Trust.
       Filed on Registration No. 33-55865.

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

10.28  Purchase Agreement dated as of May 25, 1995, between the Corporation  and
       Navistar  Financial Retail  Receivables  Corporation, as Purchaser,  with
       respect to Navistar  Financial 1995-A Owner Trust.  Filed on Registration
       No. 33-55865.

10.29  Pooling  and  Servicing  Agreement  dated as of May 25,  1995,  among the
       Corporation,  as Servicer,  and  Navistar  Financial  Retail  Receivables
       Corporation, as Seller, and Navistar Financial 1995-A Owner Trust, as
       Issuer.  Filed on Registration No. 33-55865.

10.30  Trust  Agreement  dated as of May 25, 1995,  between  Navistar  Financial
       Retail Receivables Corporation, as Seller, and Chemical Bank Delaware, as
       Owner  Trustee,  with respect to Navistar  Financial  1995-A Owner Trust.
       Filed on Registration No. 33-55865.

10.31  Indenture dated as of May 25, 1995,  between  Navistar  Financial  1995-A
       Owner Trust and The Bank of New York, as Indenture Trustee,  with respect
       to Navistar Financial 1995-A Owner Trust. Filed on Registration No.
       33-55865.

10.32  Pooling and Servicing  Agreement dated as of June 8, 1995, among Navistar
       Financial  Corporation,   as  Servicer,   Navistar  Financial  Securities
       Corporation,  as Seller, The Chase Manhattan Bank (survivor in the merger
       between The Chase Manhattan Bank and Chemical Bank which was the survivor
       in the merger  between  Chemical  Bank and  Manufacturers  Hanover  Trust
       Company),  as 1990  Trust  Trustee,  and The Bank of New York,  as Master
       Trust Trustee. Filed on Registration No. 33-87374.

10.33  Series 1995-1 Supplement to the Pooling and Servicing  Agreement dated as
       of June 8, 1995, among the Corporation,  as Servicer,  Navistar Financial
       Securities  Corporation,  as Seller,  and The Bank of New York, as Master
       Trust Trustee on behalf of the Series 1995-1 Certificateholders. Filed on
       Registration No. 33-87374.





<PAGE>


                         NAVISTAR FINANCIAL CORPORATION
                                AND SUBSIDIARIES


                                INDEX TO EXHIBITS


10.34  Class A-4  Supplement to the 1990 Pooling and Servicing  Agreement  dated
       June 8, 1995,  among the  Corporation,  as Servicer,  Navistar  Financial
       Securities  Corporation,  as Seller,  and  Chemical  Bank  (Successor  to
       Manufacturers Hanover Trust Company),  as Trustee.  Filed on Registration
       No. 33-87374.

10.35  Purchase  Agreement dated as of June 8, 1995, between the Corporation and
       Navistar Financial Securities Corporation,  as Purchaser, with respect to
       the Dealer Note Master Trust. Filed on Registration No. 33-87374.

10.36  Purchase  Agreement dated as of November 1, 1995, between the Corporation
       and Navistar Financial Retail Receivables Corporation, as Purchaser, with
       respect to Navistar  Financial 1995-B Owner Trust.  Filed on Registration
       No. 33-55865.

10.37  Pooling and Servicing  Agreement dated as of November 1, 1995,  among the
       Corporation,  as Servicer,  and  Navistar  Financial  Retail  Receivables
       Corporation, as Seller, and Navistar Financial 1995-B Owner Trust, as
       Issuer. Filed on Registration No. 33-55865.

10.38  Trust Agreement dated as of November 1, 1995,  between Navistar Financial
       Retail Receivables Corporation, as Seller, and Chemical Bank Delaware, as
       Owner Trustee, with respect to Navistar Financial 1995-B Owner Trust.
       Filed on Registration No. 33-55865.

10.39  Indenture dated as of November 1, 1995, between Navistar Financial 1995-B
       Owner Trust and The Bank of New York, as Indenture Trustee,  with respect
       to Navistar Financial 1995-B Owner Trust. Filed on Registration No.
       33-55865.

10.40  Amendment No. 1 dated  as of  March  29,  1996, to the Loan and  Security
       Agreement dated as of November 7, 1994,  between Truck Retail  Instalment
       Paper Corp.  ("TRIP") and NFC Asset Trust (the "Trust") filed on Form 8-K
       dated June 5, 1996. Commission File No. 1-4146-1.

10.41  Amendment  No. 1 and Consent dated as of March 29, 1996, to the Liquidity
       Agreement  dated as of November 7, 1994,  among NFC Asset Trust,  certain
       lenders, and Chemical Bank, as Administrative Agent for the lenders filed
       on Form 8-K dated June 5, 1996. Commission File No. 1-4146-1.





<PAGE>


                         NAVISTAR FINANCIAL CORPORATION
                                AND SUBSIDIARIES


                                INDEX TO EXHIBITS



10.42  Amendment  No. 2 dated as of March 29, 1996,  to the Amended and Restated
       Credit  Agreement  dated as of November 4, 1994,  as amended by Amendment
       No. 1 dated as of  December  15,  1995,  among the  Corporation,  certain
       banks,  certain  Co-Arranger  banks, and Morgan Guaranty Trust Company of
       New York, as Administrative Agent filed on Form 8-K dated June 5, 1996.
       Commission File No. 1-4146-1.

10.43  Purchase Agreement dated as of May 30, 1996,  between the Corporation and
       Navistar Financial Retail  Receivables  Corporation,  as Purchaser,  with
       respect to Navistar Financial 1996-A  Owner Trust.  Filed on Registration
       No. 33-55865.

10.44  Pooling  and  Servicing  Agreement  dated as of May 30,  1996,  among the
       Corporation,  as Servicer,  and  Navistar  Financial  Retail  Receivables
       Corporation, as Seller, and Navistar Financial 1996-A Owner Trust, as
       Issuer. Filed on Registration No. 33-55865.

10.45  Trust  Agreement  dated as of May 30, 1996,  between  Navistar  Financial
       Retail Receivables Corporation,  s Seller, and Chemical Bank Delaware, as
       Owner Trustee, with respect to Navistar Financial 1996-A Owner Trust.
       Filed on Registration No. 33-55865.

10.46  Indenture dated as of May 30, 1996,  between  Navistar  Financial  1996-A
       Owner Trust and The Bank of New York, as Indenture Trustee,  with respect
       to Navistar Financial 1996-A Owner Trust. Filed on Registration No.
       33-55865.

10.47  Purchase  Agreement dated as of November 6, 1996, between the Corporation
       and Navistar Financial Retail Receivables Corporation, as Purchaser, with
       respect to Navistar  Financial 1996-B Owner Trust.  Filed on Registration
       No. 33-55865.

10.48  Pooling and Servicing  Agreement dated as of November 6, 1996,  among the
       Corporation,  as Servicer,  and  Navistar  Financial  Retail  Receivables
       Corporation, as Seller, and Navistar Financial 1996-B Owner Trust, as
       Issuer. Filed on Registration No. 33-55865.

10.49  Trust Agreement dated as of November 6, 1996,  between Navistar Financial
       Retail Receivables Corporation, as Seller, and Chemical Bank Delaware, as
       Owner Trustee, with respect to Navistar Financial 1996-B Owner Trust.
       Filed on Registration No. 33-55865.




<PAGE>


                         NAVISTAR FINANCIAL CORPORATION
                                AND SUBSIDIARIES


                                INDEX TO EXHIBITS


10.50  Indenture dated as of November 6, 1996, between Navistar Financial 1996-B
       Owner Trust and The Bank of New York, as Indenture Trustee,  with respect
       to Navistar Financial 1996-B Owner Trust. Filed on Registration No.
       33-55865.

10.51  Purchase  Agreement dated as of May 7, 1997,  between the Corporation and
       Navistar Financial Retail  Receivables  Corporation,  as Purchaser,  with
       respect to Navistar Financial 1997-A Owner Trust, as Issuer. Filed on
       Registration No. 33-55865.

10.52  Pooling  and  Servicing  Agreement  dated as of May 7,  1997,  among  the
       Corporation,   as  Servicer,   Navistar   Financial  Retail   Receivables
       Corporation, as Seller, and Navistar Financial 1997-A Owner Trust, as
       Issuer. Filed on Registration No. 33-55865.

10.53  Trust  Agreement  dated as of May 7,  1997,  between  Navistar  Financial
       Retail  Receivables  Corporation,  as Seller,  and Chase  Manhattan  Bank
       Delaware,  as Owner Trustee,  with respect to Navistar  Financial  1997-A
       Owner Trust. Filed on Registration No. 33-55865.

10.54  Indenture  dated as of May 7, 1997,  between  Navistar  Financial  1997-A
       Owner Trust and The Bank of New York, as Indenture Trustee,  with respect
       to Navistar Financial 1997-A Owner Trust. Filed on Registration No.
       33-55865.

10.55  Amendment  No. 3 dated as of May 27,  1997,  to the Amended and  Restated
       Credit  Agreement  dated as of November 4, 1994,  as amended by Amendment
       No. 1 dated as of December 15, 1995 and Amendment No. 2 dated as of March
       29, 1996,  among the  Corporation.  Certain  banks,  certain  Co-Arranger
       banks,  and Morgan Guaranty Trust Company of New York, as  Administrative
       Agent  filed  on Form  8-K  dated  June  17,  1997.  Commission  File No.
       1-4146-1.

10.56  Series 1997-1 Supplement to the Pooling and Servicing  Agreement dated as
       of August 19, 1997, among Navistar  Financial  Corporation,  as Servicer,
       Navistar Financial Securities Corporation, as Seller, and the Bank of New
       York,   as  Master  Trust   Trustee  on  behalf  of  the  Series   1997-1
       Certificateholders. Filed on Registration No. 333-30737.







<PAGE>


                         NAVISTAR FINANCIAL CORPORATION
                                AND SUBSIDIARIES


                                INDEX TO EXHIBITS



10.57  Class A-5  Supplement to the 1990 Pooling and Servicing  Agreement  dated
       August 19,  1997,  among  Navistar  Financial  Corporation,  as Servicer,
       Navistar  Financial  Securities  Corporation,  as  Seller,  and The Chase
       Manhattan Bank  (survivor in the merger between The Chase  Manhattan Bank
       and Chemical Bank which was the survivor in the merger  between  Chemical
       Bank and  Manufacturers  Hanover  Trust  Company),  as Trustee.  Filed on
       Registration No. 333-30737.

10.58  Purchase  Agreement dated as of November 5, 1997, between the Corporation
       and Navistar Financial Retail Receivables Corporation, as Purchaser, with
       respect to Navistar  Financial  1997-B Owner Trust,  as Issuer.  Filed on
       Registration No. 33-64249.

10.59  Pooling and Servicing  Agreement dated as of November 5, 1997,  among the
       Corporation,  as Servicer,  and  Navistar  Financial  Retail  Receivables
       Corporation, as Seller, and Navistar Financial 1997-B Owner Trust, as
       Issuer. Filed on Registration No. 33-64249.

10.60  Trust Agreement dated as of November 5, 1997,  between Navistar Financial
       Retail  Receivables  Corporation,  as Seller,  and Chase  Manhattan  Bank
       Delaware,  as Owner Trustee,  with respect to Navistar  Financial  1997-B
       Owner Trust. Filed on Registration No. 33-64249.

10.61  Indenture dated as of November 5, 1997, between Navistar Financial 1997-B
       Owner Trust and The Bank of New York, as Indenture Trustee,  with respect
       to Navistar Financial 1997-B Owner Trust. Filed on Registration No.
       33-64249.